Advanced Concepts

 

Getting Started

After completing the Getting Started section, you should understand:

  • Stock option fundamentals.
  • LEAPS® specifications and strategies.
  • What factors contribute to an option's value.
  • How to establish an options account.
  • What your broker may require to approve you for options trading.

You should also be familiar with the benefits and risks associated with options, how options symbols are constructed and how options are quoted and traded.

Beyond Individual Stock Options

Once you have grasped the basics of how stock options work and how they trade, you are ready to enter into the world of advanced concepts. This section explains:

  • What index options are and how they differ from stock options.
  • Concepts like American- and European-style options.
  • Index creation methodologies to advance understanding of how indexes are constructed and what their values represent.
  • Value weighted indexes and how they differ from equal weighted to help you determine how the value of different indexes are derived.

It's All Greek...

This portion discusses theoretical pricing of options and provides insight to the option Greeks. Option pricing models determine how an option price is derived and what inputs create the value of an option contract. The option’s Greeks help investors forecast changes in the option premium.

Learn about concepts such as Delta and how volatility (Vega) affects the price of an option.

We will discuss the Black-Scholes model of option pricing. One of the creators of this pricing model, Myron Scholes, received the Nobel Prize in economics for his efforts in 1997. From the moment of its publication in 1973, the Black-Scholes option-pricing model has earned a position among the most widely accepted of all financial models.

And Then There Were Strategies

After completing this section on advanced concepts, you will have a good understanding of the different types of options. Put it all together and form strategies to help meet your financial goals.

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