Comparison of option types (3) – Ladder options

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compare(_: options:)

Compares the string with the specified string using the given options.

Declaration

Parameters

The string with which to compare the receiver.

This value must not be nil . If this value is nil , the behavior is undefined and may change in future versions of macOS.

Options for the search—you can combine any of the following using a C bitwise OR operator: case Insensitive , literal , numeric . See String Programming Guide for details on these options.

Return Value

Returns an Comparison Result value that indicates the lexical ordering. Comparison Result .ordered Ascending the receiver precedes a String in lexical ordering, Comparison Result .ordered Same the receiver and a String are equivalent in lexical value, and Comparison Result .ordered Descending if the receiver follows a String .

Discussion

This method is equivalent to invoking compare(_: options: range:) with a given mask as the options and the receiver’s full extent as the range.

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When working with text that’s presented to the user, use the localized Standard Compare(_:) instead, or use the compare(_: options: range: locale:) method, passing the user’s locale.

Comparison of option types (3) – Ladder options

Types of Options

Average Options – A path dependant option, which calculates the average of the path traversed by the asset, arithmetic or weighted. The payoff therefore is the difference between the average price of the underlying asset, over the life of the option, and the exercise price of the option.

Barrier Options – These are options that have an embedded price level, (barrier), which if reached will either create a vanilla option or eliminate the existance of a vanilla option. These are referred to as knock-ins/outs which are further explained below. The existance of predetermined price barriers in an option make the probability of pay off all the more difficult. Thus the reason a buyer purchases a barrier option is for the decreased cost and therefore increased leverage.

Basket Options – This type of option allows the buyer to combine two or more currencies and to assign a weight to each currency. The payoff is determined by the difference between a predetermined strike price and the combined weighted level of the basket of currencies chosen at the outset. The USDX futures contract can be considered as a basket of currencies, with each currency assigned a particular weight. In the otc market, however, the buyer chooses the currencies and the weight distribution.

Bermuda (Mid-Atlantic) Options – This is a type of option that is exercisable only on predetermined dates, such as every month, or every quarter. They are neither American style nor European style, hence the term, “Bermuda”.

Chooser Options – Allows the buyer to determine the characteristics of an option during a predetermined set time span. As an example, during a 30 day period, the buyer can determine if the option will be a put or call, what the strike price will be, and at times even set the expiry date. After the 30 day period has elapsed, the seller must enter into an option agreement with the buyer according to the terms chosen by him. This type of option is generally quite expensive because of the flexibility afforded to the buyer.

Collapsible Swap – The collapsible swap is simply a combination of a plain vanilla swap with a swaption on that swap. A swaption is an option on the swap. In this case, the swaption gives us the right but not the obligation to enter into a swap with the same terms except that we will be buying fixed rates and receiving floating rates. The cashflows will offset and the swap will be deemed to be closed out since the swaption is with the same financial institution with whom we have contracted the swap

Compound Options – This is simply an option on an existing option.

Deferred Payment Options – This type of option is simply an american style vanilla option with a “twist”. The buyer may exercise at any time, however, payment is deferred until the original expiry date. This type of option is less expensive than your standard american style vanilla option. It is also a longer term option with expiry dates normally not less than a year out.

Delayed Start Swap Just as its name suggests, the delayed start swap is a regular plain vanilla swap exchanging cash flows in one index against cash flows in another index with the exception that the start date of the swap is not immediate.

Digital Options – These are options that can be structured as a “one touch” barrier, “double no touch” barrier and “all or nothing” call/puts. The “one touch” digital provides an immediate payoff if the currency hits your selected price barrier chosen at outset. The “double no touch” provides a payoff upon expiration if the currency does not touch both the upper and lower price barriers selected at the outset. The call/put “all or nothing” digital option provides a payoff upon expiration if your option finishes in the money. It is referred to as “all or nothing” because even if your option finishes in the money by 1 pip, you receive the full payoff. Digital options are usually settled in cash.

Dual-Factor Barrier Options – This currency option has a predetermined barrier set in a different underlying market. If the barrier is hit then a payoff and/or knock-out/in is triggered. It is often used in hedging commodity price movements.

Exotic Options – This is a term used to categorize options that are not vanilla options, but rather those very options listed here. There are many other variations of exotic options than those listed in this glossary, with more being invented all of the time. This list, however, does cover the more common exotic options.

Futures Option : An option giving the buyer to buy/sell a futures contract at the strike price.

Indexed Principal Swap – The indexed principal swap is a variant in which the principal is not fixed for the life of the option but tied to the level of interest rates.

Interest-rate cap is an OTC derivative which protects the holder from rises in short-term interest rates by making a payment to the holder when an underlying interest rate (the index or reference interest rate) exceed a specified strike rate (the cap rate). Caps are purchased for a premium, and typically have maturities between 1 and 7 years. They may make payments to the holder on a monthly, quarterly or semiannual basis, with the period generally set equal to the maturity of the index interest rate.

Each period, the payment is determined by comparing the current level of the index interest rate with the cap rate. If the index rate exceeds the cap rate, the payment is based upon the difference between the two rates, the length of the period, and the contract’s notional amount. Otherwise, no payment is made for that period.

Interest rate floor – an OTC derivative which protects the holder from declines in short-term interest rates by making a payment to the holder when an underlying interest rate (the index or reference interest rate) falls below a specified strike rate (the floor rate). Floors are purchased for a premium, and typically have maturities between 1 and 7 years. They may make payments to the holder on a monthly, quarterly or semiannual basis, with the period generally set equal to the maturity of the index interest rate.

Interest Rate Collar – A combination of an interest rate cap and an interest rate floor. The buyer of the collar purchases the cap option to limit the maximum interest rate he will pay and sells the floor option to obtain a premium to pay for the cap. The effect of the combination is to confine interest rate payments to a range bounded by the strike prices of the cap and floor options

Knock in Options – There are two kinds of knock-in options, i) up and in, and ii) down and in. With knock-in options, the buyer starts out without a vanilla option. If the buyer has selected an upper price barrier, and the currency hits that level, it creates a vanilla option with maturity date and strike price agreed upon at the outset. This would be called an up and in. The down and in option is the same as the up and in, except the currency has to reach a lower barrier. Upon hitting the chosen lower price level, it creates a vanilla option. Knock-ins/outs usually call for delivery of the underlying asset, unlike digitals, which are settled in cash.

Knockout Options – These options are the reverse of knock-ins. With knockouts, the buyer begins with a vanilla option, however, if the predetermined price barrier is hit, the vanilla option is cancelled and the seller has no further obligation. As in the knock-in option, there are two kinds, i) up and out, and ii) down and out. If the option hits the upper barrier, the option is cancelled and you lose your premium paid, thus, “up and out”. If the option hits the lower price barrier, the option is cancelled, thus, “down and out”.

Ladder Options – This option is similar to the Ratchet/Cliquet option, except that gains are locked in when the asset hits predefined price levels. Once hit, the gain is guaranteed even if the underlying falls back. If other levels are hit, those returns will then be guaranteed at each level.

Look back Options – This type of option affords the buyer the luxury of “looking back” during the life of the option and choosing the price level that would generate the most gain. This would be the lowest purchase price in the case of a call, and the highest sale price in the case of a put. Look back options come in both American and European exercise. These options are quite expensive, less so for American exercise.

OTC Options – What attracts those to the otc market and to the otc options market in particular is the flexibility afforded to the user. In the otc exotic option market, the participant may choose and structure the contract as desired. For hedgers, this is particularly attractive since the standardized exchange options do not offer much flexibility resulting in imperfect costly hedges. For the speculator too, there are advantages since one may take a position that exactly reflects market opinion, resulting in reduced cost.

Rainbow Options – This type of option is a combination of two or more options combined, each with its own distinct strike, maturity, etc. In order to achieve a payoff, all of the options entered into must be correct. An analogy may be a football parlay, whereby one predicts the outcome of three games. In order to win, you must get all three games correct.

Russian Option – A look back option without an expiry date. This type of option can have either an American or a Mid-Atlantic settlement.

Ratchet Options – Also known as cliquet, this type of option locks in gains based on a time cycle, such as monthly, quarterly, or semi-annually. This is accomplished by determining the price level of the currency on predetermined anniversary dates.

Swaption – An option to enter into an interest rate swap. The contract gives the buyer the option to execute an interest rate swap on a future date, thereby locking in financing costs at a specified fixed rate of interest. The seller of the swaption, usually a commercial or investment bank, assumes the risk of interest rate changes, in exchange for payment of a swap premium.

Quanto Options – This is an option designed to eliminate currency risk by effectively hedging it. It involves combining an equity option and incorporating a predetermined fx rate. Example, if the holder has an in-the-money Nikkei index call option upon expiration, the quanto option terms would trigger by converting the yen proceeds into dollars, which was specified at the outset in the quanto option contract. The rate is agreed upon at the beginning without the quantity of course, since this is an unknown at the time. This type of arrangement is ideal for international equity managers and mutual funds.

Vanilla Options – This is a term used to categorize the basic call and put options with either American or European exercise. It normally refers to the standard options traded on exchanges

Vanilla Swap � a swap is simply the exchange of one payment stream for another. The most common swap would be a fixed for floating rate interest swap. With this contract, the interest payments on a floating rate loan would be exchanged for a fixed rate loan. Note that a swap is basically a zero spread collar. Swaps are also traded on commodities, currencies, and equities.

Types of Options

There are many different types of options that can be traded and these can be categorized in a number of ways. In a very broad sense, there are two main types: calls and puts. Calls give the buyer the right to buy the underlying asset, while puts give the buyer the right to sell the underlying asset. Along with this clear distinction, options are also usually classified based on whether they are American style or European style. This has nothing to do with geographical location, but rather when the contracts can be exercised. You can read more about the differences below.

Options can be further categorized based on the method in which they are traded, their expiration cycle, and the underlying security they relate to. There are also other specific types and a number of exotic options that exist. On this page we have published a comprehensive list of the most common categories along with the different types that fall into these categories. We have also provided further information on each type.

  • Calls
  • Puts
  • American Style
  • European Style
  • Exchange Traded Options
  • Over The Counter Options
  • Option Type by Expiration
  • Option Type by Underlying Security
  • Employee Stock Options
  • Cash Settled Options
  • Exotic Options

Calls

Call options are contracts that give the owner the right to buy the underlying asset in the future at an agreed price. You would buy a call if you believed that the underlying asset was likely to increase in price over a given period of time. Calls have an expiration date and, depending on the terms of the contract, the underlying asset can be bought any time prior to the expiration date or on the expiration date. For more detailed information on this type and some examples, please visit the following page – Calls.

Put options are essentially the opposite of calls. The owner of a put has the right to sell the underlying asset in the future at a pre-determined price. Therefore, you would buy a put if you were expecting the underlying asset to fall in value. As with calls, there is an expiration date in the contact. For additional information and examples of how puts options work, please read the following page – Puts.

American Style

The term “American style” in relation to options has nothing to do with where contracts are bought or sold, but rather to the terms of the contracts. Options contracts come with an expiration date, at which point the owner has the right to buy the underlying security (if a call) or sell it (if a put). With American style options, the owner of the contract also has the right to exercise at any time prior to the expiration date. This additional flexibility is an obvious advantage to the owner of an American style contract. You can find more information, and working examples, on the following page – American Style Options.

European Style

The owners of European style options contracts are not afforded the same flexibility as with American style contracts. If you own a European style contract then you have the right to buy or sell the underlying asset on which the contract is based only on the expiration date and not before. Please read the following page for more detail on this style – European Style Options.

Exchange Traded Options

Also known as listed options, this is the most common form of options. The term “Exchanged Traded” is used to describe any options contract that is listed on a public trading exchange. They can be bought and sold by anyone by using the services of a suitable broker.

Over The Counter Options

“Over The Counter” (OTC) options are only traded in the OTC markets, making them less accessible to the general public. They tend to be customized contracts with more complicated terms than most Exchange Traded contracts.

Option Type by Underlying Security

When people use the term options they are generally referring to stock options, where the underlying asset is shares in a publically listed company. While these are certainly very common, there are also a number of other types where the underlying security is something else. We have listed the most common of these below with a brief description.

Stock Options: The underlying asset for these contracts is shares in a specific publically listed company.

Index Options: These are very similar to stock options, but rather than the underlying security being stocks in a specific company it is an index – such as the S&P 500.

Forex/Currency Options: Contracts of this type grant the owner the right to buy or sell a specific currency at an agreed exchange rate.

Futures Options: The underlying security for this type is a specified futures contract. A futures option essentially gives the owner the right to enter into that specified futures contract.

Commodity Options: The underlying asset for a contract of this type can be either a physical commodity or a commodity futures contract.

Basket Options: A basket contract is based on the underlying asset of a group of securities which could be made up stocks, currencies, commodities or other financial instruments.

Option Type By Expiration

Contracts can be classified by their expiration cycle, which relates to the point to which the owner must exercise their right to buy or sell the relevant asset under the terms of the contract. Some contracts are only available with one specific type of expiration cycle, while with some contracts you are able to choose. For most options traders, this information is far from essential, but it can help to recognize the terms. Below are some details on the different contract types based on their expiration cycle.

Regular Options: These are based on the standardized expiration cycles that options contracts are listed under. When purchasing a contract of this type, you will have the choice of at least four different expiration months to choose from. The reasons for these expiration cycles existing in the way they do is due to restrictions put in place when options were first introduced about when they could be traded. Expiration cycles can get somewhat complicated, but all you really need to understand is that you will be able to choose your preferred expiration date from a selection of at least four different months.

Weekly Options: Also known as weeklies, these were introduced in 2005. They are currently only available on a limited number of underlying securities,including some of the major indices, but their popularity is increasing. The basic principle of weeklies is the same as regular options, but they just have a much shorter expiration period.

Quarterly Options: Also referred to as quarterlies, these are listed on the exchanges with expirations for the nearest four quarters plus the final quarter of the following year. Unlike regular contracts which expire on the third Friday of the expiration month, quarterlies expire on the last day of the expiration month.

Long-Term Expiration Anticipation Securities: These longer term contracts are generally known as LEAPS and are available on a fairly wide range of underlying securities. LEAPS always expire in January but can be bought with expiration dates for the following three years.

Employee Stock Options

These are a form of stock option where employees are granted contracts based on the stock of the company they work for. They are generally used as a form of remuneration, bonus, or incentive to join a company. You can read more about these on the following page – Employee Stock Options.

Cash Settled Options

Cash settled contracts do not involve the physical transfer of the underlying asset when they are exercised or settled. Instead, whichever party to the contract has made a profit is paid in cash by the other party. These types of contracts are typically used when the underlying asset is difficult or expensive to transfer to the other party. You can find more on the following page – Cash Settled Options.

Exotic Options

Exotic option is a term that is used to apply to a contract that has been customized with more complex provisions. They are also classified as Non-Standardized options. There are a plethora of different exotic contracts, many of which are only available from OTC markets. Some exotic contracts, however, are becoming more popular with mainstream investors and getting listed on the public exchanges. Below are some of the more common types.

Barrier Options: These contracts provide a pay-out to the holder if the underlying security does (or does not, depending on the terms of the contract) reach a pre-determined price. For more information please read the following page – Barrier Options.

Binary Options: When a contract of this type expires in profit for the owner, they are awarded a fixed amount of money. Please visit the following page for further details on these contracts – Binary Options.

Chooser Options: These were named “Chooser,” options because they allow the owner of the contract to choose whether it’s a call or a put when a specific date is reached.

Compound Options: These are options where the underlying security is another options contract.

Look Back Options: This type of contract has no strike price, but instead allows the owner to exercise at the best price the underlying security reached during the term of the contract. For examples and additional details please visit the following page – Look Back Options.

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