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Generating Income & Equity Appreciation
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What is Delta?
What is Delta?
Delta is the theoretical estimate of how much an option’s value may change given a $1 move UP or DOWN in the underlying security. The Delta values range from -1 to +1, with 0 representing an option where the premium barely moves relative to price changes in the underlying stock.
What is Theta?
Lorem Theta
Theta represents, in theory, how much an option’s premium may decay each day with all other factors remaining the same.
Options lose value over time. The moment that the contract is created, time value Select to open or close help pop-up begins to deplete. The loss in time value of near-the-money Select to open or close help pop-up options accelerates as the expiration date approaches. This is a representation of Theta’s behaving in a nonlinear fashion.
Vega
What is Vega?
Vega measures the amount of increase or decrease in an option premium based on a 1% change in implied volatility.
Vega is a derivative of implied volatility. Implied volatility is defined as the market’s forecast of a likely movement in the underlying security. Implied volatility is used to price option contracts and its value is reflected in the option’s premium. Should the market anticipate a greater movement in a security, implied volatility will be higher and the option will be more expensive and vice versa. Vega measures how much the option premium will change if implied volatility were to move by 1%.
The longer an option contract has until it expires, the more volatility affects the price, but also less impact by Theta.
0-DTE
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0DTE
Introduction
A zero days to expiration option (0DTE) is an option that no longer trades after the conclusion of the current trading day. Every option issued will reach the zero days to expiration mark. Therefore, every option will be considered a 0DTE for one day.
The 0DTE term is primarily used when discussing SPY (SPDR S&P 500 ETF Trust), SPX (S&P 500 Index), NDX (Nasdaq 100 Index), and QQQ (Invesco QQQ ETF Trust Series I) options. Chicago Board of Options Exchange (CBOE) began offering options that expire on Tuesdays and Thursdays in 2022 on SPY, SPX, NDX, and QQQ. By offering options that expire on Tuesday and Thursday, these two indices and two ETFs now have options that expire every trading day of the week. These securities offer expirations that cover every trading day and have the most 0DTE volume.
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Benefits & Risks
Most strategies used by options investors have limited risk but also limited profit potential. Options strategies are not get-rich-quick schemes and can also have unlimited loss potential.
Transactions generally require less capital than equivalent stock transactions. They may return smaller dollar figures but a potentially greater percentage of the investment than equivalent stock transactions.
Although options may not be appropriate for all investors, they’re among the most flexible of investment choices. Options can be used to apply a bullish, bearish or neutral strategy and utilized for generating income, hedging or speculation.
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