Options spreads are strategies that use various combinations of buying and selling different options for the desired risk-return profile. Spreads are constructed usingvanilla options, and can take advantage of various scenarios such as high- or low-volatility environments, up- or down-moves, or anyt...
Both types of spreads help investors assess risk and make decisions, but term spreads provide insights into the broader interest rate environment and expectations for future economic conditions. For example, a narrowing term spread may suggest that investors expect stable or declining interest rates, w...
Through the regular options strategy where one can either buy a call or put depending on whether they are bullish or bearish, financial engineering has created new strategies within the options spectrum, providing more possibilities to hedge or make profits. Examples of options strategies born out o...
Options can be an effective tool forhedgingas they allow investors to protect their investments against downside risk while retaining the possibility of upside gain. Typically, hedging involves taking an offsetting position in a related security, such as a call or put option. Suppose you're a por...
Investopedia / Jiaqi Zhou Understanding Options Contracts Options contracts are valued based on theunderlying securities. These contracts allow the buyer to buy or sell—depending on the type of contract they hold—the underlying asset at a price set out in the agreement, either within a specific ...
Image by Julie Bang © Investopedia 2019 Benefits: Paul pays (LIBOR+0.5%) to the lender and 10.10% to the bank, and receives LIBOR from the bank. His net payment is 10.6% (fixed). The swap effectively converted his original floating payment to a fixed rate, getting him the most econom...
Options Market The options market allows traders to buy or sell currency options, which give the holder the right, but not the obligation, to exchange currency at a specific rate before a certain date.11 Here are some features of theforex options market: ...
Investors always know exactly how many units they're buying with each contract with this kind of standardization. They can easily assess what price per unit they're paying. Valuing and trading options would be needlessly cumbersome and time consuming without such standardization. ...
Types of Butterfly Spreads Long Call Butterfly Spread The long butterfly call spread is created by buying one in-the-money call option with a low strike price,writingtwo at-the-money call options, and buying oneout-of-the-moneycall option with a higher strike price. Netdebtis created when...
Investopedia / Yurle Villegas Understanding Bond ETFs Bond ETFs trade throughout the day on a centralized exchange, unlike individual bonds, which are sold over the counter by bond brokers. The structure of traditional bonds makes it difficult for investors to find a bond with an attractive price...