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Chapter 4: Options Pricing

In 1973 Fischer Black and Myron Scholes published a research papercalled “The Pricing of Option and...

4.1- Option Pricing Basics

Up until now, we have vaguely mentioned that option premiumsfluctuate with the movement in the underlying...

Chapter 5: Meet the Greeks

Nowthat we have covered how to use options to speculate against futurestock prices, we need to cover...

5.1- Delta (Long Options)

Delta (∆) is the rate of change of anoption's value relative to the change in the underlying stock price...

5.2- Delta (Short Options)

The last lesson covered Delta long option positions. This lesson will cover Delta short option positions...

5.3- Gamma (Long Options)

Gamma (Γ) represents the change in Delta as the underlying stockprice changes. This lesson will focus on...

5.4- Gamma (Short Options)

The last lesson showed the relationship of Gamma for long optionpositions. This lesson will focus on Gamma...

5.5- Theta (Long Options)

Theta (θ), better known as time decay, measures thetheoretical loss of an option’s extrinsic value as...

5.6- Theta (Short Options)

The previous lesson introduced Theta decay and its relation to longoption positions. This lesson will focus...

5.7- Vega (Long Options)

Vega (v) is the wild card in optionpricing models. Because Implied Volatility is an estimation of...

5.8- Vega (Short Options)

This lesson will cover short Vega positions. As state in the previous lesson, Vega is the rate of change of...

5.9- Rho

This lesson will focus on the Rho (ρ) Greek in option pricing models.Rho represents the theoretical value...

5.10- Psi

The Greek Psi (Ψ) measures the change in option value related to an increase in the continuous dividend...

Chapter 6: Vertical Spreads

Chapter 6 will introduce studentsto vertical option spreads. Spreads are different from directional calland...

6.1- Bull Put Spread (Credit Spread)

Investors use bull put spreads when they are neutral to bullish on an underlying stock. By writing OTM put...

6.2- Bull Call Spread (Debit Spread)

Investors use bull call spreads when they are bullish on anunderlying stock. The lower strike call is...

6.3- Bear Put Spread (Debit Spread)

Investors use bear put spreads when they are bearish on an underlying stock. The higher strike put is...

6.4- Bear Call Spread (Credit Spread)

Investors use bear call spreads when they are neutral to bearish onan underlying stock. By writing OTM call...