I learn stock options trading.
The expiration date is the last day an option contract can be exercised – after this date, the option ceases to exist and becomes worthless if not acted upon. Think of it as the deadline on a coupon: useful until that date, worthless paper afterward. For weekly income traders, expiration dates create 52 opportunities per … Read more
The strike price is the predetermined price at which an option can be exercised – it’s the price you agree to buy (calls) or sell (puts) 100 shares of stock, regardless of where the market price moves. Think of it as the price tag on a contract that doesn’t change. If you sell a $50 … Read more
Implied volatility (IV) is the market’s expectation of how much a stock will move over a specific period, expressed as an annualized percentage. Think of IV as the options market’s fear gauge – when traders expect big moves, they pay more for options, driving IV higher. When traders expect calm markets, option prices and IV … Read more
Rho measures how much an option’s price changes when interest rates move 1%, making it the least impactful Greek for most traders. In an era of relatively stable interest rates, rho rarely affects day-to-day option trading decisions. However, understanding rho becomes important for LEAPS (long-term options), during Federal Reserve policy shifts, or when trading high-priced … Read more
Vega measures how much an option’s price changes when implied volatility moves 1%, making it crucial for understanding option pricing beyond simple stock movement. Unlike the other Greeks that deal with price and time, vega captures the market’s fear, uncertainty, and expectations. When traders say options are “expensive” or “cheap,” they’re really talking about implied … Read more
Gamma measures how fast your delta changes as the stock moves, making it the “acceleration” of option pricing. Think of it like driving a car – if delta is your speed, gamma is how quickly you can speed up or slow down. For option buyers, gamma is the secret weapon that creates those massive overnight … Read more
Theta measures how much an option loses value each day simply from the passage of time, making it the most important Greek for income traders. Often called “time decay,” theta is why options are considered wasting assets – they lose value every single day, even if the stock doesn’t move. For option sellers, theta is … Read more
Delta is the most straightforward of the option Greeks, measuring how much an option’s price changes when the underlying stock moves $1. Think of delta as your “stock equivalent position” – a 0.50 delta call acts like owning 50 shares, while a -0.50 delta put acts like being short 50 shares. But delta tells you … Read more
Being “short” in options means you’ve sold a contract – you’ve collected premium in exchange for taking on obligations. Whether you’re short calls or short puts, you’ve given someone else rights that you must honor if they choose to exercise. Short positions generate immediate income but come with potential obligations that can result in significant … Read more
Being “long” in options means you own the contract – you’ve paid premium to acquire rights without any obligations. Whether you’re long calls or long puts, you control what happens next. You can exercise your rights, sell the contract to someone else, or simply let it expire if it’s not profitable. Long positions are often … Read more