Options Guide

Advanced Concepts

Getting Started

After going through the basics module you should now have a solid understanding of what a stock option is, what LEAPS® are and what factors contribute to an options value. You should have knowledge of how to establish an options account and what requirements your broker may impose on you to approve you for options trading. Furthermore, you should be familiar with the benefits and risks associated with options, how options symbols are constructed and how options are quoted and traded.

Beyond Individual Stock Options

Once you have grasped the basics of how stock options work and how they trade, you are ready to enter into the world of advanced concepts. Here you will gain knowledge of what index options are and how they are different from stock options. Concepts like American and European style options are explained so you will know what you are trading and will be able to make more informed investment decisions.

Index creation methodologies are explained to further advance your understanding of how indexes are constructed and what their values represent. Value weighted indexes and how they are different from equal weighted indexes are explained so you can determine how the value of different indexes are derived.

It's All Greek...

You will begin learning how options are theoretically priced and gain insight into the option Greeks. Concepts like an option’s delta and how volatility (Vega) affects the price of an option. Option pricing models were developed to determine how an option price is derived and what inputs create the value of an option contract. Taken together, the option Greeks derive the theoretical price of an option.

Although there are other pricing models, the Black-Scholes model is the most widely recognized and this is the model we will discuss for advancing your understanding of option pricing. In fact, one of the creators of this pricing model, Myron Scholes, was awarded the Nobel Prize in economics for his efforts in 1997. From the moment of its publication in 1973, the Black-Scholes Option Pricing Model has earned a position among the most widely accepted of all financial models.

And Then There Were Strategies

After completing this section on advanced concepts you will have a good understanding of the different types of options and how they function. You will then be ready to put it all together and form strategies that can assist in helping you meet your financial goals.

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