An option gives the buyer the right, but not an obligation, to buy or sell the underlying asset at a predetermined price (Strike Price) on a specified date in the future (Expiry). The buyer pays the seller a premium at the time of entering into the contract.
What is options spread?
An options spread is when the investor buys as well as sells options of the same underlying security but of different strike prices and/or different expiries.
What is an options debit spread?
A debit spread occurs when the investor buys options with a higher premium and sells options with a lower premium thereby resulting in a net premium outflow.
What is an options credit spread?
A credit spread occurs when the investor buys options with a lower premium and sells options with a higher premium, thereby resulting in a net premium inflow.
What is the impact of moneyness on options premium?
It is widely seen that ITM options command the highest premium, followed by ATM options and lastly by OTM options.
What does Premium mean in options?
Premium is the downpayment that the buyer is required to make to the seller for entering into the options contract.