Definition of 'Option Cycle'
There are two types of option cycles: American and European. American options can be exercised at any time during the option cycle, while European options can only be exercised on the expiration date.
The price of an option is determined by a number of factors, including the strike price, the underlying asset, the time to expiration, and the volatility of the underlying asset. The strike price is the price at which the option can be exercised. The underlying asset is the asset that the option is based on. The time to expiration is the amount of time remaining until the option expires. The volatility of the underlying asset is a measure of how much the price of the underlying asset has fluctuated in the past.
Option cycles can be used to speculate on the price of an underlying asset, or to hedge against the risk of a price change. For example, if you believe that the price of a stock is going to increase, you could buy a call option on the stock. If the price of the stock does increase, you could exercise the option and buy the stock at the strike price. If the price of the stock does not increase, you could let the option expire and lose the premium you paid for the option.
Option cycles can also be used to hedge against the risk of a price change. For example, if you own a stock and you are worried that the price of the stock is going to decrease, you could buy a put option on the stock. If the price of the stock does decrease, you could exercise the option and sell the stock at the strike price. If the price of the stock does not decrease, you could let the option expire and lose the premium you paid for the option.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.