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Gamma is the rate at which the delta of an option changes, based on a change in the price of the delta by one pip. This is a second order risk factor, sometimes known as delta delta. Gamma is at its highest when the option is in the money, and at its lowest when it is further out of the money. The gamma is also higher for options with a closer expiration date than for options with a later date, all other things being equal. Gamma is used when trying to estimate how changes in the underlying asset will affect the monetary value of an option. Delta gamma hedging protects an option position from changes in the underlying asset. Asset Swapped Convertible Option Transaction (ASCOT)
September 25, 2022 A Convertible Asset Substitution Option Transaction, or ASCOT, is a way of separating the fixed income and equity components from a convertible bond. Bear Put Spread
September 25, 2022 A bearish put spread is an option strategy implemented by a bearish investor who wants to maximize profits with minimal losses. Bear Spread
September 25, 2022 A bear spread is a bear option strategy used when an investor expects a moderate decline in the price of the underlying asset. Bermuda Option
September 25, 2022 The Bermuda option can be exercised early, but only on certain dates before its expiration date. Bull Put Spread
September 25, 2022 Bull Spread Put is an option strategy that is used when an investor expects a moderate increase in the price of the underlying asset. Collar
September 25, 2022 A collar is an options strategy that involves buying a put option down and selling a put option up, which is used to protect against large losses but also cap large profits up. Currency Swap
September 25, 2022 A currency swap involves the exchange of interest - and sometimes principal - in one currency for the same thing in another currency. Dow Jones CDX
September 25, 2022 The Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of single issuer credit default swaps in the US and emerging markets. Full Ratchet
September 25, 2022 A full ratchet is an anti-dilution provision that applies the lowest selling price as the option’s adjusted price or conversion rate to existing shareholders. Gamma Hedging
September 25, 2022 Gamma hedging is a complex option strategy used to reduce the exposure of an option position to significant movements in the underlying security. Heston Model
September 25, 2022 The Heston model is an option pricing model that uses stochastic volatility. Interest Rate Collar
September 25, 2022 The interest rate collector uses option contracts to hedge interest rate risk to protect floating rate borrowers from rate hikes or lenders from falling rates in the event of a reverse collar. Iron Butterfly
September 25, 2022 Iron Butterfly trades are used as a way to profit from price movements within a narrow range during a period of reduced implied volatility. Knock-In Option
September 25, 2022 A knock-in option is a type of barrier option that is triggered only after the price of the underlying asset reaches a certain predetermined barrier. Kurtosis
September 25, 2022 Kurtoz describes the “fatness” of tails found in probability distributions. Leads and Lags
September 25, 2022 Leads and lags refer to the timing of payments under international business agreements to take advantage of expected changes in the exchange rate. Long Straddle
September 25, 2022 A long straddle is an option strategy that involves buying both a long call and a long put on the same underlying asset with the same expiration date and strike price. OTC Options
September 25, 2022 OTC options are exotic options that are traded on the OTC market and not on a formal exchange like option contracts traded on an exchange. One-Touch Option
September 25, 2022 A one-touch option pays a premium to the option holder if the spot rate reaches the strike price at any time before the option expires. Option Series
September 25, 2022 A series of options refers to a group of options on a given underlying security with the same specified exercise price and the same expiration month. Option-Adjusted Spread (OAS)
September 25, 2022 The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS or callable, and the yield on a Treasury bond. Overwriting
September 25, 2022 Repricing is the strategy of selling (rewriting) overpriced options on the assumption that the options will not be exercised. Preemptive Rights
September 25, 2022 Preemptive rights in the US are usually an incentive for early investors and a way to offset some of the investment risks. Roll Back
September 25, 2022 A pullback involves exiting an existing derivatives position in order to replace it with a similar position, but with a closer maturity. Structured Note
September 25, 2022 A structured note is a debt obligation that also contains an embedded derivative component that adjusts the risk/reward ratio of the security.