The most regularly traded structure in the inflation-linked swaps market, and particularly in the inter-dealer market, is the zero coupon inflation swap. One counterparty agrees to pay the cumulative percentage increase in the price index over the tenor of the swap (with some lag on the reference index, similar to cash securities), and the other pays a compounded fixed rate. … [Read more...]
Inflation Swap in Stock Market
An inflation swap is the linear form of an inflation derivative, an over-the-counter and exchange-traded derivatives that is used to transfer inflation risk from one counterparty to another. There are three main types of inflation swap. In a standard interbank inflation-linked swap, or zero-coupon inflation-linked swap, cash flow is exchanged on the maturity date. This swap … [Read more...]
Vertical Spread
The Vertical spread is an options trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different strike prices. Profits in a vertical spread are determined by the widening or narrowing of the difference between the option premiums on the two positions. Vertical spreads can be … [Read more...]
Ratio Spread [Explained]
The Ratio spread is an options strategy in which an investor simultaneously holds an unequal number of long and short positions. While investing, a commonly used ratio is two short options for every option purchased. It can also be said that the ratio-spread is a strategy in options trading that involves buying some number of options and selling a larger number of other options … [Read more...]
Diagonal Spread
A Diagonal spread is an options strategy established by simultaneously entering into a long and short position in two options of the same type i.e, two call options or two put options. It is also a strategy with different strike prices and expiration dates. The diagonal spread is similar to the calendar spread, where near term options are sold while long term options are … [Read more...]