Core
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.
Practical
Whether expiry leads to stock delivery or only to a cash adjustment depends on exercise style and product design.
- American style Early exercise is possible.
- European style Settlement only happens at expiration.
- Practice Stocks and ETFs often lead to 100-share delivery, while indices are often cash-settled.
Pricing
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 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
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.
Spreads
Vertical spreads combine two options with the same expiration and different strikes.
That allows you to express direction while keeping risk clearly capped.
- Credit spreads Bull put and bear call start with premium received.
- Debit spreads Bull call and bear put start with premium paid.
- Practice Useful when you have a directional view but want to cap risk and capital usage.