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Bullish SpreadA Bullish Spread or Bull Spread is a strategy in which the traders of options profit from the increase of the price of the underlying asset of the option. This strategy may contain both put and call options with different strike prices. In a bull call spread, an option is bought at a lower strike price while an option with the same expiry is sold at a higher price.Bull StrategyIn a Bull Strategy,         Maximum gain = High strike price − lower strike price − net premium paidWhen the price of the underlying goes above the ... Read More

The "butterfly options strategy", also called "butterfly spreads" contain both bullish and bearish options. The trader in butterfly spreads has four options having the same expiry dates but three different strike prices. The trader buys two options contracts that have a higher and lower price, and two contracts with a price in between. The difference between high and low strike price is equal to the strike price in between.A butterfly strategy contains the following −Buying or selling of Call/Put optionsCombining four option contractsSame underlying assetSame expiry dateDifferent strike prices, with two contracts at same strike priceExplanationButterfly spreads work the best ... Read More

The prices of shares keep moving up and down in the market and hence, they are called "volatile" which means not constant over time. Implied volatility means how much the price of an option will move in a given period of time. The term is more applicable in the case of options contracts.Predicting volatility is a very important issue in finance. Investors often want to know how much an option or a stock can move up or down to reap the benefits and implied volatility can help them ascertain the basics of price movements.Implied Volatility – DefinitionImplies Volatility (or IV) ... Read More

Businesses need to take various investment decisions from time to time to stay functional and competitive. These decisions not only increase the competitive edge of a company but also add new dimensions to the existing manufacturing and financial position of a company.The investments needed for growth can be divided into the following four categories −Expansion InvestmentsDiversification InvestmentsModernization InvestmentsReplacement InvestmentsExpansion InvestmentsExpansion investment is made to increase the production of a certain product. It requires the firms to increase their capacity to manufacture or build a new production line to expand the current business volume. Expansion is often required when the demand ... Read More

American vs. European Stock OptionsAmerican and European stock options have some similar qualities but their differences are equally important. For instance, American-style options owners may exercise their options at any time before the option expires, while European-style options owners may exercise their rights only at expiration or maturity.Most equity options are American-style options and they are traded mainly in an Exchange. However, many broad-based equity indices, such as the S&P 500, deal in actively traded European-style options.There are some major differences between American and European options. Here are some of them.MeaningEuropean Option − European Option lets the option holder the ... Read More

What is Beta in Finance?The beta (β) of a stock or any other investment security is a calculation of its volatility of returns in comparison to the entire market. It is utilized as a calculation of risk and is an important part of the Capital Asset Pricing Model (CAPM). A stock with a greater beta has greater risk as well as greater expected returns.The beta coefficient can be understood as follows −β = 1 − Beta exactly as volatile as the marketβ < 1 − Beta is less volatile than the marketβ > 1 − Beta is more volatile than ... Read More

An option that has stock as its underlying asset is called a "stock option." There is another type of option that deals in the index, known as the "index option." The payoffs or risk-rewards that are appropriate for stock options are applicable in the case of other options as well as put options.Stock options are a derivative where the underlying asset is a stock, such as RIL or SBI.Stock options have respective sizes, different strike prices, and different times in which they must be executable.Options are like futures, but unlike futures, the profits and losses in options are not linear ... Read More

What is Beta of a Company?The "beta" of a company is an indicator of how sensitive the stock prices of the company are to systematic risk. Systematic risks are usually measured by looking at the return on a "market portfolio, " a portfolio that contains enough stocks and other investment securities. A market portfolio is diversified enough so that all the firm-specific risks are assumed to cancel each other out so that returns are affected only by systematic risks.In other words, the Beta of a company’s stock is relevant to its nature of business, as systematic risks are related to ... Read More

Financial leverage is used to buy more debt to buy more assets. However, an excessive amount of financial leverage increases the risk of failure, as it is more difficult to repay debt. Most of the companies have some level of financial leverage, however caution must be taken not to overdo it. In case of financial leverage, the beta value goes up with increased leverage which may point towards distress or issues with the financials.What is the main advantage of financial leverage?Corporate firms utilize financial leverage mainly to increase the company’s Earnings Per Share (EPS) and to increase its Return On ... Read More

All options have an underlying asset, such as a stock, an exchange-traded fund, or a future, the values of which change over time. The value of an option, therefore, also change along with the underlying asset. Depending on the price of the underlying asset, an option can be in-the-money, outof-the-money, or at-the-money situation. Each of these situations offers an intrinsic value to the option.In-the-Money (ITM) OptionITM option contracts have an intrinsic value.If a call option that offers the buyer the right to buy an asset at a set price before a deadline has an underlying asset the price of which ... Read More