Newbies to Options Trading, start here!
Level 1 - Zero to Options Hero - Intro post to this Substack, different ways to generate profits by trading options, and the connection between volatility and options
Given feedback from the audience I am putting together a Zero to Options Hero series for newbies to trading options. I think this will be quite useful for all traders and those interested in financial markets as even if you do not actively trade options, the connection to the underlying markets is massive and an understanding of option market dynamics and the behavior of major players is critical to gaining more of an edge in the markets.
The posts will be kept at a high level and I will include links to books and sites that go into more of the theory for those that are interested.
This is still under construction but after receiving some requests via DM I decided to put out the scaffolding for this series for more transparency and so subscribers get a roadmap of where this series is going.
What is a call/put option, how is it priced, and what is its relation to the volatility of the underlying asset?
The absolute basics, start here beginners!
Measuring Historical Volatility and the Rule of 16
A bit more detail into historical volatility.
What determines an option holder's daily P/L? Part 1
Going over the primary two Greeks, Delta and Gamma.
What determines an option holder's daily P/L? Part 2
Going over Vega and Theta (a.k.a. Time Decay).
What determines an option holder's daily P/L? Part 3
Going over Rho, cost of carry, and the connection between forwards and options.
What is the Black-Scholes formula and why do option traders use it? Part 1 - History and Purpose
A quick summary into the historical reasons why the Black-Scholes formula was adopted as the gold standard for options pricing.
What is the Black-Scholes formula and why do option traders use it? Part 2 - Assumptions
Part 2 goes into the major and minor assumptions of Black-Scholes and how they can go awry. A couple more points on why it continues to be used to this day despite its flaws.
The difference between ATM volatility/vega and strike volatility/vega
What is Delta Hedging and why should I do it?
An explanation of the reason why option market makers delta hedge, why you can consider it too, and an advanced section on the impact of path dependency on delta hedging P/L
What is the VIX index and how is it calculated?
An explanation of the history and rationale for the creation of the VIX index and how it is calculated.
What is the relation between the VIX index and VIX futures?