Welcome To Options Trading For Newbies
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| TECHNICAL ANALYSIS - Method of predicting future price movements based on historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume. THEORETICAL VALUE, THEORETICAL PRICE - This is the mathematically calculated value of an option. It is determined by (1) the strike price of the option) the current price of the underlying, (3) the amount of time until expiration, (4) the volatility of the underlying, and (5) the current interest rate. THETA - The sensitivity of the value of an option with respect to the time remaining to expiration. It is the daily drop in dollar value of an option due to thee ect of time alone. Theta is dollars lost per day, per contract. Negative Theta signifies along option position (or a debit spread positive Theta signifies a short option position (or a credit spread). TICK - The smallest unit price change allowed in trading a specific security. This varies by security, and can also be dependent on the current price of the security. TIME DECAY - Term used to describe how the theoretical value of an option “erodes” or reduces with the passage of time. Time decay is quantified by Theta. TIME PREMIUM - Also known as Time Value, this is the amount that the value of an option exceeds its intrinsic value and is a parameter in the Matrix. It reflects the statistical possibility that an option will reach expiration with intrinsic value rather than finishing at zero dollars. If an option is out-of-the-money then its entire value consists of time premium. Download 1.29 Mb. Share with your friends:
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