Options trading is a potential lucrative sideline for those willing to put in the effort. Epsilon Options is here to help you learn the skills you’ll need to become a better trader, whatever your current level of knowledge or experience.
This options trading education is in five main sections:
Table of Contents
How Options Work
Understanding how options work is key for anyone wanting to trade options seriously. We look at the key things you need to know including the background and history of options trading, the so-called options greeks, how to calculate an options trade’s profitability and some key options terms.
In particular we look at:
- What Are Options?: Where did they come from? How do they work? What are the common types?
- Using an Options Broker: How do you buy or sell options? How do you read an options chain?
- Options Pricing Models: How do you work out how much to pay for an option?
- Uses of an Option: What are options used for now? Focus on insurance, leverage and speculation.
- Common Options Trading Terms: Glossary of key terms you need to know to be an options trader.
Option Greeks
Option Greeks are such an important part of understanding how to trade options that they have a section all on their own.
‘The Greeks’ are a collection of metrics used to measure how an options price changes given a change in factor. For example delta measures how much an options price moves should there be a change in the stock price.
For each greek below we look at exactly what its measure and, more importantly, how it can be used by a trade:
- Delta: How is options pricing affected by stock price?
- Gamma: How is delta itself affected by stock price?
- Vega: How does volatility affect an option’s price?
- Theta: How does an option’s price change over time?
- Rho: What’s the effect of interest rates on options pricing?
Basic Option Spreads
Option Spreads are the way most options traders trade. They’re a combination of bought and sold options which are put on in such a way that they can be used to profit whenever an underlying security behaves in a forecast way.
Here we look at some basic option spreads including covered calls and vertical spreads:
Bear Spreads: Vertical spread used when you think a stock will fall
Bull Spreads: Used when expecting a stock to rise
Horizontal Spreads: For example the calendar spread
Diagonal Options Spreads: A combination of a vertical & horizontal spread
Covered Calls: A common beginner trade involving a stock and a sold call
Advanced Option Spreads
Here we look at some advanced option spreads, used by sophisticated traders to profit whatever the market is doing.
We’ll look at:
Calendar spreads: Calendars are an example of a horizontal spread.
Butterflies: Butterflies used when expecting a stock not to move.
Iron condors: Iron Condors are another spread to trade when not expecting a stock to move.
Straddles: Straddles are used when expecting a strong stock move, but not sure in which direction.
Strangles: Strangles are similar to a straddle.
Options Brokers
Getting the right options broker is vital for any options trader. We consider what to look for – including cost, tools, education, customer service and user interface – so that you can match your knowledge and experience with the best broker for you.
And then we review some of the main options brokers: which is the best?
We look at the following popular brokers, used by amateur traders with different levels of skill and experience:
Interactive Brokers: Full service broker particularly good for international trading products
OptionsXpress: Specialised broker now owned by Charles Schwabb
OptionsHouse: Value broker offering a good no frills service
Each section is packed with valuable information to help you master the world of options trading.
If you have any questions then don’t hesitate to contact me via the contact page. In the meantime best of luck and enjoy the site.