The Options
The Options is a clear, focused guide to options trading.Learn the core concepts, common structures, and how to think about risk and asymmetry.
Master the core concepts of options trading, from basic definitions to profit calculations.
Define underlying, expiration, strike, premium; European vs American style
Distinguish rights (long) vs obligations (short) for calls and puts
Identify ITM/ATM/OTM based on S vs X relationship
Intrinsic value vs time value; option price components
Payoff diagrams and profit calculations at expiration
Parity equation + intuition
Create forward exposure via call-put combo
When early exercise can be rational (intuition)
Deep dive into pricing models and risk management metrics.
Law of one price; replication mindset
One-step tree; risk-neutral pricing
N-step tree; backward induction algorithm
Replication + hedge ratio (binomial delta)
S, X, T, r, σ and option value direction
Futures/forwards/rates underlying; what changes vs BSM
IV as 'vol that fits price'; inversion workflow
Smile/skew/surface shapes & meaning
Delta meaning and hedge interpretation
Gamma as delta-of-delta; nonlinearity risk
Time decay behavior near vs far expiry
Volatility sensitivity; event-vol / IV crush
Rate sensitivity; when material
Callable/putable = straight bond ± option
Call/put exercise rule on rate tree
OAS meaning; removes option effect; vol impact
Why effective duration/convexity for embedded options
Advanced trading strategies and portfolio construction techniques.
Structure/objective; max gain/loss; breakeven
Insurance logic/cost; payoff/profit; breakeven
Put buy + call sell; range lock
Short stock + long call vs short stock + short put
Long/short straddle; vol trade; breakevens
Bull vertical; limited risk; breakeven
Bear vertical; limited risk; breakeven
Same strike, different expiries; term/theta logic
Protective puts and covered calls for risk management
Bull/Bear spreads, straddles, and strangles
Use skew for strike selection & relative value
Synthetic long/short stock replication
Trading volatility and creating synthetic positions
Portfolio Greeks; target exposures
Assignment/gap/IV crush/liquidity/model risk
This interactive learning tool provides original educational explanations and practice activities on options concepts and related derivatives topics. While ideal for learners studying for the CFA® Program and the FRM® Exam, it is designed for anyone seeking to master these financial instruments.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. FRM® is a registered trademark owned by the Global Association ofRisk Professionals, Inc. (GARP). This tool and its content are independent and are not affiliated with, endorsed by, or sponsored by CFA Institute or GARP. The content on this website is provided for educational and informational purposes only and does not constitute investment, legal, tax, or accounting advice.