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Original, plain-English lessons. Each ends with a worked example, common misconceptions and a checkpoint question.

Options Foundations

Calls and puts, breakeven and max loss, intrinsic vs time value, delta/theta/vega and IV, expiration and assignment, covered calls and protective puts, and option liquidity. Options can lose 100% of premium; short options can lose far more.

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  1. 01

    Calls and puts: rights and obligations

    A call is the right to buy at the strike; a put is the right to sell. Buyers pay premium for rights; sellers take on obligations.

    10 min

  2. 02

    Payoff diagrams, breakeven and maximum loss

    Compute breakeven, maximum gain and maximum loss for each basic position before you ever trade one.

    11 min

  3. 03

    Premium: intrinsic value and time value

    Premium = intrinsic value + extrinsic (time) value. Only the intrinsic part survives to expiration.

    9 min

  4. 04

    Delta, theta, vega and implied volatility

    The Greeks are local approximations of how premium changes with price, time and volatility.

    12 min

  5. 05

    Expiration, exercise and assignment

    Short options can be assigned, sometimes early. Know what position and cash requirement assignment would create.

    10 min

  6. 06

    Covered calls and protective puts

    Two stock-plus-option combinations: one trades upside for income, the other pays for a floor.

    11 min

  7. 07

    Option liquidity and bid-ask spreads

    Wide option spreads are a hidden cost that can exceed commissions many times over.

    8 min