- Futures vs. Forex: Key Differences and Market Examples
Futures and forex markets are both popular options for investors looking to trade financial assets, but they differ in key ways. Futures involve standardized contracts to buy or sell assets at a set price on a future date, while forex focuses on the exchange of currencies. Each market offers unique opportunities, risk factors and trading… read more…
- What Are Weather Futures and How Do They Work?
Weather futures are financial contracts that allow investors and businesses to hedge against unexpected weather conditions. These futures are typically linked to measurable weather events, such as temperature fluctuations, rainfall amounts or snowfall levels, and they are traded on commodities exchanges similar to other derivatives. Weather futures can be especially useful for industries directly impacted… read more…
- Differences of Forward Market vs. Spot Market
The forward market and spot market offer two distinct approaches to trading assets, differing by timing, risk and pricing structure. In a spot market, transactions are settled “on the spot,” meaning buyers and sellers agree on a price, and the asset changes hands almost immediately. On the other hand, the forward market involves agreements to… read more…
- What Is a Naked Put in Options Trading?
A naked put is an options trading strategy where an investor sells a put option contract without owning the underlying security. It involves taking on the obligation to buy the underlying asset at a predetermined price, which is called the strike price, if the option is exercised by the option buyer. The term “naked” indicates… read more…
- What Is a Short Squeeze?
A short squeeze is a rapid increase in the price of a stock resulting from a lack of supply and an excess of demand. Typically, short sellers (those who have borrowed and sold stocks they believed would fall in value) scramble to buy them back as the prices start rising, contributing to further price hikes.… read more…
- Forward Rate vs. Spot Rate: Key Differences for Investors
Both forward and spot rates tend to act as navigation tools in the diverse world of investments. Primarily, the forward rate indicates forecasted interest rates, while the spot rate provides the exact, current market rate for immediate transactions. These data help investors price debt securities, manage looming interest rate risks and make well-informed investment decisions.… read more…
- What Is a Forward Rate?
A forward rate can be one of two things. In most usage, forward rates estimate the interest that an investment or loan will pay in the future. You can use it to predict the yield you will get on a… read more…
- Buy to Open vs. Buy to Close: Investment Guide
Buying to open is when you purchase a new options contract and assume either a long or short position. Conversely, buying to close is when you purchase an existing options contract that matches a contract you sold. In doing so… read more…
- How Do Employee Stock Options Work?
Stock options are something most people have heard of, but you might not know exactly how they work. In brief, stock options are a type of alternative compensation that some companies, including many startups, offer as part of their package… read more…
- Pros and Cons: Forex vs Options
Forex (foreign exchanges) and options contracts are two of the most complicated asset classes on the market. While the explosion of low-cost trading platforms has democratized access to these product, they haven’t become any easier to understand or less risky… read more…
- When Is Quadruple Witching Day? Should You Invest?
The phrase quadruple witching brings to mind stories that begin, “It was a dark and stormy night…” or folkloric visions of witches flying chaotically on broomsticks across the brightness of a moon. In the context of investing, quadruple witching also… read more…
- What Is a Volatility Smile?
The volatility smile is a visual representation of the implied volatilities of options contracts that expire on the same date. The appearance of a volatility smile indicates that options traders are willing to pay more for options that are in… read more…
- Can You Trade Options in a Roth IRA?
The owner of a Roth IRA can trade options using funds in the account, but restrictions and risks make the strategy unlikely to meet the objectives of most investors. A Roth IRA is a tax-advantaged account designed for long-term retirement… read more…
- Fidelity Opens Direct Indexing Option to Retail Investors
Building wealth has grown more accessible than ever, thanks to declining trading costs and fractional share investing. Many brokerage firms already offer zero-commission online and exchange-traded fund (ETF) trading, and now, behemoth financial firm Fidelity Investments has brought one more… read more…
- How Startup Stock Options Work
Startups often give employees stock options as a potential perk to working for the company, especially if they can’t afford to pay larger salaries. Stock options with a startup company are a little bit like a lottery ticket. If the… read more…
- Selling Puts for Income: Investing Guide
Investors who sell options contracts make their money off contract premiums that the buyer pays. As long as the buyer doesn’t exercise their contract, or if they exercise it for less than what they paid in premiums, you make money.… read more…
- 7 Options Income Strategies to Consider
When it comes to the stock market, there’s investing and there’s trading. While many people invest their money for the long term, some trading strategies can generate income in the short term. One way to do that is by trading… read more…
- What Options You Can Trade in a Retirement Account
Trading options in a retirement account is uncommon because options are a fairly active asset and most people take a passive investing strategy when it comes to their retirement accounts. In part, it’s also because IRS rules foreclose most forms… read more…
- This Options Strategy Bakes in Risk Protection
A married put is an options trading strategy in which investors hold both a put contract for a stock and shares of the stock itself. By marrying the two together, the investor builds in some downside protection. Sometimes referred to as protective puts, married puts are typically used as a bullish hedge. If you’re interested… read more…
- What Are Non-Statutory Stock Options?
Stock options are a way to reward employees with increased compensation. This also encourages employees to think about themselves as stakeholders in the company’s success and act accordingly. One form of stock options is non-statutory stock options (NSOs), which are… read more…
- Exercising Stock Options
Stock options have gained significant traction as a preferred form of employee compensation in recent years, offering a unique way to align employee interests with company performance. These options grant employees the right to purchase company shares at a predetermined price, often referred to as the “strike price,” at a future date. By tying compensation… read more…
- What Happens to Options When a Stock Splits?
An investor who owns call options on a stock that splits will wind up owning more options on the stock. However, having a larger number of options won’t increase the value of the options. That’s because the price of the underlying stock will be decreased when the stock splits. The change in stock price is… read more…
- American vs. European Options: Key Differences
Trading options, which are a type of derivative security, may appeal to investors who are comfortable taking on more risk for the potential to earn higher returns. It’s helpful to understand certain options trading terminology before diving in, including the difference between American and European style options. The two share some similarities but they differ… read more…
- What’s Contango and What Does It Tell Investors?
Investors trade in commodities as a way to diversify their portfolios and take advantage of the price fluctuations of goods. Commodities are broadly categorized as one of four types – metal, energy, livestock and meat and agricultural. You can invest in commodities through futures contracts, options and exchange-traded funds (ETFs). When trading in commodity futures,… read more…
- How Investors Use the CBOE Volatility Index
The CBOE Volatility Index (VIX) gives investors a measure of how much the stock market is expected to fluctuate over the next 30 days. VIX is often called the “fear index,” because it can indicate the level of investor concern. A higher VIX indicates an expectation of larger price moves up or down. A lower… read more…