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Trading Bermuda Style OptionsBy www.options-trading-education.com
An options style that fallshalfway between American  style stock options andhttp://www.options-trading-education.com/7069/...
European style stock options  is trading Bermuda style           options. http://www.options-trading-education.com/7069/tr...
Trading Bermuda style options          happens withstocks, futures, and, especially     , interest rate swaps.  http://www...
How does it fit “halfway”between the other two styles? http://www.options-trading-education.com/7069/trading-bermuda-style...
One can execute Americanstyle stock options at any time during the contract period of          the option. http://www.opti...
One can only execute aEuropean style contract at       expiration.http://www.options-trading-education.com/7069/trading-be...
When trading Bermuda styleoptions, an options buyer hasa number of specific dates on http://www.options-trading-education....
which he can execute thecontract up to and including at  expiration of the contract.  http://www.options-trading-education...
Buying and Selling Puts andCalls when Trading Bermuda       Style Options http://www.options-trading-education.com/7069/tr...
Aside from the issue of when     one can execute the  contract, trading Bermudastyle options works like other       option...
Traders can either buy or sell    an options contract. http://www.options-trading-education.com/7069/trading-bermuda-style...
Contracts are either puts orcalls. A put gives the buyer the right to execute the contractand sell the equity underlying  ...
A call gives the buyer the right to execute the contract andbuy the equity underlying the            contract.  http://www...
In each case the seller of the options contract is obligatedto buy in the case of a put and http://www.options-trading-edu...
sell in the case of a calldepending on the wishes of          the buyer.http://www.options-trading-education.com/7069/trad...
The seller is paid to take thisrisk. The value of an optionscontract is based on the fact http://www.options-trading-educa...
that the contract specifies the price at which the underlyingequity will be bought or sold if     the buyer so chooses.  h...
If a buyer of a call contract buys an $80 call on a stockthat currently trades for $80     he will pay very little.http://...
This is because if he turnsright around and executes the  contract and then sells the  stock he will not make any         ...
If the price of the underlyingstock goes up, the buyer maywant to execute the contract http://www.options-trading-educatio...
in order to cash in on hisgains, fearing that the stock      might fall again.http://www.options-trading-education.com/706...
With an American styleoptions contract this is always          possible. http://www.options-trading-education.com/7069/tra...
With a European stylecontract it is not possible until  expiration. However, when       trading Bermuda  http://www.option...
style options, there will be aset of dates prior to expiration   on which the trader can execute in order in order to     ...
Likewise with puts, the tradercan take advantage of a fall in stock price and execute on a http://www.options-trading-educ...
date specified by the options   contract when trading   Bermuda style options. http://www.options-trading-education.com/70...
Contract Value when Trading  Bermuda Style Options http://www.options-trading-education.com/7069/trading-bermuda-style-opt...
Options buyers try to pick themost advantageous times for execution of options trades. http://www.options-trading-educatio...
The value of the optionscontract depends on the price specified in the contract andon the current market price of        t...
It also depends on the amount     of time remaining until           expiration. http://www.options-trading-education.com/7...
This is called the time value of   the contract. When the market believes that a stock http://www.options-trading-educatio...
may well move up in price thistime value may be substantialin bringing up the value of an       options contract. http://w...
Taking advantage of market  sentiment as regards timevalue when trading Bermuda            style http://www.options-tradin...
options lies halfway betweenthe situation for American and  European style, better than   European and worse than         ...
With these basic optionstrading facts in mind be aware   of the differences when http://www.options-trading-education.com/...
trading Bermuda style options    instead of American or          European. http://www.options-trading-education.com/7069/t...
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Trading Bermuda Style Options

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http://www.options-trading-education.com/7069/trading-bermuda-style-options/

Trading Bermuda Style Options

An options style that falls halfway between American style stock options and European style stock options is trading Bermuda style options. Trading Bermuda style options happens with stocks, futures, and, especially, interest rate swaps. How does it fit “halfway” between the other two styles? One can execute American style stock options at any time during the contract period of the option. One can only execute a European style contract at expiration. When trading Bermuda style options, an options buyer has a number of specific dates on which he can execute the contract up to and including at expiration of the contract.

Buying and Selling Puts and Calls when Trading Bermuda Style Options

Aside from the issue of when one can execute the contract, trading Bermuda style options works like other options trading. Traders can either buy or sell an options contract. Contracts are either puts or calls. A put gives the buyer the right to execute the contract and sell the equity underlying the contract. A call gives the buyer the right to execute the contract and buy the equity underlying the contract. In each case the seller of the options contract is obligated to buy in the case of a put and sell in the case of a call depending on the wishes of the buyer. The seller is paid to take this risk. The value of an options contract is based on the fact that the contract specifies the price at which the underlying equity will be bought or sold if the buyer so chooses. If a buyer of a call contract buys an $80 call on a stock that currently trades for $80 he will pay very little.

This is because if he turns right around and executes the contract and then sells the stock he will not make any money. If the price of the underlying stock goes up, the buyer may want to execute the contract in order to cash in on his gains, fearing that the stock might fall again. With an American style options contract this is always possible. With a European style contract it is not possible until expiration. However, when trading Bermuda style options, there will be a set of dates prior to expiration on which the trader can execute in order in order to pocket his profits. Likewise with puts, the trader can take advantage of a fall in stock price and execute on a date specified by the options contract when trading Bermuda style options.

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Transcript of "Trading Bermuda Style Options"

  1. 1. Trading Bermuda Style OptionsBy www.options-trading-education.com
  2. 2. An options style that fallshalfway between American style stock options andhttp://www.options-trading-education.com/7069/trading-bermuda-style-options/
  3. 3. European style stock options is trading Bermuda style options. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  4. 4. Trading Bermuda style options happens withstocks, futures, and, especially , interest rate swaps. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  5. 5. How does it fit “halfway”between the other two styles? http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  6. 6. One can execute Americanstyle stock options at any time during the contract period of the option. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  7. 7. One can only execute aEuropean style contract at expiration.http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  8. 8. When trading Bermuda styleoptions, an options buyer hasa number of specific dates on http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  9. 9. which he can execute thecontract up to and including at expiration of the contract. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  10. 10. Buying and Selling Puts andCalls when Trading Bermuda Style Options http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  11. 11. Aside from the issue of when one can execute the contract, trading Bermudastyle options works like other options trading. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  12. 12. Traders can either buy or sell an options contract. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  13. 13. Contracts are either puts orcalls. A put gives the buyer the right to execute the contractand sell the equity underlying the contract. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  14. 14. A call gives the buyer the right to execute the contract andbuy the equity underlying the contract. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  15. 15. In each case the seller of the options contract is obligatedto buy in the case of a put and http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  16. 16. sell in the case of a calldepending on the wishes of the buyer.http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  17. 17. The seller is paid to take thisrisk. The value of an optionscontract is based on the fact http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  18. 18. that the contract specifies the price at which the underlyingequity will be bought or sold if the buyer so chooses. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  19. 19. If a buyer of a call contract buys an $80 call on a stockthat currently trades for $80 he will pay very little.http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  20. 20. This is because if he turnsright around and executes the contract and then sells the stock he will not make any money. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  21. 21. If the price of the underlyingstock goes up, the buyer maywant to execute the contract http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  22. 22. in order to cash in on hisgains, fearing that the stock might fall again.http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  23. 23. With an American styleoptions contract this is always possible. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  24. 24. With a European stylecontract it is not possible until expiration. However, when trading Bermuda http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  25. 25. style options, there will be aset of dates prior to expiration on which the trader can execute in order in order to pocket his profits. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  26. 26. Likewise with puts, the tradercan take advantage of a fall in stock price and execute on a http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  27. 27. date specified by the options contract when trading Bermuda style options. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  28. 28. Contract Value when Trading Bermuda Style Options http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  29. 29. Options buyers try to pick themost advantageous times for execution of options trades. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  30. 30. The value of the optionscontract depends on the price specified in the contract andon the current market price of the underlying. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  31. 31. It also depends on the amount of time remaining until expiration. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  32. 32. This is called the time value of the contract. When the market believes that a stock http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  33. 33. may well move up in price thistime value may be substantialin bringing up the value of an options contract. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  34. 34. Taking advantage of market sentiment as regards timevalue when trading Bermuda style http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  35. 35. options lies halfway betweenthe situation for American and European style, better than European and worse than American. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  36. 36. With these basic optionstrading facts in mind be aware of the differences when http://www.options-trading-education.com/7069/trading-bermuda-style-options/
  37. 37. trading Bermuda style options instead of American or European. http://www.options-trading-education.com/7069/trading-bermuda-style-options/
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