Topic
Options
Premium, time decay, assignment and sizing: the arithmetic behind a contract, and the positions worth taking on how to trade one.
Most options mistakes are arithmetic mistakes made in a hurry: a premium sized as though it were a stop, a short put sized for an average week, a call bought with less time than the idea needs. The pages here work each of those sums through on a hypothetical contract, so you can see the payoff before you place the order.
If the contracts themselves are new to you, the options foundations course starts from what a call and a put are and ends with the approval levels a broker assigns.
Courses
- Options for Beginners: Calls, Puts and Your First Trade
4 lessons · Beginner. Stock investors who have never placed an options trade and want the mechanics in order before the first order goes in.
Analysis
- How Far Out to Buy Calls: More Time Than Your Idea Needs
When buying calls, pick an expiration well past the date your idea needs, then compare the cost of each day of time.
- Selling Puts: Price the Bad Week Before You Sell
Before selling a put, work out the loss after a bad gap and decide whether you would still want the shares on that day.
- Rolling Options: Why a Losing Roll Is a New Trade in Disguise
A roll closes a losing option and opens a new one, so judge the new position as a fresh trade you would open with new money today.
- 0DTE Options: Same-Day Contracts Reward Speed and Punish Hesitation
Same-day options suit a trader with a plan made before the open and an exit they will take; they punish anyone who waits to see what happens.
Explainers
Glossary
- Early assignment
When the holder of an American-style option exercises it before expiration, and the clearing system assigns the obligation to a trader who is short that option.
- Expected move
The size of the price move, up or down, that current option prices imply for a stock by a given expiration, usually stated as one standard deviation.
- Extrinsic value
The part of an option's premium above its intrinsic value: what buyers pay for the time left before expiration and the chance of a bigger move in their favor.
- Open interest
The number of option contracts at a given strike and expiration that have been opened and not yet closed, exercised or expired.
- Pin risk
The uncertainty a short option seller faces when the stock closes at or very near the strike on expiration day, leaving it unclear whether the option will be exercised.
Calculators
- Options Profit Calculator
Profit or loss at expiration for a long or short call or put, with the breakeven and a payoff table.