Options trading basics

Calls and puts

A call gains value when the underlying rises above the strike; a put gains when it falls below. Both expire worthless if the move never happens.

Every contract has a buyer and a seller. Sellers (writers) receive the premium up front and must post margin, because their loss is theoretically unlimited on a call.

What you actually pay for

Premium splits into intrinsic value — how far the option is already in the money — and time value, which decays to zero at expiry.

Time decay accelerates in the final week. Buying weekly options and holding them is a bet against the clock as well as against the market.

Implied volatility

Implied volatility is the market's expectation of future movement, baked into the premium. High IV makes options expensive; a volatility crush after an event can lose you money even when the direction was right.

Around earnings and policy announcements, IV inflates beforehand and collapses immediately after. Plan for that, not around it.

The Greeks in one line each

Delta: how much the option moves per unit move in the underlying. Gamma: how fast delta changes. Theta: daily time decay. Vega: sensitivity to implied volatility.

You do not need to compute them, but you should know which one is working against you in any position you hold.

Risk

Options are leveraged instruments. Position sizing, not prediction, is what keeps an account alive. Never risk on a single trade an amount you cannot lose entirely — for a buyer, total loss is the ordinary outcome, not the tail case.

Frequently asked questions

Are options riskier than stocks?

Yes. Leverage and expiry mean an option can go to zero while the underlying stock barely moves. Selling options carries larger risk still.

What is an option chain?

A table of all available strikes for an expiry, showing premium, volume and open interest for both calls and puts.

Can I trade options with a small account?

Technically yes, but lot sizes and margin requirements — especially for selling — mean small accounts are usually forced into the riskiest strategies.