What you should know about options before you start

Core

Call and Put

A call benefits from rising prices, a put from falling prices. Both create an asymmetric payoff profile.

• Call Right to buy the underlying at a specified price.
• Put Right to sell the underlying at a specified price.
• Important Buyers often risk the premium, sellers usually much more.

Pricing

Implied Volatility

Implied volatility reflects how much future movement the market is pricing in. It often affects option prices more than beginners expect.

• High IV Options tend to be more expensive.
• Low IV Options tend to be cheaper.
• Practice Direction matters, but the volatility regime matters too.

Strike

Moneyness

Moneyness describes the relationship between the current price and the strike. It helps classify options as ITM, ATM, or OTM.

• ITM Intrinsic value is already present.
• ATM Price and strike are roughly at the same level.
• OTM The option consists almost entirely of time value.

Risk

Time Decay and Greeks

Options lose value over time. Delta, Gamma, Theta, and Vega then define how sensitive the position is to market changes.

• Theta Measures daily time decay.
• Delta Shows how closely the option tracks the underlying.
• Gamma/Vega Become especially relevant near expiry or in volatility shocks.