OPTIONS

• SUNDAY MAY 19, 2019

DISCLAIMER

• THERE IS A VERY HIGH DEGREE OF RISK INVOLVED IN TRADING. PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RETURNS. “THE PRESENTER "AND ALL INDIVIDUALS AFFILIATED WITH THIS SITE ASSUME NO
RESPONSIBILITIES FOR YOUR TRADING AND INVESTMENT RESULTS. THE INDICATORS, STRATEGIES,
COLUMNS, ARTICLES AND ALL OTHER FEATURES ARE FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT
BE CONSTRUED AS INVESTMENT ADVICE. INFORMATION FOR STOCK OBSERVATIONS ARE OBTAINED FROM
SOURCES BELIEVED TO BE RELIABLE, BUT WE DO NOT WARRANT ITS COMPLETENESS OR ACCURACY, OR
WARRANT ANY RESULTS FROM THE USE OF THE INFORMATION. YOUR USE OF THE STOCK OBSERVATIONS IS
ENTIRELY AT YOUR OWN RISK AND IT IS YOUR SOLE RESPONSIBILITY TO EVALUATE THE ACCURACY,
COMPLETENESS AND USEFULNESS OF THE INFORMATION. YOU MUST ASSESS THE RISK OF ANY TRADE WITH
YOUR BROKER AND MAKE YOUR OWN INDEPENDENT DECISIONS REGARDING ANY SECURITIES MENTIONED
HEREIN.“THE PRESENTER” MAY HAVE A POSITION OR EFFECT TRANSACTIONS IN THE SECURITIES
DESCRIBED HEREIN (OR OPTIONS THEREON) AND/OR OTHERWISE EMPLOY TRADING STRATEGIES THAT MAY
BE CONSISTENT OR INCONSISTENT WITH THE PROVIDED STRATEGIES.

DISCLAIMER

• DISCLOSURE

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• I UNDERSTAND THAT THE INFORMATION IN THIS PRESENTATION WILL PREPARE ME TO ACTIVELY
TRADE EQUITIES FOR MY OWN ACCOUNT. I UNDERSTAND THAT THIS COURSE IS NOT PREPARATION TO BE A
LICENSED BROKER IN THE FINANCIAL INDUSTRY OR WILL HELP ME GET A JOB.
• THE PRESENTATION SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OR AN OFFER TO BUY OR
SELL ANY SECURITY OR THE SUITABILITY OF ANY INVESTMENT STRATEGY FOR A STUDENT. THE
PURCHASE, SALE, OR ADVICE REGARDING ANY SECURITY, OTHER FINANCIAL INSTRUMENT OR SYSTEM CAN
ONLY BE PERFORMED BY A LICENSED INDUSTRY REPRESENTATIVE; SUCH AS, BUT NOT LIMITED TO A
BROKER/DEALER, INTRODUCING BROKER,FCM AND AND/OR REGISTERED INVESTMENT ADVISOR.
NEITHER I (“THE PRESENTER” IS LICENSED TO MAKE SUCH ADVISEMENTS. ALTHOUGH THIS
PRESENTATION IS FREE YOU ARE ENCOURAGED TO SPEAK WITH A LICENSED REPRESENTATIVE OF THEIR
CHOICE REGARDING THE APPROPRIATENESS OF INVESTING/TRADING OR OF ANY PARTICULAR
INVESTMENT/TRADING STRATEGY.

OUTLINE

• WHAT IS AN OPTION
• THE GREEKS
• DELTA
• IMPLIED VOLATILITY AND RANKING
• EXPECTED MOVES
• INTRINSIC/EXTRINSIC VALUE
• GAMMA
• THETA
• VEGA
• VERTICAL SPREADS

WHAT IS AN OPTION?

• A FINANCIAL INSTRUMENT THAT OFFERS THE BUYER OPPORTUNITY TO BUY OR SELL – DEPENDING ON THE
TYPE OF CONTRACT THEY HOLD
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• WHEN BUYING YOU HAVE THE RIGHT NOT THEOBLIGATION TO BUY A SPECIFIC QUANTITY OF A
SECURITY

• WHEN SELLING YOU ARE SELLING THE RIGHT BUT NOT THE OBLIGATION TO MAKE YOU BUY THAT
SECURITY

• HOW DOES THIS DIFFER FROM STOCK?

OPTIONS VS STOCK

• STOCK – CAN ONLY BUY TO OPEN (LONG) OR SELL TO OPEN (SHORT)

• OPTIONS YOU CAN BUY TO OPEN, SELL TO OPEN ON THE CALLS/PUTS
• DIFFERENT QUANTITIES/RATIOS
• DIFFERENT EXPIRATIONS
• DIFFERENT SIDES OF THE OPTION CHAIN

STOCKS

OPTIONS

WHAT TYPE OF TRADER DO YOU WANT TO BE?

• THERE ARE A TON OF OPTION TRADERS OUT THERE

• OPTIONS INVENTORY
• INCOME STRATEGIST OPTIONS
• LONG TERM OPTION
• STOCKS/OPTION
• THE EDUCATION IN THIS PRESENTATION IS HERE FOR YOU TO DECIDE WHAT KIND OF OPTION TRADER YOU
WANT TO BECOME

• FIND YOUR PATH

STATISTICS

WHY IS THIS IMPORTANT?

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• OPTIONS ARE CALCULATED BASED ON STATISTICS AND THE MAGIC NUMBER OF 68% OR 1 STANDARD
DEVIATION (STD OR SIGMA)

• SEEN ON TOS OR ANY OTHER PLATFORM AS IMPLIED VOLATILITY

• SEEN ALSO AS EXPECTED MOVE

EXPECTED MOVE OF SPY

• 4 YEAR LOOK BACK

• OUT OF 244 WEEKS
• 152 WEEKS CLOSED INSIDE EM (62%)
• 92 WEEKS CLOSED OUTSIDE EM (38%)

2017 SPY

2018 SPY

EXPECTED MOVE

• MEANS THAT THERE’S A 68% PROBABILITY THAT PRICE WILL STAY INSIDE THE RANGE

I DON’T HAVE TOS…

• EXPECTED MOVE CAN BE CALCULATED

USING ATM CALL + ATM PUTS FOR
THAT EXPIRATION

• EG. AAPL $9.10 CALLS + $4.70 PUTS

= $13.80
TOS IS QUOTING $14.139

SO WHAT DOES THIS MEAN?

• IT MEANS THAT AAPL HAS A 68% CHANCE TO STAY IN BETWEEN $175.20 - $202.80 UNTIL JUNE 21,
2019
• SO IF YOU ARE BUYING $200 CALLS BEFORE JUNE 21 YOU BETTER RECONSIDER BECAUSE THE ODDS ARE
NOT IN YOUR FAVOR

• IF YOU ARE BUYING $210 CALL YOU BETTER RECONSIDER

GREEKS

• DELTA
• VEGA
• THETA
• GAMMA
• RHO
• THE REST

DELTA

• THIS IS THE RATIO RELATIONSHIP BETWEEN

THE UNDERLYING AND PREMIUM

• IT IS HOW MUCH YOUR OPTION

PREMIUMS CHANGE FROM A $1.00 MOVE
IN THE UNDERLYING.

• EG. AAPL190621C185 – IF THE

UNDERLYING MOVES TO $186 MY OPTION
PREMIUM WILL GAIN $0.611

DELTA

• IT CAN ALSO BE USED FOR PROBABILITIES ON THAT

BELL CURVE FROM THE BEGINNING
• IT IS ALSO A GOOD REFERENCE FOR TELLING OTHER
TRADERS WHAT TYPE OF STRATEGIES YOU ARE
USING.

• EG. I SOLD A PUT SPREAD AT 16 DELTAS

DELTA CAN NEVER EXCEED ONE

VEGA

• ONLY GREEK THAT IS NOT REPRESENTED BY A

REAL GREEK LETTER

• IT IS THE THEORETICAL VALUE OF HOW MUCH

THE PREMIUM CHANGES AS VOLATILITY OF THE
UNDERLYING INCREASES BY 1.00%
• EG. AAPL190621P190: 0.236 VEGA
THEREFORE IF IV RISES BY 1% OF AAPL MY
PREMIUMS INCREASE BY $0.236

VEGA

• IN MY LAST EXAMPLE I CHOSE PUTS FOR A SPECIFIC R EASON

• HOW IS THIS IMPORTANT? BECAUSE IF YOU BUILD AN OPTION STRATEGY LONG/SHORT VEGA YOU
BETTER BUILD IT SO THAT VOLATILITY IS GOING TO DO EXACTLY WHAT YOU NEED IT TO DO

• IF YOU ARE LONG OPTIONS VEGA IS YOUR FRIEND IF VOLATILITY EXPANDS

• IF YOU ARE SHORT OPTIONS VEGA IS YOUR ENEMY IF VOLATILITY EXPANDS
• EG. BUTTERFLY TO THE DOWNSIDE

VEGA

THETA – YOUR FRIEND AND ENEMY

• TIME DECAY – HOW MUCH THE

THEORETICAL VALUE OF AN OPTION
DECREASES

• IF YOU ARE LONG OPTIONS THETA IS

YOUR ENEMY

• IF YOU ARE SHORT OPTIONS THETA IS

YOUR FRIEND

• QUICK FAST RULE TRY TO ALWAYS GET

RID OF YOUR OPTIONS BEFORE 2/3 OF
EXPIRATION

• USE THETA TO DETERMINE HOW MUCH

YOU LOSE EACH DAY

THETA

THETA