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Understand options and the Greeks

Follow these articles in order, or open any explanation on its own. Each step includes examples and a question to check your understanding.

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  1. Step 1 · Concept explained

    Options Explained: Calls, Puts, Buyers and Sellers

    An option is a contract with specific rights for its buyer and obligations for its seller. Start with the underlying, strike, expiration, premium and deliverable before looking at a strategy.

  2. Step 2 · Concept explained

    How to Read an Option Chain: Strike, Bid, Ask, Volume and Open Interest

    An option chain organizes contracts by expiration and strike. Each row is a different instrument, and a displayed midpoint is not a guaranteed execution price.

  3. Step 3 · Concept explained

    Intrinsic and Extrinsic Value: What an Option Premium Contains

    Intrinsic value comes from the current stock price relative to the strike. Extrinsic value is the remaining premium; it reflects factors including time and uncertainty.

  4. Step 4 · Concept explained

    Exercise, Assignment and Expiration: What Actually Happens

    Exercise uses an option’s contractual right; assignment allocates the corresponding obligation to a short position. Those events can create stock or cash obligations that a payoff chart alone does not show.

  5. Step 5 · Concept explained

    The Options Greeks: Delta, Gamma, Theta, Vega and Rho

    The Greeks estimate how an option’s value responds locally to changes in price, time, implied volatility and interest rates. Read the units and the whole position, not just a single number.

  6. Step 6 · Concept explained

    Option Delta: Price Sensitivity and Position Exposure

    Delta estimates the premium change for a small move in the underlying. It also provides a local way to compare option exposure with shares, subject to changing conditions.

  7. Step 7 · Concept explained

    Option Gamma: Why Delta Changes

    Gamma estimates how delta changes when the underlying moves. It explains why a fixed-delta calculation becomes less accurate over larger price changes.

  8. Step 8 · Concept explained

    Option Theta: Time Decay Without the Shortcuts

    Theta estimates the option-price effect of passing time while other model inputs stay fixed. It is a local sensitivity, not a scheduled deduction from a brokerage account.

  9. Step 9 · Concept explained

    Option Vega: Implied Volatility and Premium Sensitivity

    Vega estimates how much an option premium changes when implied volatility moves by one percentage point. A forecast about stock direction alone does not describe this exposure.

  10. Step 10 · Concept explained

    Option Rho: How Interest Rates Affect Option Values

    Rho estimates the premium response to a change in the interest-rate input. It can matter especially for longer-dated options, but it must be separated from stock and volatility changes.

  11. Step 11 · Concept explained

    Implied Volatility, Expected Moves and the Earnings IV Crush

    Implied volatility is inferred from option prices using a model. It describes priced uncertainty under that model, not a directional prediction or a guaranteed trading range.