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694 curated entries · docs layout · landmark papers on core concepts.

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Derivatives52

Binomial Tree PricingBinomial Tree Pricing — Discrete recombining tree for American and path-sensitive options.Black-Scholes ModelBlack-Scholes is the European option formula under lognormal spot, constant vol, and conti Butterfly SpreadA butterfly is long one wing, short two bodies, long the other wing — a bet on a pin or on Calendar SpreadCalendar Spread — Relative vol trade across expiries exploiting term structure dislocation Call OptionA call option is the right, not the obligation, to buy the underlying at a strike by expir CollarA collar is long stock, long a put, and short a call — a banded payoff, often structured t Covered CallA covered call is long the stock and short a call — you sell upside for premium and keep t Dealer Gamma PositioningDealer gamma positioning describes whether option dealers are structurally long or short g DeltaDelta is the first derivative of option value to the underlying — the hedge ratio and a mo Delta HedgingDelta Hedging — Continuous rebalancing of directional exposure that links options markets Dispersion TradingDispersion Trading — Index vol versus single-name vol — a pure play on implied correlation GammaGamma is the sensitivity of delta to the underlying — how fast the hedge ratio moves, and Gamma HedgingGamma Hedging — Delta adjustments by dealers that can accelerate trends or pin prices near GARCH Volatility ModelGARCH Volatility Model — Conditional heteroskedasticity framework for forecasting volatili Implied Realized SpreadImplied Realized Spread — Gap between implied and realized vol that defines carry for shor Implied VolatilityImplied volatility is the σ you plug into Black-Scholes to match the market price — a quot Implied Volatility SurfaceImplied Volatility Surface — Strike and tenor structure of implied vol, the core object fo Iron Condor StructureIron Condor Structure — Short vol range trade expressing view of subdued movement between LEAPS OptionsLEAPS Options — Long-dated equity options used for leveraged directional or hedge overlays Local Volatility ModelLocal Volatility Model — Strike-dependent diffusion used to fit vanilla surfaces consisten MoneynessMoneyness is where spot sits versus strike — in, at, or out of the money — the first map o Monte Carlo Option PricingMonte Carlo Option Pricing — Simulation pricing for path-dependent and multi-asset claims.Move IndexThe MOVE Index tracks implied volatility in the U.S. Treasury market and serves as a bench Notional ValueNotional value is the face amount a derivative references — the exposure scale, not the ca Option GreeksGreeks are the sensitivities of option value to spot, vol, time, and rates — the risk repo Options Open InterestOptions Open Interest — Outstanding contracts revealing crowd positioning and potential ga Protective PutA protective put is long the asset and long a put — a floor under the position for a premi Put OptionA put option is the right to sell the underlying at a strike — convex downside, or a hedge Put-Call ParityPut-call parity is the no-arbitrage link C − P = F − K (discounted) — a European call and Realized VolatilityRealized Volatility — Historical return variation that determines PnL for delta-hedged opt Risk ReversalRisk Reversal — Call-put spread package measuring directional skew in FX and equity option SkewSkew measures the relative richness of downside versus upside implied volatility, helping Stochastic Volatility ModelStochastic Volatility Model — Models where volatility itself is random, capturing smile dy StraddleA straddle is a call and a put at the same strike — a bet on a large move, long or short, StrangleA strangle is an OTM call plus an OTM put — cheaper than a straddle, needs a bigger move, Strike PriceThe strike is the contract price at which an option can be exercised — the hinge of moneyn SVI ParameterizationSVI Parameterization — Arbitrage-aware parameterization of volatility smiles for interpola Term Structure of VolatilityTerm Structure of Volatility — How IV varies across expiries — front vs back month regimes ThetaTheta is the sensitivity of option value to the passing of time — the daily rent of holdin Theta DecayTheta Decay — Time decay of option premium, the carry engine for systematic short-vol stra Vanna Charm FlowVanna Charm Flow — Second-order greek hedging flows that amplify or dampen spot moves arou Variance Risk PremiumVariance Risk Premium — Gap between implied and realized volatility that systematic vol se Variance SwapVariance Swap — Contract paying realized variance versus strike, core institutional vol tr VegaVega is the sensitivity of option value to implied volatility — the vol-dollar you are lon Vega ExposureVega Exposure — Sensitivity to implied volatility changes — core risk for vol books and st VIX Futures Term StructureVIX Futures Term Structure — Curve shape driving roll yield for vol ETNs and systematic sh VIX IndexVIX Index measures implied volatility in S&P 500 options and is widely used as a shorthand VIX Term StructureVIX term structure tracks the shape of volatility futures across maturities and helps iden Volatility ArbitrageVolatility Arbitrage — Trading discrepancies between implied, realized, and cross-asset vo Volatility Carry TradeVolatility Carry Trade — Selling implied vol or rolling VIX futures in contango — crowded Volatility of VolatilityVolatility of Volatility — Uncertainty about future volatility, critical for tail hedges a Volatility SmileVolatility Smile — Strike-dependent implied vol pattern reflecting crash and demand premia

Derivatives · Core

Protective Put

A protective put is long the asset and long a put — a floor under the position for a premium that bleeds.

Definition Why it matters Case How to read it

Definition

Long stock + long put. Payoff is a call-shaped residual (put-call parity). You paid for the floor. Rolling puts is a standing insurance budget.

Why it matters

It is the cleanest defined-risk long. Cost of insurance over a cycle is the question, not the one-month sticker.

Case

A pension overlays 5% OTM puts every quarter. In a grind-up year the drag is visible; in 2020 Q1 the floor is the product.

How to read it

Tenor, strike, and roll rule. A 1-month 5-delta put is cheap because it rarely pays. Budget the program, not the ticket.

Related knowledge · 3 linked entries

DeltaDerivatives CollarDerivatives Put OptionDerivatives

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Define Protective Put in plain language. Then say why it matters and give one short case. If evidence is thin, say what is missing — do not invent a trading playbook.

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