Advanced Options Pricing Guide
Understanding Options Positions, Value, and Risk
Comprehensive Options Guide
Learn about different options positions, their pricing components, and risk management strategies.
Basic Option Positions
Long Call
- • Pay premium upfront
- • Unlimited potential gain
- • Loss limited to premium
- • Best for bullish outlook
Long Put
- • Pay premium upfront
- • Gain limited to strike - premium
- • Loss limited to premium
- • Best for bearish outlook
Short Call
- • Receive premium upfront
- • Gain limited to premium
- • Unlimited potential loss
- • Requires margin/stock ownership
Short Put
- • Receive premium upfront
- • Gain limited to premium
- • Loss limited to strike - premium
- • Requires margin
Price Influencing Factors
Time Decay (Theta)
- • Accelerates near expiration
- • Benefits option sellers
- • Hurts option buyers
Volatility (Vega)
- • Higher volatility = higher premiums
- • Affects all strikes
- • More impact on ATM options
Price Movement (Delta)
- • Calls: positive delta
- • Puts: negative delta
- • ATM options ≈ 0.50 delta
Interactive Options Calculator
$5.00
Intrinsic Value
$2.04
Time Value
$7.50
Total Premium
30%
Time Value Decay
Risk Management
Position Sizing
- • Risk 1-5% max per trade
- • Account for maximum loss
- • Consider total exposure
Time Horizon
- • Short-term: < 30 days
- • Medium-term: 30-90 days
- • Long-term: > 90 days
Quick Reference
Common Mistakes
- Ignoring volatility levels
- Oversized positions
- Poor risk management
Key Terms
- Premium = Intrinsic + Time Value
- Theta: Time Decay
- Vega: Volatility Sensitivity
- Delta: Price Sensitivity