Day trading is the term often used for buying and selling stocks within the same day. Day traders seek to make a profit by leveraging large amounts of capital in order to take advantage of small price movements in highly liquid stocks or indexes.
A type of option where the payoff depends on both the price levels of the strike and the underlying asset, like standard options. If the binary option expires in the money, the trader will always receive a fixed $100 compensation per contract. If the option expires out of the money, the trader receives nothing.
Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium has been used in such diverse fields as international relations, psychology and economics. Game theory in general looks at how individuals or groups make choices that will in turn affect the choices of other parties.
An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested in Roadking Auto, a luxury car maker, and finds that he can buy a call option with a strike price of $40 a share.
Writing an option is the process of selling to another investor the right, but not the obligation, to buy or sell a stock at a given price in the near future. It can also be referred to as shorting an option or selling an option.
A butterfly spread is a neutral options strategy with both limited risk and limited profit potential. The strategy involves four options contracts with the same expiration month but with three different strike prices. Using either all calls or all puts, an investor sells two options at a middle strike price, while simultaneously buying one contract at a lower and one at a higher strike price.