THE OPTIONS HEURISTICS SERIES

How can we explain the basics of Options so that our students can really learn, without getting confused with so many concepts, terminologies, and strategies?
That’s the idea behind the series.

The Option Heuristics Flash Cards

Below you will find each definition supported by a 3-by-5 flash card that you can download, print, and keep it with you in case you need to refresh some of the concepts. We promise to keep all definitions very simple, short and sweet.

Absolute Truth n.1

In order to buy something, someone must sell it to you. In order to sell something, someone must buy it from you.

Absolute Truth n.2

If you buy an option contract to open a position, you must sell it back to close it. If you sell an option contract to open a position, you must buy it back to close it.

Absolute Truth n.3

There are two basic option contracts: Call Options and Put Options. The possible combinations between them are virtually infinite.

Absolute Truth n.4

Options are multidimensional beings. Their price is determined by the current price of the underlying asset, strike price, volatility, time until expiration, and risk-free interest rate.

Absolute Truth n.5

Options are contracts and contracts have an expiry date.

Absolute Truth n.6

The price of an option contract is divided into Extrinsic Value and Intrinsic Value.

Absolute Truth n.7

Time is the option buyers worst enemy and the option sellers best ally.

Absolute Truth n.8

Option buyers have rights. Option sellers have obligations.

Profiting with options as a buyer

To profit as an options buyer, you must buy low and sell high.

Profiting with options as a seller

To profit as an options seller, you must sell high and buy low.

Options Greeks: The Greeks

Options Greeks are a collection of statistical values that measure the sensitivity of the option price to a small change in a given underlying parameter.

Options Greeks: Delta

Delta is the Greek that measures the sensitivity of the option price to a change in the price of the underlying asset.

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