Advancing in Options Course

'Introduction to Options' covers the basics of options and option pricing, and introduces the strategies of buying call and put options, and writing calls over your stock.

Estimated time to complete: 20mins.

This topic provides a brief recap of the basics of option pricing, which were first covered in Module 3 of the 'Introduction to Options' course.

If you are not familiar with this material, you may benefit from revising Module 3 of the introductory course. It is important you are comfortable with the fundamentals of option pricing before proceeding with the more in-depth coverage of pricing in this module.

In Topics 2 - 5 of this module we will consider option pricing in some detail, with a particular focus on volatility and the 'Greeks'.

Estimated time to complete: 20mins.

If your option strategy includes written options, you may have to pay margins.

A margin is an amount you must pay to cover the risk of loss on an option position.

In this module we will look at:

• why options are margined

• how margins are calculated, and

• how you can cover your margin.

Estimated time to complete: 20mins.

When entering a multi-legged strategy you should think of it as one integrated position, rather than focusing on the component legs.

Work out the net amount you want to pay or receive for your strategy. Referring to the current market prices of the component legs can help you to do this.

This is the price you specify when placing your order. You do not need to specify the prices for the individual legs.

Estimated time to complete: 20mins.

Option traders are familiar with the taken call strategy.

For the bullish trader, the taken call offers potentially unlimited profits, while the maximum loss is the premium paid.

But what if you think the stock's price will rise only moderately?

Is there a better strategy?

Estimated time to complete: 20mins.

The taken put option can be used to protect a holding of the underlying shares, or to profit from a fall in the share price.

Used in the second way, the taken put offers increasing profits as the share price falls, while limiting losses to the premium paid.

But what if you think the stock's price will fall only moderately. Is there a better strategy?

Estimated time to complete: 20mins.

A simple directional view can be traded using one of the 'basic' option strategies. A bullish trader might buy a call, while a bearish trader might buy a put.

But what if you think a stock might be about to make a big move - but you don't know in which direction? Is there a strategy that enables you to profit, whether the stock price moves up or down?

Before considering this question, it is worth asking when you might hold such a view.

Estimated time to complete: 20mins.

Flat markets generally lend themselves to strategies involving written options.

If prices stay steady, options fall in value due to time decay, benefiting the writer.

In this module we look at two strategies for neutral markets, the written straddle and the written strangle.

The success of both strategies depends on the stock price remaining around current levels.

If the stock moves significantly in either direction, you can suffer heavy losses.

A written option can be said to reflect a neutral outlook, however there is a bias in one direction.

The written call is neutral to moderately bearish, as the maximum profit is made if the stock stays steady or falls.

The written put is neutral to moderately bullish, as the maximum profit is made if the stock stays steady or rises.

Estimated time to complete: 20mins.

Most investors have had the experience of buying a stock and then seeing the price fall.

Investors typically see their choice as selling the stock at a loss, or trying to breakeven.

Two 'conventional' ways to breakeven are:

• Hold on in the hope the share price recovers to the original purchase price, which may take a long time, or

• Averaging down, which lowers your breakeven point, but requires you to buy more shares, increasing the risk of your position.

In this module we look at a third way to break even, an options strategy called the 'stock repair'.

Estimated time to complete: 20mins.

Most option traders are familiar with the covered call and the buy/write.

Writing call options over your shares enables you to generate income in flat markets. The premium you receive effectively lowers the acquisition/holding cost of your stock.

Fewer traders realise there is another strategy which provides the equivalent exposure, the written put.

Although the two strategies provide equivalent exposure, there are more risk management issues associated with the written put than the covered call.

Estimated time to complete: 20mins.