Options & Derivatives

Options basics, Greeks (Delta, Gamma, Theta, Vega), options strategies, and volatility trading.

Options Basics

Call and Put Options

Call Option: Right to buy at strike price Put Option: Right to sell at strike price

Key Terms

• Strike Price: Price at which option can be exercised
• Expiration: When option expires
• Premium: Cost of option
• Intrinsic Value: Value if exercised immediately
• Time Value: Premium - Intrinsic Value

Greeks

Delta

# Delta: Price sensitivity to underlying
# Call delta: 0 to 1
# Put delta: -1 to 0

Gamma

# Gamma: Rate of change of delta
# Measures convexity

Theta

# Theta: Time decay
# Options lose value as expiration approaches

Vega

# Vega: Volatility sensitivity
# Higher volatility = higher option prices

Options Strategies

Covered Call

# Own stock + sell call option
# Generate income from premium

Protective Put

# Own stock + buy put option
# Insurance against downside

Straddle

# Buy call + buy put (same strike)
# Profit from large moves in either direction

Volatility Trading

Implied Volatility

# IV: Market's expectation of future volatility
# Compare IV to historical volatility

Volatility Strategies

• Long Volatility: Buy options when IV is low
• Short Volatility: Sell options when IV is high

Key Takeaways

• Options: Leverage and risk management tools
• Greeks: Measure option sensitivities
• Strategies: Combine options for different objectives
• Volatility: Key driver of option prices

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