Lecture on Options Trading

Introduction to Calls and Puts

• Calls
  • Buying a call gives the right to buy 100 shares at the strike price.
  • Selling a call obligates the seller to sell 100 shares at the strike price.
• Puts
  • Buying a put gives the right to sell 100 shares at the strike price.
  • Selling a put obligates the seller to buy 100 shares at the strike price.

Visual Summary

• Buying a Call: Bullish strategy, limited risk, unlimited return potential.
• Selling a Call: Neutral to bearish strategy, limited reward, unlimited risk if not covered.
• Buying a Put: Bearish strategy, limited risk, high profit if stock price goes down.
• Selling a Put: Bullish to neutral strategy, potential loss if stock price drops significantly.

Intrinsic vs Extrinsic Value

• Intrinsic Value
  • Call option intrinsic value: Stock price - Strike price
  • Put option intrinsic value: Strike price - Stock price
• Extrinsic Value (Hope Value)
  • Based on time until expiration and volatility.

Understanding Options Chains

• Expiration Dates (DTE)
  • Options can have various expiration dates (e.g., weekly, monthly).
  • Choose expiration based on strategy.
• Strike Prices
  • In the money, at the money, out of the money classifications.
  • Premiums determined by intrinsic and extrinsic values.

The Greeks

• Delta: Measures change in option price for $1 change in stock price.
  • Calls have positive delta, puts have negative delta.
• Gamma: Measures change in delta for $1 change in stock price.
• Theta: Represents time decay of option value.
• Vega: Sensitivity of option price to changes in implied volatility.

Implied Volatility (IV)

• IV: Indicates expected stock price movement.
  • Measure using IV percentile.
  • Buy when IV is low, sell when IV is high.

Types of Option Strategies

• Bullish Strategies
  • Bull call spread, bullish synthetic strategy.
• Bearish Strategies
  • Bear put spread, bearish synthetic strategy.
• Neutral Strategies
  • Iron condors, calendar spreads.

Trading Platforms and Tools

• Use platforms like Think or Swim for option chains and trading tools.
• Importance of selecting the right broker.

Conclusion

• Options trading involves understanding complex strategies and market conditions.
• Continual learning and practice are key to mastering options trading.