Quick notes about option greeks and basic option strategies for a forgetful person like me.

Option Stats + Greeks

Open Interest

  • How many options exist in totality.

Implied Volatility

  • Represents the expected volatility of the price of the stock.
  • Used as a proxy of market risks.
  • Increases when bearish, declines when bullish.
  • Directly proportional to the demand of the asset, time left for option expiry.

Delta

  • The amount by which the value of the option moves for every dollar movement in the underlying.
  • The more “In the money”, the more is the delta. “At the money” deltas are 0.5. Think of this as the probability that the option will expire in-the-money.

Gamma

  • The amount by which the Delta changes for every dollar movement in the underlying.
  • The larger the gamma, the more volatile the price of the option.
  • Gamma increases as you get close to expiry. This means the delta, and therefore the option price will swing more wildly the closer you are to expiry.
  • Links
    • https://optionstradingiq.com/gamma-risk-explained/

Theta

  • The amount by which the value of the option drops per day.
  • Theta increases as you get close to expiry.

Vega

  • The amount by which the value of the option moves for every 1% change in Implied Volatility of the underlying.
  • The price of the option goes up when volatility goes up.
  • Vega is higher the further out the option is from expiry. Vega is higher the closer the option is to being “At the money.”

0 options

Leveraged stocks

  • NOT options, but ETFs that have leveraged assets underlying them.
  • Don’t have an expiry, which is the advantage over options. Holding these long term is not advisable though because of daily leverage resetting.
  • ETFdb’s list of leveraged ETFs

1 option

Long Call

  • “Buying to open” a long call gives the right but not the obligation to purchase a stock at a predetermined price on a predetermined date.
  • The hope is the stock appreciated in value.

Short Call

  • “Selling to open” a short call obligates a trader to sell shares of a stock at a predetermined price on a predetermined date, assuming the short call is in the money.
  • The hope is the option doesn’t get exercised so the trader can keep the premium and not give any stocks in exchange.
  • Exact opposite of a long call.

Long Put

  • “Buying to open” a long put option gives the right but not the obligation to sell an underlying asset as a specific price at a specific date in the future.

Short Put

  • “Selling to open” or selling a put contract means you take on the obligation of having to buy an underlying asset at a specific price in the future.
  • Use this to buy stocks especially during high volatility.

Covered Call

  • Buying 100 stocks AND selling a call of the same stock.

Protective Put

  • To protect yourself from downside in a stock you own. Buy a Put. You lose the premium if nothing happens but safeguard your investment.

2 options

Synthetic Long

  • Buying a call and selling a put in the same price and time frame.
  • When you want to own the stock at the price, whether it does down or up. The hope is it goes up though.
  • This is done to mimic owning the stock. The movement is similar to that. One short and one long position prevents impact from Implied Implied Volatility.

Bull Call Spread

  • Also called Vertical Spread or Long Call Spread.
  • Buying a lower priced call and selling a higher priced call.
  • Selling the call is to pay for the real call. Unfortunately, the sold call also restricts upside.

Bear Call Spread

  • Selling a lower priced call and buying a higher priced call.
  • Shooting for the premium but limiting loss in case value shoots like crazy.

Bull Put Spread

  • Sell a put option and buy an even lower priced put option.
  • Lower priced option is to hedge in case the market does really bad.
  • “Bull” because we are expecting the stock price to stay flat or go up. “Put” because it’s made up of puts.

Bear Put Spread

  • Buy a put option and sell an even lower priced put option.
  • Selling the even lower priced put options limits profits but also downside potential.

Long Straddle

  • Buy a call and put for the same strike price and date.
  • Useful during times of high volatility. You’re expecting some movement but don’t know what direction.

Short Straddle

  • Selling call and put for the same strike price and date.
  • Expecting no movement in the stock price.

Long Strangle

  • Buying a call and a put at different prices for the same time.
  • You’re expecting a huge movement and risking little money as the strike prices are far apart.

Short Strangle

  • Selling a call and put at different prices for the same time.
  • Works best when there’s little movement.

Calendar spread with calls

  • Also know as time spread
  • Selling a short term call and using that money towards buying a long term call at the same price.
  • Looking for the stock to go higher but not immediately. The hope is that the short term call expires.

Calendar Spread with Puts

  • Selling a short term put to use proceeds to buy a long term put at the same price.

>2 options

Call Backspread

  • Sell at-the-money call option and use that money to buy a lot of out-of-the-money call options.
  • Hoping for a very large upward swing by with a conservative approach.

Iron condor

  • Selling a bear call spread and a bull put spread aka straddle with extreme protection.
  • You’re expecting stock price movement only within the ranges, and betting on volatility.

Diagonal Spread with Calls

  • Buying a long term call at a lower strike price and selling a short term call at a higher strike price.
  • Keep selling short term calls under the protection of the purchase of the single long term call.

Diagonal Spreads with Puts

  • Burying a long term put and selling short term Puts with an even further lower strike price.