Options

Options are financial derivatives that give the buyer the right—but not the obligation—to buy or sell an underlying asset at a predetermined price (strike price) within a specific time period.

Two Types of Options:

Type	Right	Used For
Call	Buy at strike price	Bullish bets, income
Put	Sell at strike price	Bearish bets, protection

Key Terms:

• Strike Price: Price at which option can be exercised
• Premium: Cost to buy the option
• Expiration: Date option expires worthless if not exercised
• In the Money (ITM): Option has intrinsic value
• Out of the Money (OTM): Option has no intrinsic value
• At the Money (ATM): Strike equals current price

Option Value Components:

• Intrinsic Value: Actual value if exercised today
• Time Value: Extra value from time remaining
• Total Premium = Intrinsic + Time Value

Basic Strategies:

Strategy	View	Risk	Reward
Buy Call	Bullish	Premium paid	Unlimited
Buy Put	Bearish	Premium paid	Substantial
Sell Call	Neutral/Bearish	Unlimited	Premium
Sell Put	Bullish	Substantial	Premium

Common Uses:

1. Speculation: Leveraged bets on price direction
2. Hedging: Protect portfolio from downside
3. Income: Sell covered calls for premium
4. Leverage: Control more shares with less capital

Greeks (Risk Measures):

• Delta: Price sensitivity to underlying
• Gamma: Delta's rate of change
• Theta: Time decay
• Vega: Volatility sensitivity

Warning: Options are complex and can result in total loss of investment. Most options expire worthless. Not recommended for beginners.