Options Foundation - Time Decay, Implied Volatility, Greeks
4.6 (66 ratings)
Course Ratings are calculated from individual students’ ratings and a variety of other signals, like age of rating and reliability, to ensure that they reflect course quality fairly and accurately.
666 students enrolled

Options Foundation - Time Decay, Implied Volatility, Greeks

Option prices move due to 3 factors. Price, Implied Volatility and Time decay. Critical course to complete Option theory
4.6 (66 ratings)
Course Ratings are calculated from individual students’ ratings and a variety of other signals, like age of rating and reliability, to ensure that they reflect course quality fairly and accurately.
666 students enrolled
Created by Hari Swaminathan
Last updated 12/2019
English
English [Auto]
Price: $79.99
30-Day Money-Back Guarantee
This course includes
  • 3 hours on-demand video
  • 4 downloadable resources
  • Full lifetime access
  • Access on mobile and TV
  • Certificate of Completion
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What you'll learn
  • Complete your understanding of the theory behind Options. If you're trading Options without this knowledge, you're playing with fire.
Requirements
  • Basic knowledge of Call Options and Put Options
  • If you've not taken the Call Options and Put Options course, you can find it here - https://www.udemy.com/learn-options-trading-introduction-call-put-options/ - This is a prerequisite.
Description

  SECTION I - TIME DECAY 

  Time decay is a pivotal component of Options strategies. In fact, time decay alone is responsible for the majority of advanced option strategies. In this part of the course, we are going to study the concept in detail. Options are "wasting" assets, and they lose value every day. The buyer gets hurt from time decay and the seller benefits from it. And time decay becomes more exponential as we approach expiry of an Option. It is also the great equalizer between the profiles of a buyer and seller of Options. Time decay is the great equalizer in the risk / reward profiles of buyers and sellers of Options. Several intermediate and advanced strategies are based on selling premium (option sellers) and these positions make a profit due to time decay in the value of these options over a period of time. 

What you will master

  • What is time decay and how does it benefit Option sellers

  • A complete recap of buyer and seller risk and reward profiles

  • Why does the seller of Options not want movement in the Stock

  • Why is Time decay the great equalizer between buyers and sellers of Options

  • Apply the concept of time decay to our real world examples

  • How can we observe Time deacy in Options in the financial markets

  • Demonstration of time decay using AAPL Options

 
  SECTION II - IMPLIED VOLATILITY AND OPTION PRICES 

  Implied Volatility is the "wildcard" in Option prices. Ignore it, and you will pay a price. In fact, it's so important we have at least four different varieties - Volatility, Implied Volatility, Historical Volatility, and Future or Expected Volatility. We use the real-world examples to explain the concept of Volatility in simple terms. Then we study how Volatility is quantified in Stocks and Options. And how Volatility finds a back-door to embed itself into Option prices. Implied Volatility considerations are critical when choosing between a buyer and seller profile. We break this complex topic down into simple terms and show you an example of NFLX and CAT options that should make it absolutely clear what this is all about. 

What you will master

  • How are Option prices determined and is there an unknown variable

  • Why is it difficult to calculate or determine Implied Volatility of an Option

  • Why is this called "implied" Volatility

  • How does Implied Volatility manifest itself into Option prices

  • Why is it the "wildcard" in Option prices

  • Understand a real world example of Volatility

  • What is the relationship between Option prices and Implied Volatility

  • How should buyers and sellers look at Implied Volatility

  • Are some strategies better for high volatility situations

  • How can we observe Implied Volatility in real Option prices

 
 
 

  SECTION III - OPTION GREEKS, DELTA, GAMMA, VEGA, THETA 

  If you're the pilot of an aircraft, the Greeks are your instrument panel. If you don't manage your instrument panel properly, well...you get the picture. Understanding the Greeks are absolutely critical to every Option position. We break this course into easy to understand chapters for all the four Greeks - Delta, the king of all Greeks. Gamma - the silent operator. Theta - every Option seller's dream. And Vega - Watch out for this one.. Most beginners to Options tend to ignore the Greeks. Master the Greeks and you'll shave off months of learning curve. Not to mention, you can then fly your aircraft on "auto-pilot" (with help from the Greeks). 

What you will master

  • The four Greeks that govern all movements in Option prices

  • How each Greek individually impacts option prices

  • Why Delta is the king of all Greeks

  • What do we mean by directional risk

  • How does each Greek affect a buyer and a seller of Options

  • Why the Greeks are critical to understand your Option position

  • How the Greeks impact choice of "moneyness" and expiry series

  SECTION IV - OPTIONS MARKET STRUCTURE, TERMINOLOGY, MARKET MAKERS AND MORE 

  The Options market has a number of terms that we need to be aware of. Starting with terminology differences like "Long" and "Short", we look at all the details that go into the Options market. We explain the important processes like Exercise and Assignment, as well as things like Expiry series, Bid-Ask spreads, Brokerage and transaction costs and various other details. What is Open Interest and why is it important, and what is the role of a Market Maker. We study the different Order types and which ones are important for the average investor, and which ones make sense in different situations. We also discuss Regulation T Margin as it applies to Options as well as Portfolio margin. 

What you will master

  • What does Open Interest tell us about liquidity and what should we watch for

  • What is Exercise and Assignment and how does it work

  • What can Open Interest tell us about general sentiment about the stock

  • What are the different Order types and which ones are the best

  • What is the role of Market Makers on the Options exchange

  • How is Regulation T margin calculated and what is Portfolio margin

 
 
 


Who this course is for:
  • Those who have understood the basics of how Call Options and Put Options work. But your education on how Options work is not complete without this course. Do not trade a single Option until you've mastered these concepts.
Course content
Expand all 15 lectures 03:11:41
+ TIME DECAY AND OPTIONS PRICING
3 lectures 39:51
Time decay is a pivotal component of Options trading. In fact, Time decay alone is responsible for over 60% of all advanced Options strategies. This is exciting stuff.
Preview 15:25
Using the same examples from the real world, we now take a look at how Time decay is represented in real Apple (AAPL) Options.
Time Decay analysis (I) using Apple (AAPL) Options on the Thinkorswim platform
14:47
Continuation of the previous lecture but this lecture covers entirely different characteristics of Time decay.
Time Decay analysis (II) using Apple (AAPL) Options on the Thinkorswim platform
09:39

Quiz on Time decay concepts

Time Decay Quiz
4 questions
+ IMPLIED VOLATILITY AND OPTIONS PRICING
3 lectures 27:37
What is Implied Volatility ? What is Stock Volatility ? And why should we care about it - Implied Volatility is the "wildcard" in Options pricing. Ignore it and you will pay a price. Pay very close attention to the three lectures in this section.
Explaining Implied Volatility in real-world example of real estate
09:38
If we don't know what the "future volatility" of the stock is going into the future, how can we calculate the price of Options now ? This lecture explains how Implied Volatility finds a back-door to manifest itself into Option prices every minute the markets are open for trading.
Implied Volatility computation - How is Implied Volatility reflected in Option Prices
05:56
If you ever had a doubt about the severe impact that Implied Volatility can have on Options prices, your questions are answered in this lecture.
Implied Volatility in action - CAT and NFLX Options. Buyer / Seller implications
12:03
Implied Volatility Quiz
4 questions
+ Complete analysis of the Option Greeks (Delta, Gamma, Vega and Theta)
5 lectures 01:20:46
What are Option Greeks anyway ? And why do we need to know them ? There are 3 pillars of Options trading. If you don't master any one of them, you're going to underperform. Option Greeks are the first pillar.
Option Greeks Primer
15:41
Your Options position is always going to be most responsive to the movement of the stock itself. And Delta measures this sensitivity to price movement, and that's why its the King of the Greeks. 
Option Delta (The king of the Greeks)
20:31
Price movement of the stock is so important for your Option price that we need a second Greek to measure this sensitivity. Gamma is the silent operator, the first derivative of Delta, and the second derivative of Price. After going through this lecture, if you're somewhat confused about how Gamma works, you might be comforted to know that it takes most people a year to understand Gamma. Fortunately, the effects of Gamma are small and become important only in one particular scenario. This is explained in detail.
Option Gamma
18:07
Vega is the all-important Greek that measures sensitivity to Implied Volatility. Never take your eyes off Vega in any Options strategy.
Option Vega
12:41
Theta is the Option seller's dream - Theta is the time decay for every Option represented by a daily loss number. You can conjure up any number of exotic strategies with Theta. Theta is what makes Options come to life. This is by far the most exciting greek :)
Option Theta
13:46
Quiz on the 4 Option Greeks
Option Greeks Quiz
4 questions
+ Options Market Structure
4 lectures 43:27
The Options market is vastly different from the Stock market. It has different rules, different terminology and everything about it is different. In this lecture and next, these differences are explained in detail.
Order Types, Transaction Costs, Market Makers role, Margins for Options
13:59
A continuation from the previous lecture about the unique characteristics of the Options market.
Bid-Ask Spread, Expiry Series, Exercise and assignment, Volume and Open Interest
15:10
This lecture is the conclusion of this course. You have now covered the theory behind Options. It's now time to get into live trading examples, where you'll realize that this theoretical knowledge is just the starting point. Thank you for taking this course. I'm attaching a copy of my Free E-book on the "Top 7 Options Trading mistakes" by Options traders. This e-book is a great read, and even though you may not grasp a few of these concepts, you'll know what to look forward to in the upcoming courses. 
CONCLUSION
07:08
BONUS LECTURE - DO NOT MISS !!
07:10