Advancing in Options Course

In 'Advancing in options', we go into the detail of option pricing, and discuss how to implement and manage advanced option strategies, before taking an in-depth look at several of these strategies.

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 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.

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.

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?

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?

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.

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.

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

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.