Commingling is the act of combining separate assets into one financial entity, of which the asset holders then own a proportional share. The most common example of commingling is in the case of mutual funds, where investors pool their personal resources into one shared fund that trades securities on their behalf according to an agreed-upon […]
The Chicago Board Options Exchange, or CBOE, is the world’s largest exchange for the trading of options contracts. The Chicago Board Options Exchange acts as a clearing house for options on a very large number of companies, indices and exchange-traded funds (ETFs). The CBOE is also the owner of the CFE, which pioneered the volatility […]
Painting the tape is a form of securities fraud where participants create a false appearance of trading activity for a security by buying and selling the security among themselves. Painting the tape can attempt to artificially increase or decrease the price of a security through coordinated trading, or merely give the impression of a high […]
Blue sky laws are state laws focused on preventing securities fraud. While blue sky laws vary from state to state, they generally require a high degree of disclosure for any securities traded in the state and for any broker-dealers operating in the state to be registered and regulated. Purpose of Blue Sky Laws Most state […]
A block trade or block order is a large order usually placed by a hedge fund or large institutional investor. Mechanics of a Block Trade While direct block trades between buyers and sellers do occasionally occur, most block trades take place using a specialist intermediary known as a block house. The block house has traders […]
In the money is a term from options trading used to describe an option that would create value, but not necessarily profit, if exercised. It is not necessarily profitable because a trader needs to account for the premium spent to purchase the option, which being in the money has no bearing on. It just means […]
A ratio spread is an options trading strategy that is used when a trader expects a low level of volatility in a security and their target strike price is unlikely to be exceeded by a significant degree. This expectation allows the trader to sell options with a different strike price to recoup a premium which […]
A position is delta neutral when the change in the value of one or more securities is exactly offset by a corresponding change in the value of the associated derivatives within the position. Traders use delta neutral positions either as a hedge in securities trading or as a strategy to profit from alternate sources of […]
A vertical spread is an options trading strategy that involves the matching sale and purchase of options of the same type and with the same expiry date, but with a different strike price. The idea behind a vertical spread trade is to create a small window of unprofitability, the spread, between two profitable outcomes. Vertical […]
Volatility Skew Definition: Day Trading Terminology Volatility skew is the graphical representation of the implied volatility of a set of options for a security at various strike prices or expiration dates. While implied volatility, which is based on the underlying security, should be the same for all options at the same strike price, in reality the […]
