So You Want to Trade Options — Volatility Trading 101

Volatility is the price of an option

  • The spot price of the underlying asset
  • Strike price
  • Time to expiry
  • Option type (Call/Put)
  • Risk-free rate and dividend yield/Domestic rate/Cost-of-carry
  • Volatility
  1. The intrinsic value of the option — How much “inside the money” the option is. If I had exercised the option now, what would have been the value of the option or:

A quick and dirty option pricing

Talking Greeks

  1. Delta (Δ) — The sensitivity of the option price to a move of the underlying spot price
  2. Vega(ν) — The sensitivity of the option price to the change of implied volatility.
  3. Theta( Θ) — The sensitivity of the option price to the passage of time (aka, “time decay”)

The Volatility-Gamma-Theta Triangle

Volatility and Dynamic Hedging

Final Thoughts

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Harel Jacobson

Harel Jacobson

3.2K Followers

Global Volatility Trading. Python addict. Bloomberg Junkie. Amateur Boxer and boxing coach (RSB cert.)!No investment advice!