Don't Just Read it – Explore It
Delta estimates how much an option’s theoretical value may change for a small move in the underlying asset. This explainer covers positive call and negative put delta, contract multipliers, hedge ratios, probability shorthand, portfolio delta, and why delta is not constant.
Gamma measures the sensitivity of an option’s delta to a change in the underlying price. This explainer covers convexity, long and short gamma, at-the-money concentration, expiration effects, hedge rebalancing, gap risk, and why delta-only analysis can fail.
Theta estimates how an option’s theoretical value changes as time passes, with other inputs held constant. This explainer covers long and short theta, nonlinearity, expiration acceleration, weekends, volatility interactions, spreads, and why collected decay is not free income.
Vega estimates how an option’s theoretical value changes when implied volatility moves. This explainer covers percentage-point conventions, long and short vega, maturity and strike effects, event volatility, surfaces, portfolio exposure, and model limitations.
A covered call pairs a long stock position with a short call on the same shares. This explainer covers premium income, strike and expiration choices, capped upside, assignment, dividends, taxes, rolling, downside exposure, and why coverage does not make the strategy safe.
A protective put pairs a long stock position with a purchased put on the same underlying. This explainer covers downside floors, premiums, strike and expiration selection, maximum loss, dividends, basis mismatch, rolling, taxes, and when temporary insurance can disappoint.
A cash-secured put is a short put backed by cash sufficient to purchase the underlying if assigned. This explainer covers premium income, effective purchase price, assignment, reserve requirements, opportunity cost, early exercise, downside exposure, and comparison with a limit order.
Option assignment is the process that obligates a short option holder after a long holder exercises. This explainer covers clearing allocation, broker procedures, early assignment, calls versus puts, physical and cash settlement, dividends, multi-leg positions, and account readiness.
American-style options may generally be exercised before expiration, while European-style options are exercisable only at the specified end point. This explainer covers exercise timing, assignment, settlement, dividends, index options, pricing, and why the labels do not identify geography.
A futures contract is a standardized exchange-traded agreement tied to a commodity, financial instrument, or index for future delivery or settlement. This explainer covers long and short positions, contract size, expiration, clearing, margin, daily settlement, hedging, speculation, and leverage.
A forward contract is a privately negotiated agreement to transact in an asset at a future date on terms set today. This explainer covers customization, long and short positions, physical and cash settlement, hedging, credit exposure, collateral, liquidity, valuation, and differences from futures.
Futures margin is collateral posted to support a leveraged futures position, not a partial purchase payment. This explainer covers initial and maintenance margin, daily variation, margin calls, exchange and broker requirements, collateral, volatility increases, liquidation, and cash management.
