What’s happening with $SMCI? Super Micro Computer shares have moved over 200% in 2024 as the stock experiences what’s known as a “short squeeze”. The basics of a short squeeze is that Wall Street and traders will look for stocks that are heavily shorted (bet against) and begin buying them up in order to force the short positions to close. For a short trader to close their position, they need to buy it back at that price. Shorting a stock means you’re borrowing shares from your broker at a price, you take the shares and try to sell them to the market at a lower price, then give the shares back to your broker and keep the difference. So if...
Option Open Interest vs. Volume Option volume and open interest are used simultaneously by traders to gauge the liquidity and activity of option contracts. They are often confused for one another because they both measure the amount of contracts traded, but one measures the trade activity in a given period, while other measures the open, unsettled contracts. Volume is what traders focus on through the day to gauge how much activity the specific contract has. This metric is updated throughout the trading day and each transaction, buy or sell, is counted in the volume. Volume is especially helpful when day trading because the higher activity contracts can provide price targets depending on their strike for the trader. Open interest is...
What is Options Trading? Trading option contracts has become widely popular in the stock market in recent years. Option contracts provide an agreement between a buyer and sellers on an underlying security (stock) for companies such as Apple, Tesla, Amazon...etc. The option contract provides the buyer with a guarantee to buy the stock at a set price by a specific date, and the seller agrees to fulfill. Every contract typically guarantees 100 shares. For example, if Apple is trading at $150 today, instead of buying the stock, you can buy an option contract that guarantees you Apple shares at $150 no matter where its trading at in the future, but the trick is option contracts come with an expiration date. The longer...
What Makes Up an Option Contract’s Value/Premium? Intrinsic value: Intrinsic value is the portion of the option's value that is directly related to the underlying security's current market price. Extrinsic value: Extrinsic value on the other hand is the portion of the option's value that is determined by factors such as time to expiration and implied volatility. It reflects the potential for the option to gain additional value before expiration. The longer the time until expiration and the higher the implied volatility, the more extrinsic value an option will have. Extrinsic value decays over time as the option approaches its expiration date. This decline is what we call time decay, and it can significantly impact the option's value. Time decay...
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