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
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366 students enrolled
Instructed by Hari Swaminathan Business / Finance
$60
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  • Lectures 14
  • Contents Video: 3 hours
  • Skill Level Beginner Level
  • Languages English
  • Includes Lifetime access
    30 day money back guarantee!
    Available on iOS and Android
    Certificate of Completion
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About This Course

Published 2/2013 English

Course 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.

What are the 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.

What am I going to get from this course?

  • Complete your understanding of the theory behind Options. If you're trading Options without this knowledge, you're playing with fire.

What 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.

What you get with this course?

Not for you? No problem.
30 day money back guarantee.

Forever yours.
Lifetime access.

Learn on the go.
Desktop, iOS and Android.

Get rewarded.
Certificate of completion.

Curriculum

Section 1: TIME DECAY AND OPTIONS PRICING
15:25
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.
14:47
Using the same examples from the real world, we now take a look at how Time decay is represented in real Apple (AAPL) Options.
09:39
Continuation of the previous lecture but this lecture covers entirely different characteristics of Time decay.
4 questions

Quiz on Time decay concepts

Section 2: IMPLIED VOLATILITY AND OPTIONS PRICING
09:38
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.
05:56
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.
12:03
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.
Section 3: Complete analysis of the Option Greeks (Delta, Gamma, Vega and Theta)
15:41
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.
20:31
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. 
18:07
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.
12:41
Vega is the all-important Greek that measures sensitivity to Implied Volatility. Never take your eyes off Vega in any Options strategy.
13:46
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 :)
Section 4: Options Market Structure
13:59
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.
15:10
A continuation from the previous lecture about the unique characteristics of the Options market.
07:08
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. 
Implied Volatility Quiz
4 questions
4 questions
Quiz on the 4 Option Greeks

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Instructor Biography

Hari Swaminathan, Options and Financial markets expert, Trader and Investor

Knowledge. Strategy. Execution.

Hari Swaminathan is the founder of OptionTiger, a cutting-edge Options education and trading company based in Washington D.C.. Hari is an entrepreneur, everyday person and a self-taught Options expert for over 8 years. Hari has a Bachelors degree in Engineering from India, and MBA degrees from Columbia University in NYC and London Business School in the U.K

More than ever, its become important for everyday people to take control of their financial situation, and create additional income in a smart, risk-controlled manner. This is precisely my mission. Through knowledge, education and investment discipline. Options are powerful, but they have a learning curve. I've broken down all the complexities of Options in simple language that everyone can understand. The courseware uses real trade examples, always highlighting the pluses and minuses of every investment situation. Options provide the best way to take advantage of bull cycles, bear cycles and everything in between.

As someone that has self-learnt Options and through making mistakes, 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 and not lose money during this time. 

Having said that, if you can get past the first 12 months and acquire the expertise in a systematic manner, true financial independence awaits. Options are a mathematical and strategic game much like Chess, and no amount of technological advances can make this skill obsolete, because the fundamentals of Options are never going to change. 

You can trade Options from anywhere in the world, regardless of how old you are. You never have to worry about job security any more because you have a skill that can produce consistent wealth month after month. 

But you have some serious but exciting work to do before you can get there, and I'm here to help you in this journey. 

Watch my Free Course for Options Trading Beginners where I draw out a detailed roadmap of what this 12-month journey looks like, and the specific strategies you should master during each step of this learning process. 

Watch my Free Mini-courses or my YouTube channel , all of which have the highest quality of education material. 

And join me in my UDemy courses, where I share cutting-edge theoretical knowledge mixed with practical insights, strategy and impeccable execution through live trading examples. 

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.

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