Understanding Options

Curriculum

16 live sessions

Each session includes a learning objective, practical work, and a competency demonstration. Session titles below are the full syllabus.

1. 01Why Options Exist

   What you learn. Understand why options exist and the problems they can solve: speculation, hedging, income, leverage, and risk transfer. Understand calls and puts, buyers and sellers, rights and obligations, and the basic contract structure.

   Practical work. Examine real option contracts and identify the underlying, strike, expiration, multiplier, type, and buyer/seller position.

   Competency. Given an unfamiliar option contract, explain who has the right, who has the obligation, what is exchanged, and under what conditions the contract has value.

2. 02The Underlying Market & Option Exposure

   What you learn. Understand that an option is a derivative of something else. Distinguish equity, ETF, index and futures options, and how the underlying type changes exposure, settlement context and risk. Learn why two options on the same underlying can still behave differently.

   Practical work. Compare an underlying with calls and puts at different strikes and expirations across at least two underlying types.

   Competency. Explain why two options on the same underlying can react very differently to the same market move, and how underlying type changes what the option actually references.

3. 03Option Payoffs & Break-Even

   What you learn. Understand expiration P&L profiles for long and short calls and puts, including maximum profit, maximum loss and break-even. Distinguish expiration payoff (intrinsic value at expiry) from mark-to-market P&L before expiration, when time value means the live market price can differ substantially from the expiration diagram.

   Practical work. Calculate and graph expiration payoffs for basic positions, then contrast those diagrams with the same positions marked before expiration.

   Competency. Given an option position, identify maximum gain, maximum loss, break-even and expiration payoff without a calculator — and explain why that diagram is not the position's P&L at every point before expiration.

4. 04Premium, Intrinsic Value & Time Value

   What you learn. Understand option premium and the difference between intrinsic value and time value, including why an option can lose value when direction is correct. Connect this session to Session 03: time value is why live P&L diverges from expiration payoff.

   Practical work. Decompose real premiums into intrinsic and time value across strikes and expirations.

   Competency. Explain why two options on the same underlying can have dramatically different premiums.

5. 05Moneyness, Strike & Expiration

   What you learn. Understand ITM, ATM and OTM options, strike selection, expiration selection, and trade-offs between directional exposure, premium, leverage, time, decay and risk. Choosing an option is itself a trade decision — not 'I think the underlying goes up, so buy a call.'

   Practical work. Compare strikes and expirations for one underlying and construct a decision matrix covering exposure, cost, time, decay and what happens if the thesis is right but late.

   Competency. Given a directional thesis, explain how strikes and expirations change risk/reward and trade behavior.

6. 06Reading an Option Chain

   What you learn. Read bid/ask, spread, volume, open interest, implied volatility, strike, expiration and contract size. Understand that open interest is not liquidity, volume is not liquidity, bid/ask spread and execution quality determine whether a theoretical payoff is realizable, and market orders in thin strikes can destroy the thesis.

   Practical work. Analyze a live option chain and identify liquid versus illiquid contracts using spread, size and activity — not volume or open interest alone.

   Competency. Select an appropriate contract for a hypothetical trade and explain why it was chosen rather than simply selecting the cheapest option.

7. 07Delta & Directional Exposure

   What you learn. Teach delta only: directional sensitivity, relationship to moneyness, how delta changes as the underlying moves, and why delta is not a guaranteed probability of finishing in the money. Delta describes exposure and expected outcome language — it does not forecast where the underlying will go.

   Practical work. Compare options with different deltas and observe how directional exposure changes as the underlying moves.

   Competency. Explain the practical difference between low-, medium- and high-delta choices for one thesis, including why a delta figure is not a probability guarantee.

8. 08Time Decay & Expiration Risk

   What you learn. Understand time decay and theta conceptually: expiration proximity, nonlinear behavior near expiration, and why theta is an instantaneous model-based sensitivity — not a promise that the option loses exactly $X every day. Actual P&L also depends on underlying path and implied-volatility changes.

   Practical work. Track options through time while the underlying remains relatively unchanged, and note where actual P&L diverges from a naive 'daily theta' expectation.

   Competency. Explain how time affects a position and identify when decay can work against the trader — without treating theta as guaranteed daily cash loss.

9. 09Implied Volatility & Option Premium

   What you learn. Understand implied versus realized volatility and how changing volatility expectations change option premiums. Answer the Level I question: why can two options with the same underlying, strike and expiry still change in value when volatility expectations change? Introduce vega only conceptually through that premium effect — not Black-Scholes derivation.

   Practical work. Compare option premiums under different implied-volatility conditions with strike and expiry held constant.

   Competency. Explain how price, time and implied volatility can simultaneously affect option value.

10. 10Greeks: The Basic Risk Map

    What you learn. Integrate concepts already met: delta, gamma, theta and vega as sensitivities — not predictions. Delta does not say where the underlying will go; vega does not say whether IV will rise; theta does not guarantee daily P&L. Show how Greeks interact — e.g. a long call can have positive delta, positive gamma, negative theta and positive vega — and what that means in plain English.

    Practical work. Observe Greeks across strikes, expirations and underlying prices, and map the Greek profile of common Level I positions.

    Competency. Given an option position, explain its major sensitivities, how they interact, and which variables represent the greatest risk.

11. 11Long Calls & Long Puts

    What you learn. Understand the trade-offs of direction, timing, volatility, leverage, premium decay and execution quality when buying calls or puts.

    Practical work. Construct defined-risk directional trades with different strikes and expirations, including a liquidity check on the chosen contracts.

    Competency. Given a directional thesis, defend the option type, strike, expiration, maximum risk, exit conditions and why that contract is tradable.

12. 12Covered Calls & Cash-Secured Puts

    What you learn. Understand assignment, obligation, downside exposure, opportunity cost and effective entry/exit prices — including how spread and liquidity affect realized income.

    Practical work. Model multiple underlying-price outcomes and calculate P&L.

    Competency. Explain when the strategy is appropriate, what risk it carries, and why it is not free income.

13. 13Protective Puts & Collars

    What you learn. Understand options as portfolio insurance, including protection cost, upside limits, trade-offs and the cost of exiting the hedge in a live market.

    Practical work. Compare an unhedged position with protective-put and collar structures across scenarios.

    Competency. Select a hedge and explain what it protects against, what it costs, and what risk remains.

14. 14Exercise, Assignment, Settlement & Corporate Actions

    What you learn. Distinguish American-style versus European-style exercise from physical versus cash settlement — these are independent characteristics. Cover assignment risk, expiration-Friday mechanics, automatic-exercise thresholds where applicable, ex-dividend dates, corporate actions, and clearing at an appropriate Level I depth. Note that European-style exercise is not the same thing as a European underlying.

    Practical work. Work through real-world assignment, expiration and settlement scenarios across different underlying types.

    Competency. Given a position approaching expiration, identify what can happen, what action may be required, and what risks must be considered.

15. 15Rolling, Managing & Closing Options

    What you learn. Understand that closing, adjusting or rolling is a new investment decision — not automatically risk reduction. A roll is not a third magical alternative: compare keeping the current position versus closing it and opening the proposed new position, including transaction costs and liquidity.

    Practical work. Decide whether to close, hold, adjust or roll positions that moved for or against the trader, and document the close-and-replace comparison for any proposed roll.

    Competency. Defend a management decision by comparing the current position with the proposed alternative on current risk/reward — not attachment to the original trade.

16. 16Integration: Build & Defend an Options Trade

    What you learn. Integrate underlying thesis, option selection, strike, expiration, volatility, Greeks, payoff, liquidity and execution risk, risk and management into one complete Level I trade.

    Practical work. Select an underlying and document the thesis, option type, strike, expiration, premium, Greeks, IV, maximum risk, break-even, exits, invalidation, assignment considerations, liquidity/execution plan and management plan.

    Competency. Defend why using this option is better than trading the underlying, and explain why at least one alternative option structure was rejected.