Volatility, Pricing & Risk

Curriculum

16 live sessions

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

1. 01Volatility for Beginners: What It Really Means

   What you learn. Understand what volatility measures and what it does not measure. Learn that volatility describes the magnitude and variability of price movements rather than direction. Understand why volatility changes through time and why two markets with similar returns can have different volatility profiles.

   Practical work. Examine historical price series with different levels of volatility. Calculate or compare simple measures of realized movement and observe how volatility changes during calm, trending, and turbulent periods.

   Competency. Given a price series or volatility measure, explain what the volatility is describing, distinguish volatility from direction, and explain why a change in volatility does not by itself indicate whether the underlying will rise or fall.

2. 02Implied Volatility and Expected Move

   What you learn. Understand implied volatility as the volatility level implied by an option's market price under a pricing model. Learn how implied volatility relates to the market's option-implied expected range and why the expected move is a distributional estimate rather than a directional forecast. Understand the assumptions and limitations behind using implied volatility to estimate expected movement.

   Practical work. Use an option chain to calculate an implied expected move for a selected expiration. Compare the resulting range with actual historical movements and examine how the implied range changes across expirations.

   Competency. Given an option chain and underlying price, derive an implied expected move, explain what it represents, and clearly distinguish the implied range from a prediction of where the underlying will finish.

3. 03Historical vs Implied Volatility in Trading

   What you learn. Understand the difference between historical volatility and implied volatility. Learn how historical volatility describes realized past movement while implied volatility reflects the volatility embedded in current option prices. Understand why comparing the two can provide context but cannot, by itself, determine whether an option is cheap or expensive.

   Practical work. Calculate or examine historical volatility over multiple lookback periods and compare it with current implied volatility. Analyze situations where IV is above, below, or close to historical volatility and identify possible explanations.

   Competency. Given historical and implied volatility measurements, explain what each represents, compare them appropriately, and identify what conclusions can and cannot be drawn from the difference.

4. 04IV Rank and Percentile

   What you learn. Understand implied-volatility rank and percentile as measures of where current IV sits relative to a defined historical range or distribution. Learn the difference between rank and percentile, the importance of the lookback period and data quality, and why high or low IV readings are context rather than automatic trade signals.

   Practical work. Calculate or interpret IV rank and percentile using historical IV observations. Compare assets and lookback periods and examine how the measures change when the historical window changes.

   Competency. Given current IV and historical observations, calculate or interpret IV rank and percentile, explain the reference period being used, and state the limitations of using either metric as a standalone trading signal.

5. 05Volatility Smile and Skew

   What you learn. Understand how implied volatility can differ across strikes for the same expiration. Learn the concepts of volatility smile and skew and why option demand, downside protection, supply, and market structure can produce different IV levels across strikes. Understand that a volatility surface contains information beyond a single headline IV number.

   Practical work. Examine an option chain across multiple strikes and plot or map implied volatility against strike. Identify skew or smile characteristics and compare them across underlyings or expirations.

   Competency. Given a strike-by-strike IV profile, identify the shape of the volatility smile or skew and explain what the shape tells you about the relative pricing of options at different strikes.

6. 06Term Structure of Volatility

   What you learn. Understand how implied volatility varies across expiration dates. Learn the concepts of contango and backwardation in the volatility term structure and the relationship between expiration-specific IV and expected events or changing market conditions. Understand why an option's expiration cannot be evaluated independently of the volatility environment for that maturity.

   Practical work. Examine implied volatility across several expirations for the same underlying. Identify the term structure, compare maturities, and investigate how an upcoming event can affect specific expirations.

   Competency. Given IV observations across multiple expirations, identify the term-structure shape and explain how the structure can affect expiration selection and calendar-based strategies.

7. 07Calendar and Diagonal Spreads

   What you learn. Understand calendar spreads and diagonal spreads as structures that combine options with different expirations, with diagonals also differing in strike. Learn how the structures create exposure to time, volatility, strike, and relative option pricing. Understand the principal thesis and failure modes of each structure and how a PMCC relates to the broader diagonal-spread family.

   Practical work. Construct a calendar and a diagonal spread using an option chain. Compare their strikes, expirations, debit/credit, payoff characteristics, volatility exposure, and behavior as time passes.

   Competency. Given a market and volatility thesis, select between a calendar and diagonal structure and explain the role of each leg, the intended source of return, the principal risks, and the conditions that would invalidate the trade.

8. 08Volatility Surface: Introduction

   What you learn. Understand the volatility surface as the relationship between implied volatility, strike, and expiration. Integrate the concepts of skew, smile, and term structure into a three-dimensional view of option pricing. Learn why comparing options using only their individual IV values can be misleading when their strikes and maturities differ.

   Practical work. Examine an IV surface across multiple strikes and expirations. Identify changes in skew, term structure, and local IV and compare the relative pricing of selected options.

   Competency. Given a volatility surface, explain how IV varies across strike and expiration, identify the principal structural features, and use the surface to compare two otherwise different options.

9. 09Option Pricing Fundamentals

   What you learn. Understand the principal variables that influence an option's theoretical value: underlying price, strike, time to expiration, volatility, interest rates, dividends, and carry. Learn how these inputs interact and why option pricing is a model-dependent estimate rather than an objective observable value.

   Practical work. Change one pricing input at a time and observe its effect on theoretical option value. Compare calls and puts across different strikes, expirations, volatility levels, rates, and dividend assumptions.

   Competency. Given an option and a change in one or more pricing inputs, explain the expected direction of the change in theoretical value and identify which assumptions or model inputs are responsible.

10. 10Volatility Clustering and Mean Reversion

    What you learn. Understand the empirical tendency for volatility to cluster through time and the concept of volatility mean reversion. Learn why periods of high or low volatility can persist rather than immediately returning to an average level. Understand how volatility regimes can affect strategy selection, sizing, and expectations without treating mean reversion as a guaranteed trading signal.

    Practical work. Examine historical volatility series and identify periods of clustering, persistence, expansion, and contraction. Compare volatility behavior across different market environments and test simple observations about persistence and reversion.

    Competency. Given a volatility history, identify clustering and potential mean-reversion behavior and explain how the observed regime could affect an options strategy without assuming that volatility must immediately revert.

11. 11Delta: Price Sensitivity and Hedge Ratios

    What you learn. Understand delta as a model-based sensitivity of option value to changes in the underlying price. Learn the practical interpretation of delta as approximate share-equivalent exposure for small underlying moves and its relationship to dynamic hedge ratios. Understand why delta changes as the underlying, time, and volatility change.

    Practical work. Examine calls and puts at different strikes and expirations and observe how delta changes. Calculate the approximate underlying exposure of individual options and multi-leg positions.

    Competency. Given an option or option position and its delta, calculate and explain its approximate share-equivalent exposure, identify how the exposure changes as the underlying moves, and distinguish delta sensitivity from a directional forecast.

12. 12Gamma: The Acceleration Factor

    What you learn. Understand gamma as the rate at which delta changes as the underlying moves. Learn why gamma creates convexity and why option exposure can change rapidly near certain strikes and expirations. Understand the interaction between gamma and delta and why the path taken by the underlying can affect realized P&L.

    Practical work. Track delta and gamma for options at different strikes and maturities as the underlying moves. Compare high- and low-gamma positions and observe how their share-equivalent exposure changes.

    Competency. Given an option position and its gamma, explain how delta is expected to change when the underlying moves, identify where gamma risk is likely to become significant, and explain the resulting implications for position management.

13. 13Theta: Time Decay Dynamics

    What you learn. Understand theta as a model-based sensitivity to the passage of time. Learn why time decay is nonlinear and why the rate of decay can change as expiration approaches. Understand that theta is not simply a fixed daily amount and that realized P&L can differ from the displayed theta because other variables are changing.

    Practical work. Track the theoretical value of an option as time passes while holding other inputs constant, then compare that controlled result with scenarios where the underlying and IV also change.

    Competency. Given an option's theta and time remaining, explain what the sensitivity represents, identify why the actual daily P&L may differ from theta, and explain how time decay typically changes as expiration approaches.

14. 14Vega: Volatility Sensitivity

    What you learn. Understand vega as the sensitivity of an option's theoretical value to changes in implied volatility. Learn why IV changes can materially affect option P&L even when the underlying is unchanged. Understand how volatility sensitivity varies with maturity and why long- and short-option positions have opposite vega exposure.

    Practical work. Hold the underlying price constant and change implied volatility across several scenarios. Observe the resulting theoretical P&L for long and short options and compare vega across expirations.

    Competency. Given an option position and an IV change, explain the expected direction and approximate sensitivity of the position's value, identify the vega exposure, and explain why the position can gain or lose despite no movement in the underlying.

15. 15Rho, Dividends, Carry, and Greek Interaction

    What you learn. Understand rho as sensitivity to interest rates and learn when interest rates, dividends, and carry materially affect option valuation. Integrate delta, gamma, theta, vega, and rho into a combined risk profile and understand that option P&L can be driven by several changing inputs simultaneously.

    Practical work. Examine option positions under different rate, dividend, underlying, volatility, and time scenarios. Build a simple multi-Greek scenario matrix and identify which risk factors dominate under different conditions.

    Competency. Given an option position and a set of changing market inputs, identify the relevant Greeks and carry effects, explain how they interact, and determine which sensitivities are likely to matter most for the position.

16. 16Greeks Integration Lab, Model Risk, and Course Exam

    What you learn. Integrate the full volatility, pricing, and Greeks framework into scenario-based risk analysis. Learn that Greeks are model sensitivities rather than guaranteed forecasts and understand the practical limitations of using theoretical models to manage real positions. Understand model risk, parameter assumptions, discrete market moves, liquidity, execution slippage, and situations in which a hedge based on theoretical sensitivities may not behave as expected.

    Practical work. Analyze a complete option position through a multi-variable scenario matrix covering underlying price, implied volatility, time, interest rates, and other relevant inputs. Compare theoretical Greek-based expectations with simulated position outcomes and identify where model assumptions can break down.

    Competency. Given an unfamiliar option position and a set of market scenarios, explain the position's principal Greek exposures, predict the directional effect of each input using the model framework, identify interactions among the Greeks, state the model assumptions and limitations, and explain circumstances in which the theoretical hedge or risk estimate could fail.