ASIC Suspends Retail OTC Derivative Licenses of Several Companies With Change of Shareholding

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Contents

OTC Rates Derivatives Clearing –

reduced counterparty risk and lower regulatory capital costs

CCP clearing of OTC rates derivatives streamlines your clearing & reporting process.

Nasdaq Nordic offers clearing of interest rate swaps and overnight index swaps and forward rate agreements. We are authorized by ESMA to offer clearing services related to OTC interest rate derivatives denominated in SEK, DKK, NOK and EUR.

Central Clearing Reduces Counterparty Risk

Central counterparty clearing of OTC derivatives has several advantages compared to non-centrally cleared derivatives:

  • Reduced counterparty risk.
  • Margin efficiency across exchange-listed and OTC interest rate derivatives.
  • Compression and netting opportunities.
  • Performing transactions with a wider number of counterparties.
  • Lower regulatory capital costs.

The service supports both self-clearing for members and client clearing in the existing clearing model operated by Nasdaq with a wide range of alternatives for account segregation and portability.

Cur rent Members

Current OTC rates clearing members are:

  • Danske Bank
  • Svenska Handelsbanken
  • Nordea
  • Skandinaviska Enskilda Banken
  • Swedbank
  • Swedish National Debt Office

Compression and Netting Service

Nasdaq Clearing offers a Compression Service in cooperation with TriOptima. Current cycle frequency for SEK denominated swaps is annually. In parallel a Netting Service is available each clearing day during the opening hours of the clearing system. Learn more on the Compression and Netting Service.

Cleared Products

Nasdaq offers clearing of interest rate swaps and overnight index swaps in SEK. The trade characteristics eligible for clearing for each class of swap are described below.

INTEREST RATE SWAPS (SEK-DENOMINATED)

  • Fixed-Float
  • Forward starting
  • Front and/or Back Stubs
  • Linear interpolation of stub periods
  • IMM and EOM rolls
  • Spread on the floating leg
  • Negative float and fixed rates
  • Variable notional amounts and fixed rates
  • All relevant day count fractions
  • Variable notional amounts and fixed rates
  • Maturity up to 30Y
  • Start day can be set per leg
  • Backloading

OVERNIGHT INDEX SWAP/STINA (SEK-DENOMINATED)

Clearing is available for overnight index swaps denominated in SEK against T/N STIBOR ™ (STINA Swaps). Nasdaq supports overnight index swaps with the following characteristics:

  • Contract settled against T/N STIBOR ™
  • All relevant day count fractions
  • Maturity up to 10Y
  • Spread on floating leg
  • Fixed-Float
  • Forward starting
  • Front and back stubs
  • Negative float and fixed rates
  • Backloading

Rules & Regulations

Nasdaq provides clearing of OTC derivatives in the existing regulatory framework developed for derivatives clearing. The Rules and Regulations of Nasdaq Derivatives Markets govern Nasdaq Stockholm’s derivative exchange and clearing activities.

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The “derivative rules” comprise the rules and regulations that pertain to clearing of instruments with flexible features related to expiry and cash flow dates including the eligibility criteria for Clearing Members and Direct Pledge Customers wishing to clear these instruments, as well as a complete description of the contract specifications.

Instruments designated as “OTC Rates” are characterized by a wide range of alternatives, adding flexibility catering for the needs of our customers. This contrasts with the listed contracts where the expiry and cash flow dates are predefined and the two parties in a deal only agree on the price/yield. In order to distinguish between listed contracts and “OTC Rates contracts”, Nasdaq has labeled “OTC” derivatives as Generic in the Rules and Regulations.

The latest version of the Rules and Regulations is always available on the Derivative Rules page. The Loss Sharing Rules are available in Appendix 17 in the Clearing Rules.

ПОМОГИТЕ ПОЖАЛУЙСТА. я в этом во всем хлебушек(
26
The direct exchange of goods ___________ goods would raise all sorts of problems.
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Question 27
Money allows us to exchange hours of labour___________ goods and services.
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Question 28
These employees were not satisfied ___________ the working conditions.
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Question 29
She always looks very _____________ in her smart suits.
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Question 30
The profits are distributed ___________ the members as dividends ___________ their shareholding.
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Question 31
The President’s ______________ reforms have put a lot of people out of work.
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Question 32
What makes managers give ___________ their high salary, company car and pension, and risk everything in order to set ___________ on their own?
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Question 33
He is solely responsible ___________ the success of the business.
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Working capital consists ___________ the stocks of raw materials.
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A lack of competition can lead ___________ inefficiency.
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The fridge did not work well and was sent back to the ______________.
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Question 37
Economists study our everyday lives ___________ order to understand the whole economic system.
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If we don’t _________________ on electricity, there will be power cuts.
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Question 39
People _________natural resources at an alarming rate.
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Question 40
This explains the reason __________ state ownership ___________ public utilities in many countries.
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Ответ

Проверено экспертом

26 The direct exchange of goods for goods would raise all sorts of problems.

27 Money allows us to exchange hours of labour for goods and services.

28 These employees were not satisfied with the working conditions.

29 She always looks very professional in her smart suits.

30 The profits are distributed to the members as dividends on their shareholding.

31 The President’s economic reforms have put a lot of people out of work.

32 What makes managers give up their high salary, company car and pension, and risk everything in order to set up on their own?

33 He is solely responsible for the success of the business.

34 Working capital consists of the stocks of raw materials.

35 A lack of competition can lead to inefficiency.

36 The fridge did not work well and was sent back to the manufacturer.

37 Economists study our everyday lives in order to understand the whole economic system.

38 If we don’t economize on electricity, there will be power cuts.

39 People consume natural resources at an alarming rate.

40 This explains the reason for state ownership of public utilities in many countries.

Why central clearing of OTC derivatives for companies is fine

Why central clearing of OTC derivatives for companies is fine

The corporate sector has been lobbying that it should be excluded from some of the reforms proposed for the over-the-counter (OTC) derivatives market in developed countries. Last week, the chief executive officer of Germany-based E.ON Energy Trading said at the Reuters Global Energy Summit that central clearing of OTC derivatives shouldn’t be imposed on the industry. E.ON Energy Trading is one of Europe’s leading energy trading businesses with an annual turnover of €41 billion (around Rs2.35 trillion).

According to a Reuters report, E.ON’s view is that a move to mandate central clearing for all OTC derivatives trades would raise costs for the industry and make them set aside lots of cash for margin calls. This’ll affect investment, since that cash could otherwise be deployed in the business.

When trades are centrally cleared, the clearing house acts as a central counterparty, effectively guaranteeing each trade. Even if the original buyer or seller of the contract defaults, it makes sure the counterparty to the trade doesn’t suffer losses by collecting margins from both parties to the contract. Apart from an initial margin paid when the contract is entered into, the clearing house collects/pays a daily variation margin (mark-to-market margin) based on the valuation of the derivatives contract at end-of-day prices.

Companies that deal in OTC derivatives aren’t used to paying and collecting daily variation margins and if they are mandated to do that, they would be inconvenienced. Then, there are many companies that use exchange-traded derivatives to hedge risks related to movement in interest rates, currencies and commodities. All of these trades are centrally cleared. So mandatory central clearing for OTC derivatives isn’t something companies can’t live with. It’s simply a matter of getting used to a new system of risk management.

Daily mark-to-market margins, in fact, will bring in discipline to the OTC derivatives market. Across the world, including India, a number of companies and banks suffered big losses owing to poor risk management of OTC derivatives contracts. The losses were so big that companies and banks went into litigation against each other. If daily mark-to-market margins had been collected on these contracts, these derivatives positions wouldn’t have ended up with such large losses.

Last year, London-based Association of Corporate Treasurers had argued that the corporate sector should be exempted from central clearing since their use of derivatives doesn’t impose any systemic risk. “It is unlikely that a non-financial services sector company using derivatives for hedging will itself represent a systemic risk to the financial services sector,” it had said in response to a consultation paper from the European Commission. But as J.R. Varma of the Indian Institute of Management, Ahmedabad, points out in his blog, the Korean, Brazilian and Mexican governments had to resort to bailouts in response to large forex derivatives losses of their corporate sector.

Clearly, the activity of the corporate sector in the derivatives market was systemically important in these countries. In any case, it doesn’t make sense to exclude one section of the market from posting margins and adopting central clearing. If that’s the case, how will the clearing house be able to have adequate margins to play its role as a guarantor of each trade?

The argument that end users, such as the corporate sector, should be excluded from daily margins since they use derivatives only to hedge doesn’t make sense either. Many firms end up taking a speculative position with a derivatives contract even while seeking to hedge an underlying exposure. For instance, exotic forex derivatives used by Indian firms to hedge their underlying dollar exposure. The valuation of these contracts did not depend on the movement of dollar vis-a-vis rupees but against other currencies, such as the Swiss franc and the Japanese yen. Clearly, these were speculative positions with a view that these wouldn’t move sharply against the dollar.

As one exchange official puts it, it seems like the industry’s memory is short. The move to reform the OTC derivatives market is primarily because of the pain during the financial crisis, which is less than two years old. While banks and financial institutions took centre stage during the crisis, it must not be forgotten that many companies, too, lost large sums of money because of the lack of proper risk management. Central clearing and daily margining is a sound practice that will not only contain the risk of the entire market but also market participants.

The corporate sector should embrace these reforms. According to Varma, the discipline induced by mark to market is extremely valuable in corporate risk management and it’ll make users of derivatives markets more careful. Without having to pay these margins regularly, one could be tempted to make reckless decisions. But a large cash outflow on account of a margin call will catch the attention of the boards of companies and the reckless use of derivatives can be arrested.

Sadly, from an Indian perspective, this debate hasn’t gained much ground. The central bank is in the process of releasing new norms for the OTC derivatives market, but there’s no talk on centralized clearing or of mandating daily mark-to-market margins.

Essential Options Trading Guide

Options trading may seem overwhelming at first, but it’s easy to understand if you know a few key points. Investor portfolios are usually constructed with several asset classes. These may be stocks, bonds, ETFs, and even mutual funds. Options are another asset class, and when used correctly, they offer many advantages that trading stocks and ETFs alone cannot.

Key Takeaways

  • An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date.
  • People use options for income, to speculate, and to hedge risk.
  • Options are known as derivatives because they derive their value from an underlying asset.
  • A stock option contract typically represents 100 shares of the underlying stock, but options may be written on any sort of underlying asset from bonds to currencies to commodities.

Option

What Are Options?

Options are contracts that give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires.   Options can be purchased like most other asset classes with brokerage investment accounts. 

Options are powerful because they can enhance an individual’s portfolio. They do this through added income, protection, and even leverage. Depending on the situation, there is usually an option scenario appropriate for an investor’s goal. A popular example would be using options as an effective hedge against a declining stock market to limit downside losses. Options can also be used to generate recurring income. Additionally, they are often used for speculative purposes such as wagering on the direction of a stock. 

There is no free lunch with stocks and bonds. Options are no different. Options trading involves certain risks that the investor must be aware of before making a trade. This is why, when trading options with a broker, you usually see a disclaimer similar to the following:

Options involve risks and are not suitable for everyone. Options trading can be speculative in nature and carry substantial risk of loss.

Options as Derivatives

Options belong to the larger group of securities known as derivatives. A derivative’s price is dependent on or derived from the price of something else. As an example, wine is a derivative of grapes ketchup is a derivative of tomatoes, and a stock option is a derivative of a stock. Options are derivatives of financial securities—their value depends on the price of some other asset. Examples of derivatives include calls, puts, futures, forwards, swaps, and mortgage-backed securities, among others.

Call and Put Options

Options are a type of derivative security. An option is a derivative because its price is intrinsically linked to the price of something else. If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.

A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. Think of a call option as a down-payment for a future purpose. 

Call Option Example

A potential homeowner sees a new development going up. That person may want the right to purchase a home in the future, but will only want to exercise that right once certain developments around the area are built.

The potential home buyer would benefit from the option of buying or not. Imagine they can buy a call option from the developer to buy the home at say $400,000 at any point in the next three years. Well, they can—you know it as a non-refundable deposit. Naturally, the developer wouldn’t grant such an option for free. The potential home buyer needs to contribute a down-payment to lock in that right.

With respect to an option, this cost is known as the premium. It is the price of the option contract. In our home example, the deposit might be $20,000 that the buyer pays the developer. Let’s say two years have passed, and now the developments are built and zoning has been approved. The home buyer exercises the option and buys the home for $400,000 because that is the contract purchased.

The market value of that home may have doubled to $800,000. But because the down payment locked in a pre-determined price, the buyer pays $400,000. Now, in an alternate scenario, say the zoning approval doesn’t come through until year four. This is one year past the expiration of this option. Now the home buyer must pay the market price because the contract has expired. In either case, the developer keeps the original $20,000 collected.

Call Option Basics

Put Option Example

Now, think of a put option as an insurance policy. If you own your home, you are likely familiar with purchasing homeowner’s insurance. A homeowner buys a homeowner’s policy to protect their home from damage. They pay an amount called the premium, for some amount of time, let’s say a year. The policy has a face value and gives the insurance holder protection in the event the home is damaged.

What if, instead of a home, your asset was a stock or index investment? Similarly, if an investor wants insurance on his/her S&P 500 index portfolio, they can purchase put options. An investor may fear that a bear market is near and may be unwilling to lose more than 10% of their long position in the S&P 500 index. If the S&P 500 is currently trading at $2500, he/she can purchase a put option giving the right to sell the index at $2250, for example, at any point in the next two years.

If in six months the market crashes by 20% (500 points on the index), he or she has made 250 points by being able to sell the index at $2250 when it is trading at $2000—a combined loss of just 10%. In fact, even if the market drops to zero, the loss would only be 10% if this put option is held. Again, purchasing the option will carry a cost (the premium), and if the market doesn’t drop during that period, the maximum loss on the option is just the premium spent.

Put Option Basics

Buying, Selling Calls/Puts

There are four things you can do with options:

  1. Buy calls
  2. Sell calls
  3. Buy puts
  4. Sell puts

Buying stock gives you a long position. Buying a call option gives you a potential long position in the underlying stock. Short-selling a stock gives you a short position. Selling a naked or uncovered call gives you a potential short position in the underlying stock.

Buying a put option gives you a potential short position in the underlying stock. Selling a naked, or unmarried, put gives you a potential long position in the underlying stock. Keeping these four scenarios straight is crucial.

People who buy options are called holders and those who sell options are called writers of options. Here is the important distinction between holders and writers:

  1. Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice to exercise their rights. This limits the risk of buyers of options to only the premium spent.
  2. Call writers and put writers (sellers), however, are obligated to buy or sell if the option expires in-the-money (more on that below). This means that a seller may be required to make good on a promise to buy or sell. It also implies that option sellers have exposure to more, and in some cases, unlimited, risks. This means writers can lose much more than the price of the options premium.   

Why Use Options

Speculation

Speculation is a wager on future price direction. A speculator might think the price of a stock will go up, perhaps based on fundamental analysis or technical analysis. A speculator might buy the stock or buy a call option on the stock. Speculating with a call option—instead of buying the stock outright—is attractive to some traders since options provide leverage. An out-of-the-money call option may only cost a few dollars or even cents compared to the full price of a $100 stock.

Hedging

Options were really invented for hedging purposes. Hedging with options is meant to reduce risk at a reasonable cost. Here, we can think of using options like an insurance policy. Just as you insure your house or car, options can be used to insure your investments against a downturn.

Imagine that you want to buy technology stocks. But you also want to limit losses. By using put options, you could limit your downside risk and enjoy all the upside in a cost-effective way. For short sellers, call options can be used to limit losses if wrong—especially during a short squeeze.

How Options Work

In terms of valuing option contracts, it is essentially all about determining the probabilities of future price events. The more likely something is to occur, the more expensive an option would be that profits from that event. For instance, a call value goes up as the stock (underlying) goes up. This is the key to understanding the relative value of options.

The less time there is until expiry, the less value an option will have. This is because the chances of a price move in the underlying stock diminish as we draw closer to expiry. This is why an option is a wasting asset. If you buy a one-month option that is out of the money, and the stock doesn’t move, the option becomes less valuable with each passing day. Since time is a component to the price of an option, a one-month option is going to be less valuable than a three-month option. This is because with more time available, the probability of a price move in your favor increases, and vice versa.

Accordingly, the same option strike that expires in a year will cost more than the same strike for one month. This wasting feature of options is a result of time decay. The same option will be worth less tomorrow than it is today if the price of the stock doesn’t move. 

Volatility also increases the price of an option. This is because uncertainty pushes the odds of an outcome higher. If the volatility of the underlying asset increases, larger price swings increase the possibilities of substantial moves both up and down. Greater price swings will increase the chances of an event occurring. Therefore, the greater the volatility, the greater the price of the option. Options trading and volatility are intrinsically linked to each other in this way. 

On most U.S. exchanges, a stock option contract is the option to buy or sell 100 shares; that’s why you must multiply the contract premium by 100 to get the total amount you’ll have to spend to buy the call.

What happened to our option investment
May 1 May 21 Expiry Date
Stock Price $67 $78 $62
Option Price $3.15 $8.25 worthless
Contract Value $315 $825 $0
Paper Gain/Loss $0 $510 -$315

The majority of the time, holders choose to take their profits by trading out (closing out) their position. This means that option holders sell their options in the market, and writers buy their positions back to close. Only about 10% of options are exercised, 60% are traded (closed) out, and 30% expire worthlessly.

Fluctuations in option prices can be explained by intrinsic value and extrinsic value, which is also known as time value. An option’s premium is the combination of its intrinsic value and time value. Intrinsic value is the in-the-money amount of an options contract, which, for a call option, is the amount above the strike price that the stock is trading. Time value represents the added value an investor has to pay for an option above the intrinsic value.   This is the extrinsic value or time value. So, the price of the option in our example can be thought of as the following:

Premium = Intrinsic Value + Time Value
$8.25 $8.00 $0.25

In real life, options almost always trade at some level above their intrinsic value, because the probability of an event occurring is never absolutely zero, even if it is highly unlikely.

Types of Options

American and European Options

American options can be exercised at any time between the date of purchase and the expiration date. European options are different from American options in that they can only be exercised at the end of their lives on their expiration date. The distinction between American and European options has nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type.   Because the right to exercise early has some value, an American option typically carries a higher premium than an otherwise identical European option. This is because the early exercise feature is desirable and commands a premium.

There are also exotic options, which are exotic because there might be a variation on the payoff profiles from the plain vanilla options. Or they can become totally different products all together with “optionality” embedded in them. For example, binary options have a simple payoff structure that is determined if the payoff event happens regardless of the degree. Other types of exotic options include knock-out, knock-in, barrier options, lookback options, Asian options, and Bermudan options.   Again, exotic options are typically for professional derivatives traders.

Options Expiration & Liquidity

Options can also be categorized by their duration. Short-term options are those that expire generally within a year. Long-term options with expirations greater than a year are classified as long-term equity anticipation securities or LEAPs. LEAPS are identical to regular options, they just have longer durations.

Options can also be distinguished by when their expiration date falls. Sets of options now expire weekly on each Friday, at the end of the month, or even on a daily basis. Index and ETF options also sometimes offer quarterly expiries. 

Reading Options Tables

More and more traders are finding option data through online sources. (For related reading, see “Best Online Stock Brokers for Options Trading 2020”) While each source has its own format for presenting the data, the key components generally include the following variables:

  • Volume (VLM) simply tells you how many contracts of a particular option were traded during the latest session.
  • The “bid” price is the latest price level at which a market participant wishes to buy a particular option.
  • The “ask” price is the latest price offered by a market participant to sell a particular option.
  • Implied Bid Volatility (IMPL BID VOL) can be thought of as the future uncertainty of price direction and speed. This value is calculated by an option-pricing model such as the Black-Scholes model and represents the level of expected future volatility based on the current price of the option.
  • Open Interest (OPTN OP) number indicates the total number of contracts of a particular option that have been opened. Open interest decreases as open trades are closed.
  • Delta can be thought of as a probability. For instance, a 30-delta option has roughly a 30% chance of expiring in-the-money.
  • Gamma (GMM) is the speed the option is moving in or out-of-the-money. Gamma can also be thought of as the movement of the delta.
  • Vega is a Greek value that indicates the amount by which the price of the option would be expected to change based on a one-point change in implied volatility.
  • Theta is the Greek value that indicates how much value an option will lose with the passage of one day’s time.
  • The “strike price” is the price at which the buyer of the option can buy or sell the underlying security if he/she chooses to exercise the option. 

Buying at the bid and selling at the ask is how market makers make their living.

Long Calls/Puts

The simplest options position is a long call (or put) by itself. This position profits if the price of the underlying rises (falls), and your downside is limited to loss of the option premium spent. If you simultaneously buy a call and put option with the same strike and expiration, you’ve created a straddle.

This position pays off if the underlying price rises or falls dramatically; however, if the price remains relatively stable, you lose premium on both the call and the put. You would enter this strategy if you expect a large move in the stock but are not sure which direction.   

Basically, you need the stock to have a move outside of a range. A similar strategy betting on an outsized move in the securities when you expect high volatility (uncertainty) is to buy a call and buy a put with different strikes and the same expiration—known as a strangle. A strangle requires larger price moves in either direction to profit but is also less expensive than a straddle. On the other hand, being short either a straddle or a strangle (selling both options) would profit from a market that doesn’t move much.   

Below is an explanation of straddles from my Options for Beginners course:

Straddles Academy

And here’s a description of strangles:

How to use Straddle Strategies

Spreads & Combinations

Spreads use two or more options positions of the same class. They combine having a market opinion (speculation) with limiting losses (hedging). Spreads often limit potential upside as well. Yet these strategies can still be desirable since they usually cost less when compared to a single options leg. Vertical spreads involve selling one option to buy another. Generally, the second option is the same type and same expiration, but a different strike.

A bull call spread, or bull call vertical spread, is created by buying a call and simultaneously selling another call with a higher strike price and the same expiration. The spread is profitable if the underlying asset increases in price, but the upside is limited due to the short call strike. The benefit, however, is that selling the higher strike call reduces the cost of buying the lower one.   Similarly, a bear put spread, or bear put vertical spread, involves buying a put and selling a second put with a lower strike and the same expiration. If you buy and sell options with different expirations, it is known as a calendar spread or time spread. 

Spread

Combinations are trades constructed with both a call and a put. There is a special type of combination known as a “synthetic.” The point of a synthetic is to create an options position that behaves like an underlying asset, but without actually controlling the asset. Why not just buy the stock? Maybe some legal or regulatory reason restricts you from owning it. But you may be allowed to create a synthetic position using options.   

Butterflies

A butterfly consists of options at three strikes, equally spaced apart, where all options are of the same type (either all calls or all puts) and have the same expiration. In a long butterfly, the middle strike option is sold and the outside strikes are bought in a ratio of 1:2:1 (buy one, sell two, buy one).

If this ratio does not hold, it is not a butterfly. The outside strikes are commonly referred to as the wings of the butterfly, and the inside strike as the body. The value of a butterfly can never fall below zero. Closely related to the butterfly is the condor – the difference is that the middle options are not at the same strike price. 

Options Risks

Because options prices can be modeled mathematically with a model such as the Black-Scholes, many of the risks associated with options can also be modeled and understood. This particular feature of options actually makes them arguably less risky than other asset classes, or at least allows the risks associated with options to be understood and evaluated. Individual risks have been assigned Greek letter names, and are sometimes referred to simply as “the Greeks.” 

Below is a very basic way to begin thinking about the concepts of Greeks:

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