- Understanding How a Risk Reversal Works
Risk reversal can be used as a hedging strategy for options trading. An investor buys one option and writes or sells another within the same expiration month. This type of strategy is designed to help options traders minimize downside risk when taking long or short positions. It’s typically more common to seek risk reversals used… read more…
- Futures vs. Stocks: Key Differences
Futures and stocks are two of the major classes of financial assets available to retail investors. They each may offer returns on your investments, but for different reasons. Both have significant risks, but futures are generally considered riskier than stocks.… read more…
- Warrants vs. Options: Which Should You Buy?
Publicly traded companies can issue stock warrants and stock options to attract investors and raise capital. A warrant gives an investor the right to buy a stock at a set price by a specific date. A stock option conveys the right to buy or sell a stock at a certain price by a predetermined date.… read more…
- How Does a Strangle Option Work?
The strangle is an options strategy that you create out of multiple options contracts to maximize your upside while minimizing your risk. With the strangle, you generally believe you know which direction the underlying asset will move. Your position emphasizes this expected movement, but at the same time you open a second option contract to hedge your… read more…
- How Does a Straddle Option Work?
The straddle is an options trading strategy, so named for the shape it makes on a pricing chart; your position literally “straddles” the price of the underlying asset. With the straddle, you trade on the expectation of volatility. This position profits if prices change in a big way, and it tends to lose money if prices… read more…
- Investing in Options vs. Stocks: Which Is Best for You?
Trading stocks and buying options are two types of investments, though the former is more common than the latter. Each one has strengths, and each one carries potential downsides. The differences don’t preclude investors taking advantage of what each one has to offer. Here’s what you need to know about these two financial moves. Consider… read more…
- What Are Micro Futures and How Are They Traded?
Micro futures offer a way for investors to engage with the broader stock market. These contracts are designed to be affordable for individual investors, providing access to futures trading on the major market indexes, which have become prohibitively expensive for many. We’ll review what micro futures are and how they function. If you’re considering incorporating… read more…
- Understanding How Futures Are Traded
Futures trading is a fast-paced, risky and sometimes lucrative strategy that is most often used for hedging and speculation. Futures contracts are the trading vehicle. They call for the purchase or sale of an asset at some future date but at a price that is fixed today. The world’s largest marketplace for futures trading, CME… read more…
- Futures vs. Forwards: Key Differences
Futures and forwards offer an alternative to traditional stock investing. Both are types of derivative investments, in that their values are based on the value of underlying assets. Regardless of whether you’re investing in futures vs. forwards, both involve an agreement to buy and sell an asset at in the future. Here’s what you need… read more…
- What Is an Option Premium?
An option premium is the fee that the buyer of an option contract pays for the right to buy or sell stocks or other securities at a pre-set price when the contract’s time limit expires. From the perspective of the option seller, the premium is the fee received in exchange for the obligation to buy… read more…
- In the Money vs. Out of the Money: What Is the Difference?
When trading options, it’s important to understand the difference between in the money vs. out of the money. In simple terms, this is a way to measure an option’s intrinsic value, relative to the underlying asset’s current price. Knowing the difference between the two and when an option is in the money or out of… read more…
- How Do Investors Use Protective Puts?
A protective put might be the closest you can come to having your cake and eating it too, at least as far as finance is concerned. It is a strategy based on the elective nature of options contracts, in which the investor buys both a put-position options contract and a long position in the underlying… read more…
- How Do Iron Butterfly Options Trades Work?
The iron butterfly options trading strategy aims to profit investors during periods of low volatility. Also known as the “short iron butterfly” or the “iron fly,” the strategy makes its money off price stability. As an investor, you open several… read more…
- How Implied Volatility Is Used and Calculated
When trading stocks or stock options, there are certain indicators you may use to track price momentum. Implied volatility, which measures how likely a security’s price is to change, can be useful for determining whether the market is set for… read more…
- How Does an Iron Condor Strategy Work?
The iron condor is a strategy in options trading. As with all options strategies, it is based on assembling a position out of several contracts. In this case, the iron condor is built out of four contracts: two short positions… read more…
- Best Futures Trading Platforms
A futures contract is one of the most complex and riskiest securities traded today. That’s because if you hold the wrong side of a futures contract, your losses aren’t capped by an up-front purchase price. Instead, your gains or losses are… read more…
- Best Options Trading Platforms
Options, which fall in the category of derivatives, have become one of the hottest securities online. In part, this has to do with the rise of commission-free trading. Many services offer cheap trades on options contracts because, like equities, they make… read more…
- How to Use Option Greeks to Measure Risk
Trading options is something you might consider if you’re interested in providing you’re an active trader. This speculative investment strategy involves buying the right to buy or sell a security, rather than purchasing the security itself. Before venturing in, it’s… read more…
- What Is a Gamma Squeeze?
When stock prices experience rapid shifts, the conditions may be ripe for a squeeze. In this scenario, investors may find themselves buying or selling shares of stock outside their normal trading pattern in order to minimize losses. A gamma squeeze… read more…
- What Is a Bollinger Band?
When researching stocks, there are two approaches you can use: fundamental analysis and technical analysis. The former focuses on the financial health of a company while the latter focuses on how the company’s shares are trading. Bollinger Bands are one… read more…
- What Are Managed Futures?
Investing in futures is a way to benefit from stock market movements without actually owning a particular security. Managed futures is considered an alternative investment strategy that can be used as a hedging tool within a portfolio. Though there are… read more…
- How a Smart Beta Investing Strategy Works
Smart beta knows that every investor wants to beat the market. Few actually pull it off. Most of the time, a long-term, passive strategy built around reliable index funds will outperform most active trading schemes. Most of the time. Yet… read more…
- Delta Neutral Investing: What You Need to Know
In options trading, “delta” represents volatility. It is one of a set of variables, collectively known as “the Greeks, that traders use to assess the risk of a derivative. Here’s what you need to know about delta-neutral investing and how… read more…
- What Is a Forward Contract and How Do They Work? Definition and Example
A forward contract is an agreement between two parties to buy or sell an asset at a specified price at a fixed date in the future. This investing strategy is a bit more complex and may not be used by the everyday… read more…
- How Does a Credit Default Swap Work?
Credit default swaps are a portfolio management tool that gained notoriety during the peak of the 2008 financial crisis. These derivative investments are bit more complex than stocks, mutual funds or bonds, but they can be an effective way to… read more…