Options and Strategies

Trading with options is basically the “game” of risk and probabilities. This lesson introduces this correlation through a playful example.

This lesson includes the basic strategies of options, the participants of the options market, and the relationship between margin and leverage. The life cycle of options, their expiration cycles, and the P/L analysis methods are also described. In other words, every essential basic information to understand option trading.

In contrast to simple stock purchase, the option price is influenced by more factors (not just time and risk). This chapter shows how the option premium changes when other variables change - e.g. when the interest rate is decreasing or the risk is increasing.

One must take effect of option price influencing factors when constructing an option strategy or managing a positions. These effects are quantified and measured by option Greeks which are further elaborated in the lesson.

It is common to use Delta neutral positions since it minimises the risk arising from price changes. This way other factors will affect the price of our position. The calibration of Straddle and Strangle strategies are shown in this lesson.

Arbitrage is said to be the game of big players, but this should not be the case. What happens is that the trader takes advantage of the anomalies on the market and incorrectly priced instruments by opening option positions with which he is sure he’ll earn profits.

Complex strategies are usually classified based on their strike prices and expirations relative to each other. The lesson shows the difference between vertical, horizontal, and diagonal spreads and the aspects of the classification.