A smile-like shape formed on a graphic representation of variance in implied volatility across different strike prices of the option that has the same expiration date and underlying security. This is a graphical representation of the volatility skew.[click to read more]
The underlying of an option contract is a stock, ETF, or index that the option contract trades against. The price movement and volatility of the underlying affects the pricing of the option throughout its life span.
The implied volatility of an option contract is an estimation of contracts volatility based on the current trading price. The more expensive the option, the higher the implied volatility. Implied volatility gives the trader a sense if the contract is relatively cheap or expensive.
A typical market scenario, in which the implied volatility or price of the nearest month is lower than the corresponding implied volatility or price of longer duration contracts. This term was initially used in oil market.[click to read more]
Extrinsic value is also known as time value. The amount of time remaining in the option is a key value for pricing and determines how long the underlying has to move up or down at current or future volatility.
Term used for every third Friday or March, June, September and December. Volatility generally increase drastically on these days as these days are expiration days of Index futures and options, Stock Futures and Options.[click to read more]