Category: Derivatives

Strangle

Strangle is a delta neutral trading strategy which pays off only with a large movement in the underlying market price. It consists of taking positions in call and put …

Strip and Strap

Strip: A strip is delta negative trading strategy. Being delta negative implies that the value of the strip position increases when the price of the underlying security goes down.

Straddle

Option straddle is a delta neutral trading strategy which pays off when the movement in the underlying market price is large enough to counter the combined premium of the …

Butterfly

A butterfly is a complex and low-risk trading strategy involving four options. The long trader buys two options at different strike prices and sells two options at the same …

Bull Spread

Options are risky instruments because a small movement in the underlying price translates into a large percentage change in the optionsā€™ prices. They are ideal for high-risk traders. But …

Bear Spread

A bear spread is a bearish trading strategy with limited risk and reward for the buyer. As with a bull spread, the upside and downside of a bear spread …

Swaps

A swap is a derivativeĀ instrument where the two contracting parties agree to exchange a set number of cash flows from the financial instruments owned by both the parties for …

Exotic Options

An exotic option is an over the counter (OTC) option which is more complex than commonly traded plain vanilla options in terms of the option behaviour with respect to …

Asset Backed Securities

Asset backed securities (ABS) are debt instruments collateralised by a variety of loans and obligations. These obligations usually include student loans, credit card receivables, auto loans, home equity loans …

Callable Bonds

A normal bond can be issued with embedded options. One such bond is a callable bond. A callable bond is like a normal bond but with an embedded call …