Options
62 lessons in this track so far, in the order we suggest reading them.
Option Basics
IntermediateHow Options WorkOptions give the right, but not the obligation, to buy or sell an asset at a set price by a set date. Learn how options work, why traders use them and the key terms.IntermediateCalls and PutsA call gives the right to buy and a put gives the right to sell at a set price. Learn how calls and puts work, how they profit and how buyers and sellers differ.IntermediateStrike PriceThe strike price is the fixed price at which an option can be exercised. Learn how strikes affect cost, probability and payoff, and how traders choose them.IntermediateOption PremiumThe option premium is the price paid for an option. Learn what drives it, including price, strike, time, volatility, rates and dividends, with worked examples.IntermediateOption Expiration DatesEvery option has an expiration date when it must be used or expire. Learn monthly, weekly and 0DTE cycles, what happens at expiry and how to choose an expiration.IntermediateAmerican vs European OptionsAmerican options can be exercised any time before expiry; European options only at expiry. Learn the differences, which markets use each and how pricing differs.IntermediateIntrinsic and Extrinsic ValueAn option's price splits into intrinsic value and extrinsic or time value. Learn how to calculate each, what drives extrinsic value and why it decays to zero.IntermediateMoneyness: ITM, ATM and OTMMoneyness describes where an option's strike sits relative to the underlying price. Learn ITM, ATM and OTM for calls and puts, and how each behaves.IntermediateExercise and AssignmentExercise is when an option holder uses their right; assignment is when a seller must fulfil it. Learn the process, automatic exercise and how to manage it.IntermediateEarly ExerciseEarly exercise is using an American option before it expires. Learn why it usually loses money and the dividend and interest cases where it makes sense.IntermediatePut-Call ParityPut call parity links the prices of calls, puts, the underlying and interest rates. Learn the formula, a worked example, arbitrage logic and synthetic positions.IntermediateOption Payoff DiagramsPayoff diagrams show an option position's profit or loss at expiration across prices. Learn to read and draw them for single options and multi leg strategies.
Basic Positions
IntermediateLong CallA long call is buying a call option to profit from a rise with limited risk. Learn the payoff, break even, how to choose strike and expiry, and common pitfalls.IntermediateShort CallA short call sells a call option to collect premium, profiting if the price stays below the strike. Learn the payoff, uncapped risk, margin and safer alternatives.IntermediateLong PutA long put is buying a put option to profit from a decline or to hedge. Learn the payoff, break even, long put vs short selling and how to choose strikes.IntermediateShort PutA short put sells a put option to collect premium, profiting if the price stays above the strike. Learn the payoff, risks, margin and how it can buy stock.IntermediateCovered CallA covered call sells a call against shares you own to collect premium. Learn the payoff, how to pick strikes, the trade offs and when the strategy works best.IntermediateCash-Secured PutA cash secured put sells a put while holding cash to buy the shares if assigned. Learn the payoff, the wheel strategy, strike choice and the risks involved.IntermediateProtective PutA protective put buys a put on shares you own to limit downside. Learn the payoff, what protection costs, how to choose strikes and when hedging makes sense.IntermediateCollarsA collar holds shares, buys a protective put and sells a call to fund it. Learn the payoff, zero cost collars, strike choices and who uses this hedge.IntermediateSynthetic PositionsSynthetic positions combine options and the underlying to copy another position's payoff. Learn synthetic stock, calls and puts, and why traders use them.
The Greeks
AdvancedThe Option Greeks ExplainedThe option Greeks measure how an option's price responds to price, time, volatility and rates. Learn what each Greek means and how traders use them together.AdvancedDeltaDelta measures how much an option's price moves for a $1 move in the underlying. Learn delta for calls and puts, delta as a hedge ratio and as a rough probability.AdvancedGammaGamma measures how much an option's delta changes for a $1 move in the underlying. Learn why gamma peaks at the money near expiry and how it drives risk.AdvancedThetaTheta measures how much an option loses in value each day as time passes. Learn how decay speeds up near expiry and why sellers collect what buyers pay.AdvancedVegaVega measures how much an option's price changes for a 1 point move in implied volatility. Learn how it varies by expiry and why it matters around events.AdvancedRhoRho measures how much an option's price changes for a 1 point change in interest rates. Learn why calls gain and puts lose as rates rise, and when rho matters.AdvancedCharm, Vanna and VolgaCharm, vanna and volga measure how delta and vega change with time, volatility and price. Learn what each means and why dealers and volatility traders watch them.AdvancedDelta HedgingDelta hedging offsets an option position's directional risk with the underlying. Learn how it works, how often to rehedge and what risk remains.AdvancedGamma ScalpingGamma scalping buys options and repeatedly delta hedges to lock in gains from price swings. Learn how it works, the break even move and when it pays.AdvancedTheta HarvestingTheta harvesting sells options to collect time decay and the volatility risk premium. Learn the evidence, the common structures and how to survive the tail risk.AdvancedVega PositioningVega positioning builds option trades to profit from rising or falling implied volatility. Learn long and short vega structures, term structure and how to size them.AdvancedManaging Portfolio GreeksLearn to add up delta, gamma, theta and vega across many option positions, set limits, run scenarios and adjust a book so its risks match your intentions.AdvancedDealer Gamma ExposureDealer gamma exposure estimates how option dealers' hedging may dampen or amplify moves. Learn how GEX is calculated, what it suggests and its big limitations.AdvancedOptions Open Interest AnalysisOpen interest counts option contracts still open. Learn how to read open interest with volume, the put call ratio, max pain and unusual activity, and their limits.
Spreads and Strategies
AdvancedVertical SpreadsA vertical spread buys and sells options of the same type and expiry at different strikes. Learn debit vs credit spreads, the four types and how to choose widths.AdvancedBull Call SpreadA bull call spread buys a call and sells a higher strike call to cut cost and cap profit. Learn the payoff, break even, strike selection and how to manage it.AdvancedBear Put SpreadA bear put spread buys a put and sells a lower strike put to cut cost and cap profit. Learn the payoff, break even, strike choice and use as a hedge.AdvancedBull Put SpreadA bull put spread sells a put and buys a lower strike put for a net credit. Learn the payoff, probability, strike and width choices, and how to manage losers.AdvancedBear Call SpreadA bear call spread sells a call and buys a higher strike call for a credit. Learn the payoff, how it caps short call risk, strike choices and trade management.AdvancedCalendar SpreadsA calendar spread sells a near term option and buys a longer term option at the same strike. Learn how it profits from time decay and volatility, with examples.AdvancedDiagonal SpreadsA diagonal spread buys a longer dated option and sells a shorter dated one at a different strike. Learn how it works, the poor man's covered call and its risks.AdvancedIron CondorAn iron condor sells a put spread and a call spread to profit if price stays in a range. Learn the payoff, strike and width choices, adjustments and the main risks.AdvancedIron ButterflyAn iron butterfly sells an at the money straddle and buys wings for protection. Learn the payoff, how it compares with an iron condor and how to manage it.AdvancedButterfly SpreadA butterfly spread buys one option, sells two at a middle strike and buys one higher. Learn the payoff, why it is cheap, broken wing variants and how to use it.AdvancedStraddleA straddle buys or sells a call and put at the same strike and expiry. Learn how long straddles profit from big moves, short ones from calm, and the implied move.AdvancedStrangleA strangle buys or sells an out of the money call and put. Learn how it compares with a straddle, break evens, strike choices and the risks of short strangles.AdvancedRatio SpreadsRatio spreads buy and sell different numbers of options at different strikes. Learn front ratios, backspreads, payoffs, uses and the risk of the extra short options.
Pricing Models
AdvancedBlack-Scholes ModelThe Black Scholes model prices European options from five inputs. Learn the formula, its assumptions, a step by step example and where the model breaks down.AdvancedBlack-76 and Bachelier ModelsBlack 76 prices options on futures and forwards; Bachelier assumes normal price changes and handles negative prices. Learn the formulas, uses and differences.AdvancedBinomial and Trinomial TreesBinomial and trinomial trees price options by stepping prices up and down through time. Learn how the Cox Ross Rubinstein model works, with a worked example.AdvancedMonte Carlo Option PricingMonte Carlo pricing simulates many random price paths and averages the discounted payoffs. Learn the method, a Python sketch, accuracy, variance reduction and uses.AdvancedAmerican Option PricingAmerican options can be exercised early, so they need special pricing methods. Learn trees, finite differences, approximations and Longstaff Schwartz simulation.AdvancedLocal VolatilityThe local volatility model, from Dupire and Derman Kani, makes volatility depend on price and time so it fits every listed option. Learn how it works and its limits.AdvancedStochastic Volatility and the Heston ModelThe Heston model treats volatility as a random, mean reverting process linked to price. Learn its five parameters, how it creates skew and how it is calibrated.AdvancedSABR ModelThe SABR model describes how forward prices and volatility move together and fits smiles with four parameters. Learn the model, each parameter and its uses in rates.AdvancedVolatility Interpolation and ExtrapolationVolatility interpolation fills gaps between quoted options to build a smooth, arbitrage free surface. Learn the main methods, SVI and the arbitrage checks.
Exotic Options
AdvancedExotic Options ExplainedExotic options have payoffs or features beyond standard calls and puts. Learn the main types, including barriers, binaries, Asians and quantos, and why they exist.AdvancedBarrier OptionsBarrier options switch on or off if the underlying touches a set level. Learn knock in and knock out types, in out parity, pricing, uses and hedging challenges.AdvancedBinary OptionsBinary options pay a fixed amount if a condition is met and nothing if not. Learn how they are priced, how they relate to prediction markets and the scams to avoid.AdvancedAsian OptionsAsian options pay based on the average price over a period rather than one final price. Learn the types, why they are cheaper, who uses them and how they are priced.AdvancedQuanto OptionsQuanto options pay a foreign asset's return in your own currency at a fixed exchange rate. Learn how quantos work, the correlation adjustment and where they appear.