The premium is the price of an option contract. This amount must be paid to the seller (option writer) when the rights under the option contract are exercised. The premium expires at a specific expiry date of an option contract. It consists of an intrinsic value and time value.
Multiple-Criteria Decision Making (MCDM) is a field of mathematics that explicitly analyzes multiple conflicting criteria in decision making. The Brutus Options Ranker uses proprietary adoption of MCDM to rank daily options trades against investors custom trading strategies.
The Risk-free interest rate is the return on investment with no loss-of-capital risk. In practice, this does not exist. In theory, it is an important parameter in option pricing as it sets the baseline price upon which risk premium should be added. A practical estimate to the risk-free interest rate is taken from 'risk-free' bond issued by the government or agency where the default risk is practically zero.
Expiration is the date that the option contract expires. All options contracts are valid for a fixed duration. This is the lifespan of the option where the buyer has the right to exercise the option and the seller has the obligation to fulfill the terms of the option. [click to read more]
Credit is money received in the account from the trade of a single or combination of options where the premium you receive is greater than the debit you paid. It is very common to receive a credit when shorting (writing) an option contract.
An option spread strategy in which credit (premium) is received by trader through selling more premium than debit to be paid for long options in the same underlying stock but different strike prices or expiration dates.[click to read more]
The money deducted from an options trading account to establish an options trade. This is created by purchasing higher premium amount and/or selling lower premium amount and is usually used to speculate on direction of the underlying.[click to read more]
An options trading spread in which money goes out of the account to execute the trade. In this strategy the premium paid in purchased options is more than the premium received in written options.[click to read more]
A call options trading strategy in which a neutralized position is established by writing high premium near month out of the money calls and buying simultaneously further month at the money call option contracts to take advantage of time decay of near term calls. The mo[click to read more]
Utilizing multiple covered calls over the duration a stock is held to take advantage of the time premium of call options while the investor maintains intent to sell the stock at higher prices.[click to read more]