Options Guide
Everything you need to read an options chain: calls and puts, moneyness, the greeks, spreads, and OPEX.
The Basics
Call — the right to BUY 100 shares at the strike price until expiry. You buy calls when you expect the stock to go UP.
Put — the right to SELL 100 shares at the strike price until expiry. You buy puts when you expect the stock to go DOWN.
Premium — the price of the contract, quoted per share — 1 contract costs premium × 100. This is the most you can lose as a buyer.
Long call — loss capped at premium, unlimited upside above breakeven (K + premium)
Long put — profits as price falls below breakeven (K − premium)
Moneyness — ITM / ATM / OTM
In the money (ITM) — has intrinsic value now. Calls: strike below the stock price. Puts: strike above it. More expensive, moves more like the stock.
At the money (ATM) — strike closest to the current price — highlighted amber in the chain. Most time value, highest gamma.
Out of the money (OTM) — no intrinsic value — pure time value. Cheap lottery tickets that expire worthless unless the stock crosses your strike.
Intrinsic value — what the option is worth if exercised right now (stock − strike for calls, strike − stock for puts, floored at 0). Everything above that is time value, and time value bleeds to zero at expiry.
Reading the Chain
Bid / Ask / Mid — buys fill at the ask, sells at the bid; the gap is the spread — a cost you pay both ways. Mid is the model's fair value between them.
IV (implied volatility) — the annualized move the market prices in. High IV inflates premiums — great to sell, expensive to buy.
Expected move — the ± range the stock is priced to stay within through the selected expiry. Strikes beyond it are long shots.
The Greeks
Delta (Δ) — price change per $1 stock move. A 0.50Δ call gains ~$0.50/share when the stock rises $1. Also reads as the rough probability of expiring ITM — 0.50Δ ≈ coin flip.
Gamma (Γ) — how fast delta itself changes per $1 move. Peaks ATM near expiry — that is why 0-2d ATM options move violently.
Theta (Θ) — daily time decay. A −0.05Θ contract loses $5/day per contract just from the calendar. Decay accelerates in the final week.
Vega (V) — price change per 1% IV change. Long options lose when IV collapses — even if the stock goes your way.
Rho (ρ) — price change per 1% rate change. Smallest greek for short-dated trades; safe to ignore for most.
Buying vs Writing
Every contract has two sides. Buying pays the premium and buys a right: the most you can lose is what you paid. Writing (selling to open) collects the premium and takes on an obligation — you keep the credit if the contract expires worthless, but your loss can be far larger than the premium you took in.
Collateral — cash locked while a written position is open, so the game knows you can cover the obligation. It is released when you close. A cash-secured put holds the strike; a credit spread holds the width minus the credit; a call covered by 100 shares holds nothing, because the shares are the cover.
Naked call — a written call with no shares behind it. Loss grows without limit as the underlying rises — the collateral is a deposit, not a cap. The ticket flags these in red.
Spreads (multi-leg)
Spreads combine legs to cap risk and cut cost. Use the Strategy tab to fill any of these as one order — every leg fills together or none do, and the risk readout shows max loss, max profit, and breakevens before you commit.
Bull call spread — buy K call, sell K2 call. Cheaper than a bare call; profit capped at K2
Bear put spread — buy K2 put, sell K put. Defined risk, defined reward, bearish
Vertical spread — same expiry, two strikes (the two above). Max loss = net premium; max gain = strike width − premium.
Advanced Strategies
Long butterfly — buy 1 K1 call, sell 2 middle-strike calls, buy 1 K3 call. Max profit if price PINS the middle strike at expiry
Long straddle — buy the ATM call AND put. Profits on a BIG move either way; loses to theta + IV crush if nothing happens
Butterfly spread — three strikes, defined risk, cheap to put on. It pays best when the stock finishes exactly at the middle strike, so it is a bet on nothing happening. Works in quiet tape and around OPEX, where price tends to pin big open-interest strikes. It is priced off IV, so it is cheapest when IV is high and you still expect chop.
Straddle — ATM call + ATM put, same strike and expiry. Direction does not matter, size of move does. Used into events (earnings, FOMC, CPI) when you think the real move will beat the expected move already priced in. Watch out for the other side of that: once the event passes IV collapses, and a move smaller than priced loses on both legs at once.
Strangle — a straddle with OTM strikes instead of ATM ones. Costs less, breakevens sit further apart: it needs a bigger move but risks less premium.
Iron condor — sell an OTM call spread and an OTM put spread. You keep the credit while price stays between them. Best when IV is high and you expect it to fall, with nothing on the calendar to break the range.
Picking one — In a trend, verticals keep cost and risk defined while you ride it. In a range, butterflies and condors get paid for the chop. With an event on the calendar, buy a straddle if you think the move is underpriced and sell a condor if you think it is overpriced. All four decisions are the same comparison: the expected move the chain is pricing, against the move you expect.
Expiry & OPEX
Expiry — the contract's last day. In the arena, contracts crossing their expiry auto-settle at intrinsic value — worthless if OTM.
O — monthly OPEX — the purple O in the expiry strip marks the 3rd Friday of the month: the standard monthly expiration. The largest open interest concentrates there, so pinning to big strikes and sharper moves into the close are common.
Want the full, structured course? Options education breaks this down beginner to advanced. Or practice risk-free in the Arena.
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