Options Foundation - Time Decay, Implied Volatility, Greeks
4.2 (27 ratings)
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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
4.2 (27 ratings)
Instead of using a simple lifetime average, Udemy calculates a course's star rating by considering a number of different factors such as the number of ratings, the age of ratings, and the likelihood of fraudulent ratings.
484 students enrolled
Created by Hari Swaminathan
Last updated 2/2013
English
Current price: $10 Original price: $60 Discount: 83% off
5 hours left at this price!
30-Day Money-Back Guarantee
Includes:
  • 3 hours on-demand video
  • Full lifetime access
  • Access on mobile and TV
  • Certificate of Completion
What Will I Learn?
  • Complete your understanding of the theory behind Options. If you're trading Options without this knowledge, you're playing with fire.
View Curriculum
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


This is Course II of a 4-course step-by-step program to achieving Options mastery.

Course I - Introduction to Options - Learn about Call Options and Put Options is a detailed step-by-step explanation of Options, Call Options and Put Options with theory and practical application with Apple (AAPL) Options

Course II - Options Foundation - Time Decay, Implied Volatility and Options Greekswill complete your theoretical understanding of Options.

Course III is Options strategies for Beginners - Buying Call Options and Put Options where we actually put live trades and manage them to their exit points.

Course IV is on Options Spreads - This is the heart of Options Trading. Once you master Options spreads, you have acquired a skill that can generate consistent monthly income for the rest of your life.

Please feel free to browse this page for a complete list of Testimonials from our clients, Blog readers and Linkedin group members.

Who is the target audience?
  • 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.
Students Who Viewed This Course Also Viewed
Curriculum For This Course
14 Lectures
03:04:31
+
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
+
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
+
Options Market Structure
3 Lectures 36:17
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

Implied Volatility Quiz
4 questions

Quiz on the 4 Option Greeks
Option Greeks Quiz
4 questions
About the Instructor
Hari Swaminathan
4.3 Average rating
3,789 Reviews
30,293 Students
29 Courses
Options Mentor, Financial markets educator, Trader, Investor

Knowledge. Strategy. Execution.

Hari Swaminathan is the founder of OptionTiger, a cutting-edge Options Mentoring company, and a full-circle educator in all areas of Financial Markets, Hari has developed several proprietary Intellectual Property "methods and approaches" around enhancing base case Options strategies (which favor the Market Makers) and turns that deficit into a massive EDGE on the trader's side.. Like building a powerful Strategy "for all Option Strategies". 

Hari is self-taught in Options and actively trading these instruments for almost 10 years, mostly through trial and error. Trial and error in general, is an excellent method of learning, but applied in this context, trial and error CAN BE EXPENSIVE. My courseware focuses on this aspect mostly, so you can avoid losing money in the 1 to 2 years when you're learning. Yes, it does take that long, if not more. If the markets were indeed simple, you'd have everyone involved in it. Patience, Diligence, and Determination are what you need during this time.

Hari has a Bachelors degree in Engineering from India, and MBA's from Columbia University in NYC and London Business School in London UK. 

More than ever, its become important for normal people to take charge of their financial situation, and truly understand how financial markets, and the various asset classes, trading nuances really work. Investing in the financial markets is no longer a HANDS-OFF ACTIVITY. There's no point blaming financial advisors after the fact. Now, it's become crucial for everyone to do "their OWN homework", so you can decide for yourself whether something is good or risky. This is of course easier said than done, and that's exactly where we come in.

My mission is to educate everyday people on the deep, strategic underpinnings of the stock markets, and exploit that knowledge with the use of OPTIONS.  THERE IS NOTHING RANDOM about the markets. There are surprises all the time, but there's always a method behind every madness. And my goal is to get you to this point of understanding and awareness. That's when it starts to fit in. 

Knowledge, Education, Crafting Breakthrough strategy, Technical analysis, Following Smart Money, Risk management, Disciplined Money management, and near flawless Execution approaches are just a few of the crucial points emphasized in all the Courses. Video-based education courseware, Practical workshops, several elite proprietary Advanced systems, a 4-week Live Mentoring program are just a few things we offer. The goal is to provide a "full circle" education in the Markets, which is necessary before it starts "fitting in". 

Let's break down the Options game in a realistic manner. 

The Pluses

1. Options were invented out of thin air. And the people who invented them won Nobel Prizes for their invention (Fisher and Black). It is purely a "Mathematical" concept. 

2. This gives rise to very complex but interesting  analytical scenarios. It also gives us the ability to model Options with a set of tools like a car dashboard. This data is embedded in the mathematical formulas that underpin Options structure itself.

3. Because everything in Options is defined in mathematical terms, its also important to realize that OPTIONS will always be the same. Forever. Unless they discover serious flaws in the formulas and models used by these Nobel winners. 

4. Options and Chess have LARGE overlaps. You may agree that Chess is a game of "skill". It's a game of Strategy and depends upon how well you can plan (ahead) to attack, defend or take a neutral position. We also believe that Chess is strategy-focused and depends upon certain mathematical principles. Why or How do we know this - The reason we know its a game of skill is : Try to play 100 chess games with Kasparov or Anand. Normal people are almost guaranteed a loss in all 100 games. So it has to be a game of skill. And why do we know its underlying features are mathematics based. The fact that a computer like Deep Blue beat the GrandMaster Garry Kasparov in 1997.

5. Lastly, You MUST believe this completely -  Options, just like Chess, are a "skill set", and requires acquiring a deep set of analytical skills much more so than most skill sets in the world, and THEY can only be MASTERED over a period of time. Once you understand Options better, you'll realize how true this is. But, there is a very powerful light at the end of this tunnel. You build a skill set for life.  Age, Geographical location, Lifestyles, or Weather are no longer a barrier to creating consistent income streams, regardless of who you are, where you are, or how old you are. 

This is very POWERFUL stuff. 

Now let's look at the negatives. This is what most people will NOT tell you. Anyone that tells you Options are SIMPLE, and you can make extra ordinary income easily, is JUST NOT TRUE. I will tell you Options can be brutal if you simply apply speculative methodologies. And once you can develop a SYSTEMATIC approach to every situation (which is the Real Game), you'll be well on your way to consistent performance.


MINUSES


Options are easily the most fascinating financial instrument with several upside benefits, but also an equally powerful set of negatives. 

1. Options have a steep learning curve. Don't expect to become Kasparov in a couple of months. Market Makers who are 99% of the time, the counter party to all Options trades, are Options professionals, with 10 to 20 years of experience, in performing their "legal duty" of providing liquidity. 

2. If you're interested in Options, try NOT approach it with a mindset or requirement of making money. This is not only NOT going to happen, but its a recipe for disaster. It's like a student of Medicine wanting to practice their skills after 2 months of study. 

3) As someone that has self-learnt Options and through making mistakes from Trial and Error, I can tell you Options trading is not something you should take lightly. You will hear people talking of fantastic triple and quadruple digit returns. I'm here to be brutally honest with you - 

- Be very very careful in the first 12 months of Options trading. 

- This is when everyone is the most vulnerable to losing money. 

- Your main objective during this time is to focus on learning this craft 

Having said that, if you can get past the first 12 months and acquire the expertise in a Systematic manner with Systematic approaches to every situation, true financial independence awaits. But you have some serious but exciting work to do before you get there, and I'm here to help you in this journey. 

And join me in my UDemy courses, where I share cutting-edge theoretical knowledge mixed with practical insights, strategy and impeccable execution approaches, through live trading examples. How do we know it's all this (don't just go by my word). Check what 30,000 students have to say in 3100 Reviews, with almost 2800 of them being 5-Star or 4-Star

If you have any questions at any time, please feel free to message me on Udemy.

The order to follow on my Udemy courses

Comprehensive guide to Financial Markets, Investing and Trading

Options Trading Beginners Bundle (3-course Bundle)

Advanced Options Concepts

Options spreads and credit spreads Bundle

Technical analysis and Chart reading Bundle

After this, the order does not matter. You can take any of the courses as per your interest.