Options Crash Course

Options Crash Course: Ep #2 - Deconstructing Option Prices

| Sep 10, 2020
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    Options Crash Course

    Options Crash Course: Ep #2 - Deconstructing Option Prices

    Sep 10, 2020

    Yesterday, we kicked off the Options Crash Course, by building the foundation that serves as the source to all option strategies - the option contract. Well in that piece, we learned that the only floating variable that is pertinent to the option contract is its price, and today, we want to dive deeper into that price to uncover its inner workings.

    To do that, we start with the governor to all things option pricing: the Black-Scholes Option Pricing Model. In working through a basic overview of this model, we learn that option pricing is dependent on six different factors, all of which work together to build the probabilistic function that is the BSM. Then, we break option prices down into their two component parts: intrinsic value and extrinsic value. While intrinsic value measures the inherent worth of the option, extrinsic value represents the added “premium” that is tacked on to establish the option’s price.


    Ep #1: The Source of all Strategies

    Ep #2: Deconstructing Option Prices

    Ep #3: Extrinsic Value Extras

    Ep #4: Profit, Direction, and Probability

    Ep #5: The Natural Decay of Options

    Ep #6: Trading Changes in Implied Volatility

    Ep #7: Gamma: Sign, Magnitude, and Risk

    Ep #8: Contracts, Decay, and IV Overstatement

    Ep #9: Defined-Risk Strategies: Part One

    Ep #10: Defined-Risk Strategies: Part Two

    Ep #11: Undefined-Risk Strategies: Part One

    Ep #12: Undefined-Risk Strategies: Part Two

    Ep #13: Managing Winners, Losers, and Rolling

    Ep #14: Directional Bias at the Portfolio Level

    Ep #15: Positive Theta at the Portfolio Level

    Ep #16: Putting it all Together: Trade Entry and Exit

    Ep #17: Putting it all Together: Trade Management

    Watch the second season on Strategy Management!

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