Articles and Updates

In April, OIC instructor Ken Keating led two webinars: Volatility 101: Learning to Read Market Uncertainty and Reading Between the Strikes: Understanding Options Skew. These sessions formed a two-part series on implied volatility—first establishing how volatility is measured and what it means for options pricing, then examining how implied volatility varies across strikes and expirations through the concept of skew. Together, the webinars provided a framework for reading market uncertainty, interpreting the VIX, and using volatility analysis—including skew—to make more informed strategy decisions. What We Covered: Volatility and Its Effect on Options Prices Volatility reflects the expected magnitude of price movement in the underlying asset—in both directions and across any time horizon. It carries no directional bias. Higher expected movement leads to higher option prices; lower expected movement leads to lower prices. This relationship holds for both calls and puts simultaneously. Volatility affects the extrinsic, or time value, component of an option’s premium. Intrinsic value is unaffected by changes in implied volatility. Historical vs. Implied Volatility Two distinct types of volatility were examined: Historical Volatility (HV) is a backward-looking statistic calculated from actual past price movements. It describes how volatile a stock has been over a given period and is a fact, not a forecast. Implied Volatility (IV) is forward-looking. It is derived from current option prices and reflects the market’s collective expectation of future price variability between now and expiration. Only options have implied volatility—stocks do not. Implied volatility does not necessarily revert to a stock’s historical volatility level. Changes in implied volatility directly affect the market value of options positions, even when the underlying price remains unchanged. The VIX: Definition, Calculation, and Interpretation The CBOE Volatility Index (VIX)—often called the “Fear Index” or “Fear Gauge”—measures the 30-day forward implied volatility of the S&P 500, derived from SPX option prices. Created by the CBOE in 1993, it is calculated by selecting near-term and next-term SPX options with expirations between 23 and 37 days, filtering for out-of-the-money puts and calls with non-zero bid prices, and interpolating to a constant 30-day expected volatility expressed as an annualized percentage. A VIX of 20 implies approximately 20% annualized volatility, or roughly 1.25% expected daily movement. The Rule of 16 allows traders to convert that annualized figure into a daily or weekly expected move. VIX levels can be categorized as follows: 0–12: Low volatility. Markets are calm and often complacent. 12–20: Normal range. Healthy market conditions with moderate uncertainty. 20–30: Elevated concern. Heightened market anxiety. 30–40: High fear. Significant stress, typically seen during sharp sell-offs. 40+: Extreme fear. Panic territory seen in major crises such as the 1987 market crash, the great financial crisis of 2008, and COVID. The VIX is inversely correlated to the S&P 500 and tends to rise faster during sell-offs than it falls during rallies. It measures the expected magnitude of potential moves—not direction. The VIX cannot be traded directly but can be accessed through VIX options or futures. Volatility Metrics: IV Rank and IV Percentile A standalone implied volatility reading lacks context without knowing where it sits relative to its own history. Two normalizing metrics help address this: IV Rank (IVR) measures where current implied volatility sits within its own 52-week range. A reading of 0% indicates IV is at its annual low; 100% indicates it is at its annual high. Formula: IVR = (Current IV – 1-Year Low) ÷ (1-Year High – 1-Year Low). IV Percentile (IVP) measures the percentage of days over the prior year that implied volatility traded below the current level. An IVP of 80% means implied volatility has been lower than it is today 80% of the time, indicating options are currently expensive on a historical basis. Both metrics allow traders to determine whether implied volatility is historically elevated or inexpensive and to align their strategy selection accordingly. Because implied volatility is mean-reverting over time, options tend to perform better when strategies account for where IV stands relative to its history. What Is Options Skew? Option skew refers to the asymmetrical implied volatility observed across options with different strike prices but the same expiration date. Rather than a flat volatility surface—as assumed under the original Black-Scholes model—market-implied volatility varies across strikes. When these implied volatilities are charted across all strikes and expirations, they form what is known as the volatility surface. Skew is ultimately a function of supply and demand. It is dynamic and moves throughout the trading day. Skew can be both positive and negative depending on which directional tail is in greater demand at any given time. Some traders view skew as a sentiment indicator reflecting which direction the market is pricing more risk. The History of Skew: Before and After 1987 Before October 1987, options markets largely priced in accordance with Black-Scholes, which assumed constant volatility across strikes—a flat volatility surface. There was no persistent skew pattern. The market crash of 1987, when the Dow fell nearly 23% in a single session, fundamentally changed this: Out-of-the-money put prices surged as investors sought portfolio protection. Market makers demanded a higher premium for selling deep out-of-the-money puts to compensate for the risk they were assuming. The volatility “smirk”—where downside puts carry higher implied volatility than equidistant upside calls—became a structural feature of equity index options. The pre-1987 flat volatility surface has never returned. Skew has been a permanent and constant feature of options markets ever since, as it prices in the reality that markets tend to fall harder and faster than they rise. Types of Skew: Negative, Positive, and Smile Three skew profiles were presented: Negative Skew (Put Skew): Out-of-the-money puts carry higher implied volatility than equidistant out-of-the-money calls. This is the dominant pattern in equities, ETFs, and indexes, reflecting the premium investors pay for downside crash protection. The chart of this relationship resembles a smirk, not a smile, as the downside slopes steeply higher while the upside rises only modestly. Positive Skew (Call Skew): Out-of-the-money calls carry higher implied volatility than out-of-the-money puts. More common in certain commodities where demand shock to the upside is the primary risk. Also observed in the VIX index itself, as VIX calls benefit when markets sell off. Smile Skew: Both out-of-the-money puts and out-of-the-money calls carry higher implied volatility than at-the-money options, forming a U-shaped or smile profile. This appears in markets where risk is perceived in both directions—for example, a biotech stock facing a binary FDA decision with large potential moves to either the upside or the downside. Why Skew Exists: Supply and Demand Three structural forces drive skew in equity and index options: Hedging: Investors who are long assets hedge their exposure without selling by buying protective puts or selling out-of-the-money calls. This combination—known as a collar—creates natural, persistent demand for downside puts and supply of upside calls. Inverse correlation: Because markets tend to fall faster and harder than they rise, investors pay a premium for out-of-the-money puts as protection against sudden sell-offs, driving put implied volatility higher relative to the corresponding calls. Supply and demand imbalance: Systematic put buying and call selling pushes put implied volatility higher and call implied volatility lower over time, embedding the skew as a structural feature of the options market. Term Structure and Skew The at-the-money volatility term structure describes how implied volatility varies across expiration dates, independent of strike. Three states were examined: Contango (Normal): Longer-dated implied volatility exceeds shorter-dated implied volatility. The curve slopes upward to the right, reflecting uncertainty compounding over time and the mean-reverting nature of volatility from a low base. Typical in calm, low-volatility markets. Backwardation (Inverted): Short-dated implied volatility exceeds longer-dated implied volatility. The curve slopes downward to the right. Common during periods of stress and fear—as seen during the recent Iran-related market volatility—and during events such as COVID and the 1987 market crash. Event-driven spikes: Earnings announcements, FOMC decisions, elections, and other known catalysts can create isolated volatility spikes at specific expirations, distorting the otherwise smooth term structure. Measuring and Tracking Skew Four practical methods for quantifying skew using Delta-based comparisons were presented: Price of the Risk Reversal: 25 Delta Put Price – 25 Delta Call Price. Expresses skew in dollar terms. In a product with negative skew, the put will trade at a premium to the call. This price differential is the “risk reversal” value and is quoted by market makers as a bid-offer spread around fair value. Volatility Ratio (Put/Call): 25 Delta Put IV ÷ 25 Delta Call IV. Takes price out of the equation and compares implied volatility levels directly. A ratio greater than 1.0 indicates negative skew; the higher above 1.0, the steeper the skew. This ratio can be tracked historically to assess whether current skew levels are elevated or compressed. Call Skew Ratio: 50 Delta Call IV ÷ 25 Delta Call IV. Measures the slope on the call side of the volatility surface. In a negative skew environment, the at-the-money call will carry higher implied volatility than the out-of-the-money call, producing a ratio above 1.0. Put Skew Ratio: 50 Delta Put IV ÷ 25 Delta Put IV. Measures the slope on the put side. In a negative skew environment, the 25 Delta put carries higher implied volatility than the at-the-money put, so this ratio will typically be below 1.0. The further below 1.0, the more steeply the downside is being priced. The 25 Delta option is the conventional reference point for skew analysis because it sits at a meaningful midpoint between at-the-money and deep out-of-the-money options. Options at very low Deltas—such as 5 or 10 Delta—have such small absolute premiums that small price changes produce large implied volatility swings, making their vol levels difficult to interpret in context. Key Structural Insights Implied volatility drives the extrinsic value of an option and affects both calls and puts simultaneously and in the same direction. Historical volatility is a backward-looking metric about the stock; implied volatility is a forward-looking market expectation embedded in options prices—the two do not necessarily converge. The VIX is a real-time sentiment gauge measuring the 30-day expected S&P 500 volatility; it has no directional bias and tends to mean-revert over time toward its long-term average of approximately 18–20. IV Rank and IV Percentile normalize current implied volatility against its own history, enabling more informed decisions about whether options are cheap or expensive and which strategies may be better suited to the environment. Skew is a permanent structural feature of equity and index options markets, born from the market crash of 1987 and sustained by the persistent supply-and-demand dynamics of institutional hedging. The type of skew—negative, positive, or smile—reflects the market’s view of directional risk in a given product and can be tracked using Delta-based price and volatility ratios to inform strategy selection and strike targeting. Keep Learning: Key Moments from Volatility 101: Learning to Read Market Uncertainty Key Moments from Reading Between the Strikes: Understanding Options Skew Meet OIC instructor Ken Keating Ken, OIC instructor and principal, Investor Education at OCC, began his 25-year trading career at Group One Trading in 1993 on the floor of the PSE (Pacific Coast Stock Exchange) and later transitioned to the floor of the CBOE (Chicago Board Options Exchange). He has held positions as a floor market maker, floor specialist, risk manager, and off-floor prop-trader.

Check out the most frequently asked questions from our April Office Hours sessions. Topics included how Theta behaves across different expirations and moneyness, the Rule of 16 for interpreting implied volatility, synthetic stock positions, Delta hedging strategies, managing short call spreads, and strategy selection in high-volatility environments.  .faq-accordion { border-bottom: 1px solid #ddd; } .faq-accordion summary { font-size: 1.1em; font-weight: 600; cursor: pointer; padding: 20px 40px 20px 0; list-style: none; position: relative; color: #333; } .faq-accordion summary::-webkit-details-marker { display: none; } .faq-accordion summary::after { content: '+'; position: absolute; right: 0; top: 50%; transform: translateY(-50%); font-size: 1.5em; font-weight: 300; } .faq-accordion[open] summary::after { content: '−'; } .faq-accordion-content { padding: 0 0 20px 0; } Time Decay and the Greeks How does Theta change with different expirations and whether an option is in-the-money, at-the-money, or out-of-the-money? Theta does not affect all options equally. It is most pronounced for options that are close to expiration. An option with a year remaining will lose a small amount of time value each day, whereas an option expiring in two days must shed its entire remaining extrinsic value very quickly — either finishing in-the-money or expiring worthless. The options most affected by Theta are short-dated, at-the-money contracts, because their value consists entirely of extrinsic premium. In-the-money options carry intrinsic value that does not decay, while at-the-money and out-of-the-money options hold only extrinsic value that will fully erode by expiration. Does Theta decay at a constant rate over the life of an option? No. Time decay is nonlinear. An option losing value over 365 days does not shed the same amount each day. The slope of decay steepens as expiration approaches. This is why options sellers often target contracts in the 30–45 day range, where the curve of Theta begins to steepen meaningfully. As the option moves to three weeks, two weeks, and one week remaining, time decay accelerates more rapidly. What is the relationship between Gamma and Theta in short-dated options? Near-expiration options carry both elevated Gamma and elevated Theta. Gamma measures how quickly Delta changes as the underlying moves, making short-dated at-the-money options highly sensitive to price movement. At the same time, Theta accelerates, imposing rapid time decay. Traders who are long these options need underlying movement that outpaces the time value being lost each day. Traders who are short options benefit from stillness but risk sharp, sudden directional risk. The Rule of 16 What is the Rule of 16 and how is it used? The Rule of 16 is a method for converting an annualized implied volatility figure into an expected daily move for the underlying. Because there are approximately 252 trading days in a year, the square root of 252 is close to 16 — so dividing the implied volatility as a percentage by 16 produces a one-standard-deviation daily expected move expressed as a percentage. Multiplying that percentage by the stock price converts it to a dollar figure. For example, with the VIX near 20 and the S&P 500 at a given level, the market is implying approximately a 1.25% move per day as a one-standard-deviation event. How can the Rule of 16 be applied beyond a single day? The same logic extends to other time frames by substituting the appropriate square root. Dividing by the square root of 52 produces the expected weekly move; dividing by 2 (the square root of 4) gives the quarterly expected move. This makes the Rule of 16 a flexible tool for contextualizing implied volatility across any time horizon for any optionable product. Does the Rule of 16 tell you whether options are priced correctly? Not directly. The Rule of 16 translates implied volatility into a forecasted magnitude of movement — it does not determine whether that implied volatility is rich or cheap. If the underlying delivers more movement than the implied daily standard deviation suggests, option prices are more likely to rise. If the underlying delivers less movement, options are more likely to decline in value. However, because option prices ultimately reflect supply and demand, external buying pressure can push prices higher even if the underlying is quiet. Synthetic Stock Positions What is a synthetic stock position and how is it constructed? A synthetic stock position uses options to replicate the directional exposure of owning or shorting shares. Because a call and put sharing the same strike and expiration have Deltas that sum to 100, buying an at-the-money call and simultaneously selling the at-the-money put creates a synthetic long stock position with approximately 100 deltas — equivalent in directional behavior to owning 100 shares. Reversing this — buying the put and selling the call — creates a synthetic short stock position. How does a synthetic position differ from owning actual stock? The directional behavior is nearly identical, but synthetic positions do not confer shareholder rights. A holder of a synthetic long position is not entitled to dividends unless they exercise their long call, and they cannot vote on corporate matters. Additionally, early exercise of the long call to capture a dividend is generally inadvisable if significant time premium remains, since exercising early forfeits any remaining time value in the call option. Delta Hedging How do traders make money from a Delta-hedging strategy? Delta-neutral trading involves holding an options position and continuously offsetting its directional exposure — long Deltas are hedged by shorting stock, short Deltas by buying stock — so that the trader is not meaningfully exposed to which direction the market moves. The goal is to scalp enough intraday movement in the underlying to offset the cost of Theta (time decay) being paid. If the realized movement of the underlying exceeds what the implied volatility predicted, the long-options trader profits; if the underlying moves less than expected, the time decay erodes the position. What is the practical difference between being long options versus Delta-hedging them? An unhedged options position carries directional exposure — the trader profits or loses based on where the underlying moves. Once the position is Delta-hedged, that directional exposure is largely removed and replaced with volatility exposure. The hedged trader is essentially trading implied volatility against realized (delivered) volatility — wagering that the underlying will move more or less than the level priced into the options. This is primarily a professional strategy; retail traders should understand that hedging a position creates a fundamentally different risk profile. Managing Short Option Positions What are the options for managing a short call spread that has moved against you? If the underlying has rallied toward or through the short strike of a bear call spread, there are several courses of action. First, the spread can be bought back outright to close the position entirely. Second, it can be rolled — buying the current spread back and selling a new call spread at higher strikes or in a further expiration. The only way to fully eliminate assignment risk on short options is to buy them back; rolling reduces but does not entirely remove that risk for American-style options. Can a short option be assigned even if it appears to close out-of-the-money? Yes. For American-style options, the holder of a long option has a window after the market close to file an exercise notice — typically until 5:30 PM Eastern time for OCC member firms, though individual brokers set their own client exercise cutoff times, which can be much earlier. If the underlying moves meaningfully in the aftermarket and crosses the short strike, assignment remains possible even though the option closed out-of-the-money. Traders who want to eliminate this risk entirely should close short positions on or before expiration. Strategy Selection and Implied Volatility In a high-volatility environment, should traders prefer buying call spreads or selling put spreads? Because a bull call spread and a bull put spread at equivalent strikes have the same maximum profit and maximum risk, the key differentiator is their relationship to implied volatility. A bull call spread is a debit position — the buyer is net long premium and long volatility. A bull put spread is a credit position — the seller is net short premium and short volatility. In a high-implied-volatility environment, traders generally prefer to be short premium, making credit spreads the more common choice. If volatility subsequently declines, the credit spread benefits from that move; the debit spread does not. What is the risk of buying options when implied volatility is elevated? Even when a trader gets the direction correct, buying options at elevated implied volatility levels introduces the risk of a “vol crush” — a sharp decline in implied volatility after the event resolves (such as an earnings announcement). If the stock moves less than the implied volatility was pricing in, or if volatility collapses quickly, the loss in extrinsic value can exceed the gain from the directional move. Understanding where implied volatility stands historically before entering a trade helps traders make more informed decisions about whether they are paying a fair price for options premium. Meet OIC Instructors Ken Keating Ken, OIC instructor and principal, Investor Education at OCC, began his 25-year trading career at Group One Trading in 1993 on the floor of the PSE (Pacific Coast Stock Exchange) and later transitioned to the floor of the CBOE (Chicago Board Options Exchange). He has held positions as a floor market maker, floor specialist, risk manager, and off-floor prop-trader. Mat Cashman Mat is a financial services professional and currently an instructor at The Options Industry Council. He brings 20 years of experience trading in all segments of the derivatives market. He started his career on the trading floor of the Chicago Board of Options Exchange in 2000 and has since traded multiple asset classes across a wide array of exchanges including the CME, CBOT and the Eurex Exchange.

In March, OIC instructor Roma Colwell led two webinars: Greeks Overview: A Fast-Track Guide to the Fundamentals and Advanced Greeks: Core Drivers of Option Pricing and Strategic Decision-Making. Together, these sessions introduced the core option Greeks—Delta, Gamma, Theta, and Vega—and expanded into how they are applied in practice to evaluate pricing, manage risk, and support strategic decision-making. The series framed the Greeks as a practical “risk dashboard,” helping investors understand how options respond to changes in price, time, and market expectations. What We Covered: The Greeks as a Framework for Risk and Pricing Options pricing is influenced by several key inputs—underlying price, time, and implied volatility. The Greeks quantify how sensitive an option is to each of these factors: Delta and Gamma measure price movement and acceleration Theta measures the passage of time Vega measures changes in implied volatility These measures, derived from pricing models, allow investors to quantify exposure and anticipate how positions may behave under different market conditions. Delta: Direction, Probability, and Price Sensitivity Delta measures how much an option’s price is expected to change for a $1 move in the underlying asset. At-the-money options are typically near a 0.50 Delta In-the-money options approach a Delta of 1.00 Out-of-the-money options have lower Delta values Beyond price sensitivity, Delta can also be viewed as: A proxy for probability of expiring in-the-money A measure of directional exposure A relationship between calls and puts, where deltas at the same strike sum to 1 This relationship illustrates how price movement is distributed across call and put options. Gamma: The Acceleration of Risk Gamma measures how quickly Delta changes as the underlying price moves. Highest for at-the-money options More pronounced in shorter-dated options Lower for deep in- or out-of-the-money positions Gamma highlights that directional exposure is dynamic. As prices move, risk can accelerate, particularly near expiration. Theta: Time Decay and the Cost of Holding Options Theta measures how much an option’s value decreases with the passage of time. Expressed as a daily decay rate Accelerates as expiration approaches Impacts long and short positions differently Even in a stable market, options lose value over time, making time decay a critical consideration in strategy selection. Vega: The Impact of Implied Volatility Vega measures how much an option’s price changes for a 1% change in implied volatility. Higher implied volatility increases option premiums Lower implied volatility decreases premiums Affects both calls and puts in the same direction Implied volatility reflects the market’s expectations of future movement and plays a central role in option pricing. How the Greeks Interact The webinars emphasized that the Greeks should not be viewed in isolation: Delta shows current price sensitivity Gamma shows how that sensitivity may evolve Theta reflects the cost of time Vega captures changing expectations Together, they provide a more complete picture of risk and opportunity. Delta as a Hedge and Risk Management Tool Delta can also be used to manage directional exposure: Indicates how many shares are needed to hedge a position Forms the basis of Delta-neutral strategies Used by market makers to isolate volatility and time decay Maintaining a neutral position requires continuous adjustment as Delta changes. Volatility Events and Market Behavior A key takeaway was the impact of volatility on option pricing: Implied volatility reflects collective market expectations Volatility often rises ahead of major events After events, volatility may decline sharply (“vol crush”) Option prices can decrease even when the underlying moves as expected, reinforcing the importance of considering volatility alongside direction. Key Structural Insights Options pricing reflects multiple interacting forces: price, time, and volatility Delta provides direction, but Gamma reveals how exposure can change Time decay is continuous and accelerates near expiration Implied volatility drives option pricing and reflects market expectations Effective decision-making requires evaluating all Greeks together—not in isolation Keep Learning: Key Moments from Greeks Overview: A Fast-Track Guide to the Fundamentals Key Moments from Advanced Greeks: Core Drivers of Option Pricing and Strategic Decision-Making Meet OIC instructor Roma Colwell Roma Colwell is an Associate Principal, Investor Education at OCC and is a instructor for The Options Industry Council (OIC). Roma has more than 27 years in the securities industry, 18 of which were spent as a floor broker, market maker, specialist and risk manager in both San Francisco and Chicago. Prior to joining OIC, Roma was an instructor at the Options Institute, the education branch of Cboe Global Markets, formerly the Chicago Board Options Exchange, where she conducted option seminars for domestic and international segments of the investing community.

Explore key insights from our March Office Hours sessions, where discussions focused on how options are priced, how Greeks influence positions, and how market structure and volatility shape trading decisions.  .faq-accordion { border-bottom: 1px solid #ddd; } .faq-accordion summary { font-size: 1.1em; font-weight: 600; cursor: pointer; padding: 20px 40px 20px 0; list-style: none; position: relative; color: #333; } .faq-accordion summary::-webkit-details-marker { display: none; } .faq-accordion summary::after { content: '+'; position: absolute; right: 0; top: 50%; transform: translateY(-50%); font-size: 1.5em; font-weight: 300; } .faq-accordion[open] summary::after { content: '−'; } .faq-accordion-content { padding: 0 0 20px 0; } Option Strategies and Position Management Why use a spread instead of a single option? Spreads allow traders to define risk. For example, a bear call spread expresses a bearish view while capping potential losses by purchasing a higher strike call. While this limits maximum profit, it provides protection if the market moves unexpectedly. Do options need to be held until expiration? No. Traders can close positions at any time to realize gains, manage risk, or avoid assignment. In practice, most options positions are closed before expiration rather than exercised. Volatility and the Greeks What does it mean to hedge using Delta? Delta measures how an option's value changes with movements in the underlying asset. Traders can offset directional exposure by taking an opposing position in stock or other options. Because Delta changes as the underlying moves (Gamma), maintaining a neutral position requires ongoing adjustments. Are spreads neutral to volatility? Not necessarily. While spreads are contract neutral, they still carry exposure to implied volatility. Debit spreads tend to benefit from rising volatility, while credit spreads generally benefit when volatility declines. What determines implied volatility? Implied volatility reflects supply and demand in the options market. When demand for options increases, prices rise, and implied volatility increases accordingly. Time Decay and 0DTE Options How does time decay impact options? Time decay (Theta) reduces an option's value as expiration approaches. This effect accelerates in short-dated options, particularly 0DTE contracts, where time value can decline rapidly within a single trading day. Why do Gamma and Theta increase near expiration? As expiration nears, at-the-money options become highly sensitive to price movement. As Gamma increases, Delta shifts more rapidly, while Theta accelerates as remaining time value approaches zero. Market Mechanics and Structure Can options trading impact stock prices? Large option trades can influence the underlying stock. When market makers hedge their exposure—often by buying or selling shares—this activity can contribute to price movement. What is open interest? Open interest represents the number of outstanding option contracts. It increases when new positions are opened and decreases when positions are closed. High open interest at certain strikes can influence trading activity, especially near expiration. What role do market makers play? Market makers provide continuous liquidity by quoting bid and ask prices. Rather than taking directional views, they focus on managing risk and capturing small pricing differences while dynamically hedging their positions. Dividends and Contract Adjustments How do dividends affect options? Regular dividends are typically reflected in option pricing and do not change contract terms. However, special dividends may result in adjustments—such as changes to strike prices or deliverables—to maintain the contract's economic value. Trading in Different Volatility Environments How do traders approach high volatility? When implied volatility is elevated, traders may use defined-risk strategies—such as credit spreads, iron condors, or iron butterflies—to collect premium while limiting potential losses. Strategy selection ultimately depends on market outlook and risk tolerance. Meet OIC Instructors Ken Keating Ken, OIC instructor and pricipal, Investor Education at OCC, began his 25-year trading career at Group One Trading in 1993 on the floor of the PSE (Pacific Coast Stock Exchange) and later transitioned to the floor of the CBOE (Chicago Board Options Exchange). He has held positions as a floor market maker, floor specialist, risk manager, and off floor prop-trader Mark Benzaquen Mark, OIC instructor and principal, Investor Education at OCC, brings 20+ years of experience with options in the financial services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the lead broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.

Roma Colwell and Ed Modla took a bite out of the Big Apple on March 19 and 20, attending the GAME Forum presented by Quinnipiac University in New York City. The Global Asset Management Education (GAME) Forum is one of the premier student-focused finance conferences in the country, bringing together undergraduate and graduate students with industry professionals for two days of networking, panels, and educational programming. Throughout the event, Colwell and Modla connected with students at the OIC booth, discussing options education and the university outreach program OIC offers to help the next generation of investors build foundational knowledge of the options markets.   Ed Modla said "The GAME Forum was a truly meaningful experience for OIC. The depth of knowledge and genuinely inquisitive minds these students brought at such an early stage of their careers was impressive and that's exactly why being present in rooms like this matters to our mission. These students are the future of our industry, and conversations like these are how that future gets built." On Friday, Colwell and Modla delivered a live presentation titled Breaking the Code, designed to introduce students to the fundamentals of options trading. The session covered the role of OCC in the options market, core option strategies including buying calls and puts, covered calls, and cash-secured puts, and an introduction to options pricing and implied volatility. The presentation concluded with a segment addressing common misconceptions about options, helping students separate fact from fiction as they begin exploring the asset class.   "We had an incredible turnout at our breakout session with around 200 students who participated and an astounding 80% of them have already been actively trading options. That kind of real-world engagement is exactly what the Quinnipiac Game Forum is all about." Roma Colwell recounted. OIC's university outreach program is designed to partner with finance classes, derivatives classes, and finance clubs to bring unbiased, professional options education directly to students across the country. If you missed Ed and Roma in New York City and are interested in bringing OIC to your campus, reach out to options@theocc.com to discuss partnership opportunities.

Check out the most frequently asked questions from our February Office Hours sessions. Topics included option pricing relationships, strategy selection, volatility concepts, corporate actions, and the mechanics of trading options in different market environments.  Option Pricing and Market Relationships What does the formula "Call – Put + Strike" represent when evaluating options? This relationship comes from put-call parity and reflects the forward implied price of the underlying asset. It does not predict where the stock will go. Instead, it reflects how options prices incorporate factors like interest rates, dividends, and the time value of money to imply what the underlying price would be at expiration if current conditions remained unchanged. Why might put options trade at higher prices than calls at the same strike? If puts appear significantly more expensive than calls at the same strike and expiration, it can indicate factors affecting put-call parity. These may include dividend expectations, interest rates, corporate actions, or hard-to-borrow conditions in the stock. When prices appear "out of line," it usually means some structural factor is being priced into the options rather than a simple arbitrage opportunity. Option Strategies How do you choose between a bull call spread and a bull put spread? Both strategies express a bullish directional view, but they differ in structure. A bull call spread (debit spread) requires paying a premium and maintains the right to exercise the long call. A bull put spread (credit spread) collects premium but takes on the obligation associated with the short put. The choice often depends on factors such as implied volatility levels, risk tolerance, and whether a trader prefers paying premium or collecting it. If I'm bullish on a stock, should I buy a call or sell a put? Both positions have similar directional exposure but different risk profiles. Buying a call limits risk to the premium paid. Selling a put generates income but requires the ability to purchase the stock if assigned. At expiration, both positions can result in owning the stock if they finish in-the-money. Managing Option Positions Why doesn't a deep in-the-money call spread reach its maximum value long before expiration? Even if the spread is deep in-the-money, both options may still retain some amount of time premium. A spread reaches its full value only when the long option reflects its full intrinsic value and the short option reflects its full intrinsic value or decays to zero. If there is still significant time remaining until expiration, the short option will retain extrinsic value, preventing the spread from reaching its maximum theoretical value. Volatility and the Greeks What does it mean to "trade around the Greeks"? When trading options, every position carries exposure to option Greeks. Delta measures directional exposure to the underlying price. Gamma reflects how quickly Delta changes as the underlying moves. Theta represents time decay. Vega measures sensitivity to changes in implied volatility. Understanding these exposures helps traders choose strategies that align with their market outlook and volatility environment. Why might someone lose money on an option even if the stock moves in the expected direction? This can occur because implied volatility moves after the trade is entered. If a trader buys options when implied volatility is high and volatility later declines, the loss in option value from the volatility drop can outweigh the gain from the underlying price movement. Option Duration and 0DTE Options How do zero-day-to-expiration (0DTE) options behave differently from longer-dated options? As options approach expiration, Gamma increases, making the option highly sensitive to price movement. Theta accelerates as time decay increases rapidly. Vega decreases, reducing sensitivity to changes in implied volatility levels. Longer-dated options exhibit the opposite characteristics, with lower Gamma but greater sensitivity to implied volatility changes. Market Structure and Trading Mechanics What does "24-5 trading" mean? "24-5" refers to markets that operate nearly 24 hours a day during the trading week, typically from Sunday evening through Friday evening. Examples include index futures markets, foreign exchange markets, and certain extended-hours equity trading sessions. As markets expand toward continuous trading, it raises new questions about liquidity distribution, risk management, and how clearing systems handle the absence of traditional market opens and closes. What is after-hours trading and how does it affect options? Stocks typically close at 4:00 PM Eastern Time, but trading may continue afterward in extended sessions. For American-style options, traders may still have a window after the close to exercise options or submit contrary exercise instructions. Each brokerage firm sets its own cutoff times for these instructions, so traders should confirm those deadlines with their brokerage firm. Corporate Actions and Options How do reverse stock splits affect options contracts? When a company conducts a reverse split, OCC can adjust the option contract so that the overall economic value remains the same. Changes may include a modified deliverable (fewer shares per contract) or an options symbol change. These adjustments are meant to ensure that option holders are neither advantaged nor disadvantaged by the corporate action. Market Making and Trading Perspectives How do market makers approach options differently than retail traders? Retail traders often trade specific strategies (spreads, covered calls, etc.). Market makers typically focus on quoting bid-ask prices, managing volatility exposure, and hedging positions dynamically. Rather than targeting specific strategies, market makers primarily manage risk through volatility and Delta hedging. Meet OIC Instructors Mat Cashman Mat is a financial services professional and currently an instructor at The Options Industry Council. He brings 20 years of experience trading in all segments of the derivatives market. He started his career on the trading floor of the Chicago Board of Options Exchange in 2000 and has since traded multiple asset classes across a wide array of exchanges including the CME, CBOT and the Eurex Exchange. Mark Benzaquen Mark, OIC instructor and principal, Investor Education at OCC, brings 20+ years of experience with options in the financial services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the lead broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.

OIC Instructor Mark Benzaquen attended MoneyShow Las Vegas, a financial conference that connects individual investors and financial advisors with insights from market analysts, portfolio managers, and other financial professionals. In addition to his presence at the OIC booth for the duration of the event, Mark delivered a live educational session titled The Rule of 16: Deriving Daily Meaning From an Annual Volatility Metric. In this presentation, Benzaquen explored how traders can convert implied volatility into a practical daily standard deviation using a simple, repeatable framework. He walked attendees through the Rule of 16 formula, explaining how dividing a stock's annual implied volatility by the square root of 252 trading days, rounded to 16 for simplicity, yields an implied daily standard deviation.   The session concluded with a discussion of how changes in implied volatility, independent of stock price movement, can significantly alter the risk and opportunity profile of an options position. During the conference, Benzaquen met with attendees at the OIC booth, discussing a range of options-related topics and OIC's free educational offerings available at OptionsEducation.org.  

In February, OIC instructor Mat Cashman led two webinars: Options Premium: Intrinsic, Extrinsic and the Forces That Shape Value and Pricing Models and Put–Call Parity: How Theory Shapes Option Values. These sessions moved beyond basic terminology and focused on how options are actually priced, how premium behaves over time, and why structural relationships keep markets aligned. Together, the webinars explained what makes up an option’s premium and how those components behave and may vary across strikes and expirations. What We Covered: Options Premium as a Bundle of Risks Option premium reflects exposure to multiple risk dimensions: Movement in the underlying (Delta and Gamma) Time decay (Theta) Implied volatility (market expectations of future underlying price movement) Interest rates and dividends (carry) Intrinsic value represents the option’s inherent value based purely on stock price versus strike price, while extrinsic value represents time and uncertainty. Delta as the Bridge Between Intrinsic and Extrinsic Value Delta measures how much an option’s price is expected to change for a $1 move in the underlying. Higher Delta options behave more like stock and are increasingly driven by intrinsic value. Lower Delta options are more influenced by extrinsic forces such as time and volatility. The distinction between “hard” Delta (higher correlation to intrinsic value) and “soft” Delta (greater sensitivity to extrinsic inputs) provides a practical framework for understanding risk behavior. Time Decay and Extrinsic Value Extrinsic value erodes over time. Theta measures expected daily decay, calculated on a calendar-day basis. Decay accelerates as expiration approaches. Call and put prices both experience negative Theta. Even if the stock price does not move, the passage of time alone can potentially reduce extrinsic value. Implied Volatility and Market Expectations Implied volatility represents the marketplace’s forward-looking expectation of future stock movement. It is not historical volatility. It is determined collectively by buyers and sellers in the options market. Higher implied volatility increases both call and put premiums. Lower implied volatility reduces both. Options can change in value even if the stock remains unchanged, purely due to shifts in volatility assumptions. Put–Call Parity and Structural Relationships Put–Call parity links calls, puts, and stock in a mathematical relationship that enforces pricing consistency. The extrinsic value of in-the-money options aligns with the extrinsic value of corresponding out-of-the-money options at the same strike price. Differences between call and put prices reveal the market’s implied forward price of the underlying. Pricing models can be used to analyze consistency across strikes and expirations by incorporating volatility, time, interest rates, and dividends. Understanding parity helps explain why option markets maintain structural efficiency. Conversions, Reversals, and Synthetic Positions Options can replicate stock positions synthetically: Long call + short put (same strike and month) = synthetic long stock Short call + long put (same strike and month) = synthetic short stock Conversions and reversals are not directional trades. They are structural trades that capture differences between synthetic exposure and physical stock, often influenced by carry costs and dividend expectations. Key Structural Insights Options premium reflects multiple interacting forces. Intrinsic value is mechanical; extrinsic value is dynamic. Time decay works continuously. Implied volatility prices uncertainty. Structural relationships such as parity maintain alignment across the market. “Delta neutral” does not mean risk neutral; assignment, financing, and carry still matter. Keep Learning: Key Moments from Options Premium: Intrinsic, Extrinsic and the Forces That Shape Value Key Moments from Pricing Models and Put–Call Parity: How Theory Shapes Option Values Meet OIC instructor Mat Cashman Mat is a Financial Services professional and currently an instructor at The Options Industry Council. He brings 20 years of experience trading in all segments of the Derivatives market. He started his career on the trading floor of the Chicago Board of Options Exchange in 2000 and has since traded multiple asset classes across a wide array of exchanges including the CME, CBOT, and the Eurex Exchange 

OIC Instructor Mat Cashman attended an exclusive educational event hosted by TradeStation at their Plantation, Florida office.   Mat delivered a live educational session titled Options in Elevated Volatility Regimes, followed by an extended question and answer period with attendees. In this presentation, Cashman explored how elevated implied volatility environments affect options pricing, strategy selection, and risk management.    Cashman then examined how key option Greeks behave differently as implied volatility levels change, and discussed how those shifts can affect strategy attractiveness for both buyers and sellers of options. The session concluded with a discussion of tail risk in elevated volatility environments, including historical examples of extreme market events and how investors may consider using options to hedge against low-probability, high-impact outcomes.    

Here's a Riddle: What option, at expiration, requires no decisions, no transfer of shares, and disappears entirely? That's right: a cash-settled option. What Is a Cash-Settled Option? Cash-settled options play a critical role in the options markets, particularly for investors and institutions seeking exposure to broad market indexes without the complexities of a physical deliverable. Index options are designed and intended to provide investors with the potential to capture the performance of the broad market without the risk of share ownership. They are often used for hedging purposes; systematic risk exposure, volatility exposure or speculation. Cash-settled options settle entirely into cash, unlike equity and ETF options, which settle through the delivery of shares. Why not physical settlement on index options? Mainly because it is impractical. Physical delivery for an index option would require replicating the basket of stocks in the precise weight of that index with hundreds, even thousands, of underlying stocks. In contrast, cash settlement provides clean and efficient delivery by distributing a single net cash obligation. This clean and efficient feature helps control market exposure and assists with managing positions after expiration. Even though the concept seems theoretical, in practice it is highly systematized. Expiration Process Once OCC receives the index's settlement value from the exchanges, the automatic exercise procedure known as "exercise by exception" begins. OCC calculates the options' intrinsic value Difference between the strike price and the settlement value Options with intrinsic value are in-the-money (ITM) Options with no intrinsic value expire worthless Contract multiplier is applied to intrinsic value The multiplier is usually 100 per index point For calls: if Settlement Value is greater than the strike price For puts: if Settlement Value is less than the strike price OCC transfers cash between long and short positions Option writers (sellers) are debited a cash amount Option holders (buyers) are credited a cash amount Settlement is completed the next business day (T+1) T = Trade date (in this case, exercise date) +1 = One business day later Settlement = When payment is finalized Calculation of Cash Settlement Amount Call Settlement: Index Settlement Value at $5,000 Strike Price Moneyness Intrinsic Value (Index − Strike) Cash Settlement ($100 Multiplier) Holder (Buyer) Writer (Seller) 4,900 ITM 100 $10,000 Credited $10,000 Debited $10,000 4,950 ITM 50 $5,000 Credited $5,000 Debited $5,000 4,975 ITM 25 $2,500 Credited $2,500 Debited $2,500 5,000 ATM 0 $0 Worthless No payment 5,025 OTM 0 $0 Worthless No payment 5,050 OTM 0 $0 Worthless No payment 5,100 OTM 0 $0 Worthless No payment Put Settlement — Index Settlement Value at $5,000 Strike Price Moneyness Intrinsic Value (Strike − Index) Cash Settlement ($100 Multiplier) Holder (Buyer) Writer (Seller) 4,900 OTM 0 $0 Worthless No payment 4,950 OTM 0 $0 Worthless No payment 4,975 OTM 0 $0 Worthless No payment 5,000 ATM 0 $0 Worthless No payment 5,025 ITM 25 $2,500 Credited $2,500 Debited $2,500 5,050 ITM 50 $5,000 Credited $5,000 Debited $5,000 5,100 ITM 100 $10,000 Credited $10,000 Debited $10,000

n January, OIC instructor Mark Benzaquen led two foundational webinars: Options 101: Understanding Key Terms and How Options Work and Options 102: Fundamentals of Calls and Puts. These sessions covered options basics, from terminology to practical strategies, providing the groundwork for understanding how options work and how they can be used to achieve different investment objectives. What We Covered: Understanding Options Contracts Options are contracts that grant rights to buyers and obligations to sellers. For equity options, call options give the right to purchase stock at the strike price, while put options provide the right to sell. Buyers control whether to exercise and cannot lose more than the premium paid during the life of the contract. Sellers face potentially significant risk and must maintain margin with their broker. American-style options (all equities and ETFs) can be exercised anytime on or before expiration, while European-style options (most indices) can only be exercised on expiration day. Why Investors Use Options Risk management through strategies like protective puts, which work similarly to insurance by providing downside protection. Premium income generation via covered calls and cash-secured puts. Leverage to control more shares with less capital than trading stock outright. Defined risk in many strategies, where investors know their maximum loss upfront. Moneyness and Pricing In-the-money options have intrinsic value and command higher premium amounts. Calls are in-the-money when the strike is below the stock price; puts when the strike is above. At-the-money and out-of-the-money options contain only time value. For the option buyer, they're cheaper with lower capital at risk but require more extensive price movement to profit. Essential Strategies Long call: Buying a call option provides the right to purchase stock at the strike price with limited risk (only the premium paid) and unlimited profit potential. The break-even point equals the strike price plus the premium paid, requiring bullish movement to profit at expiration. Protective put: This strategy combines owning stock with buying a put option for downside protection. Maximum loss is limited to the difference between your stock price and the put strike, plus the premium paid. Covered call: This income-generating strategy pairs stock ownership with selling a call option to collect premium, lowering your effective cost basis. The main risk remains in the stock position itself, and upside is capped at the strike price if assigned. Cash-secured put: Selling puts on stock you'd be willing to own at a lower price. You collect premium upfront and must have cash to purchase the stock if assigned. What We Covered: Exercise and Assignment: Understanding Rights and Obligations   Exercise: The process by which an options buyer enacts their contractual rights.  Assignment: The seller's fulfillment of their contractual obligations.  Style Differences: American-style options can be exercised anytime on or before expiration, while European-style options can only be exercised at expiration.  After-Hours Movements and Proactive Management   After-hours market activity can turn out-of-the-money options in-the-money (or vice versa), creating unexpected exposure. Understanding brokerage policies on manual exercise procedures and cut-off times is essential.   Corporate Actions Require Case-by-Case Adjustments  Corporate events — mergers, stock splits, dividends, and bankruptcies — can alter option contract terms including strike prices, underlying assets, quantities, and expiration dates. These adjustments follow OCC By-Laws and SEC rules and are handled on a case-by-case basis.   Key considerations include:  Non-ordinary dividends typically are adjusted by either lowering strike prices by the dividend amount or by including the dividend amount to the deliverable  Bankruptcy can render call options worthless and put options at full value  Trading halts don't eliminate rights/obligations but may impact position management  Keep Learning:      Key Moments from Understanding Options Exercise & Assignment: Features and Critical Aspects  Key Moments from Corporate Actions and Options: Navigating Potential Contract Adjustments.  Meet OIC instructor Mark Benzaquen Mark, OIC instructor and Principal, Investor Education at OCC, brings 20+ years of experience with options in the Financial Services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the Lead Broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.

Check out the most frequently asked questions during our January events. Topics of discussion include options trading basics, managing option positions, option strategies, hedging & risk management, implied volatility & Greeks, future vs. options and market making.  .faq-accordion { border-bottom: 1px solid #ddd; } .faq-accordion summary { font-size: 1.1em; font-weight: 600; cursor: pointer; padding: 20px 40px 20px 0; list-style: none; position: relative; color: #333; } .faq-accordion summary::-webkit-details-marker { display: none; } .faq-accordion summary::after { content: '+'; position: absolute; right: 0; top: 50%; transform: translateY(-50%); font-size: 1.5em; font-weight: 300; } .faq-accordion[open] summary::after { content: '−'; } .faq-accordion-content { padding: 0 0 20px 0; } Options Trading Basics How do you determine the bid-ask spread when buying or selling options? The bid is the price at which the market is willing to buy the option, and the ask is the price at which the market is willing to sell the option. As a buyer, you look at the ask price, and as a seller, you look at the bid price. The difference between what you paid and what you sell it for determines your profit or loss. Do I need to have the shares in my account to exercise a long put contract? It depends. Your trading firm may require you to have those shares prior to exercising. If you can't buy or borrow the shares, you may not be able to exercise the contract. Managing Option Positions Can you get assigned on an out-of-the-money option after market close? Yes, out-of-the-money options can still be exercised by the buyer if they choose to do so, which means the seller's risk continues until the option fully expires. How can you manage a collar trade to keep the stock? You can manage a collar trade by rolling the short call and long put up or out to a different expiration date. Option Strategies What are the benefits of trading zero DTE options? Zero DTE options have increased levels of Gamma and Theta, making them highly sensitive to underlying movements and allowing for rapid time decay. However, they have less Vega, meaning they are less affected by changes in implied volatility. Is it better to sell an in-the-money call or buy a protective put as a hedge against my long stock position? It depends on your goals. Selling an in-the-money call provides some income and partial protection, while buying a protective put offers more protection but at a cost. How do you calculate breakevens when you sell or buy the same option on different days with different premiums? If you're adding to an aggregate position, you can average the premiums. For example, if you paid $3 for the 100 strike call and $1 for another 100 strike call, your average cost is $2 for both calls. How do you pick a strike price for selling covered calls if you don't want to get called away? Choose a strike price further out-of-the-money to reduce the likelihood of assignment. However, this will also reduce the premium you collect. Hedging and Risk Management Can you give an example of how to hedge an existing long position in my portfolio? A few ways to protect are a protective put or a collar. For example, if you own a stock, you can buy a put option to protect against downside risk as the long put acts as an exit price to sell your shares. A collar uses a short upside call combined with a long put. The short call helps to offset the cost of the put while capping the upside exposure on the stock. Implied Volatility and Greeks Is there a relationship between expected move and gamma exposure in selecting a strike? Expected move is part of the implied volatility of the option. Gamma exposure is inversely correlated with implied volatility. Futures vs. Options What is the difference between an options contract and a futures contract? An options contract gives the buyer the right but not the obligation to fulfill the terms, while a futures contract creates a binding obligation for both parties unless closed out through a trade. There are also significant cost and risk differences between options and futures. Market Making and Trading Strategies Why do many options experts have backgrounds in market making? Market making provides a deep understanding of options through immersion in the trading environment, helping experts develop a comprehensive knowledge of options pricing and risk management. Meet OIC Instructors Mat Cashman Mat is a financial services professional and currently an instructor at The Options Industry Council. He brings 20 years of experience trading in all segments of the derivatives market. He started his career on the trading floor of the Chicago Board of Options Exchange in 2000 and has since traded multiple asset classes across a wide array of exchanges including the CME, CBOT and the Eurex Exchange. Mark Benzaquen Mark, OIC instructor and principal, Investor Education at OCC, brings 20+ years of experience with options in the financial services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the lead broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.

In December, OIC instructor Mark Benzaquen led two webinars on fundamental concepts in options trading: exploring Understanding Options Exercise & Assignment: Features and Critical Aspects and Corporate Actions and Options: Navigating Potential Contract Adjustments. Both sessions provided practical knowledge essential for managing risk, understanding contractual obligations, and navigating complex market events that can significantly affect option positions.  What We Covered: Exercise and Assignment: Understanding Rights and Obligations   Exercise: The process by which an options buyer enacts their contractual rights.  Assignment: The seller's fulfillment of their contractual obligations.  Style Differences: American-style options can be exercised anytime on or before expiration, while European-style options can only be exercised at expiration.  After-Hours Movements and Proactive Management   After-hours market activity can turn out-of-the-money options in-the-money (or vice versa), creating unexpected exposure. Understanding brokerage policies on manual exercise procedures and cut-off times is essential.   Corporate Actions Require Case-by-Case Adjustments  Corporate events — mergers, stock splits, dividends, and bankruptcies — can alter option contract terms including strike prices, underlying assets, quantities, and expiration dates. These adjustments follow OCC By-Laws and SEC rules and are handled on a case-by-case basis.   Key considerations include:  Non-ordinary dividends typically are adjusted by either lowering strike prices by the dividend amount or by including the dividend amount to the deliverable  Bankruptcy can render call options worthless and put options at full value  Trading halts don't eliminate rights/obligations but may impact position management  Keep Learning:      Key Moments from Understanding Options Exercise & Assignment: Features and Critical Aspects  Key Moments from Corporate Actions and Options: Navigating Potential Contract Adjustments.  Meet OIC instructor Mark Benzaquen Mark, OIC instructor and Principal, Investor Education at OCC, brings 20+ years of experience with options in the Financial Services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the Lead Broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.

OIC instructor Roma Colwell was joined by Jose Terrazas, Senior Associate, Market Risk & Default Management, OCC, on a visit to Roosevelt University to engage students from the finance club in a discussion about how the listed options market operates

Ever wonder how options ‘end-of-day marks’ are determined? Behind those ‘closing mark’ prices lies a precise, system-wide process known as mark-to-market, a cornerstone of how OCC safeguards market integrity each day. But before we examine what it is, let’s clarify what it’s not. It is not the bid price, the offer price, the midpoint, nor the last sale price. Most significantly, it is not a tradable value; actual transactions occur within the bid-ask spread throughout market hours.  What is the Mark-to-Market Process? The term "mark price" originates from a reporting process known as "mark-to-market." In the context of options, OCC computes these EOD marks using a proprietary 29-point binomial algorithm derived from the Cox-Ross-Rubinstein model. The algorithm takes into account factors such as closing bid/ask markets, implied volatility levels and several others. The objective is to reflect a fair and consistent measure of each contract’s current value for margin and risk purposes. This critical process helps clearing members maintain adequate collateral when calculating open positions’ daily P&L, margin requirements, and portfolio valuation.  Through this daily mark-to-market process, OCC fulfills its role as a central counterparty and as a Systemically Important Financial Market Utility (SIFMU), ensuring the U.S. options market operates with integrity, transparency, and minimal systemic risk. By providing these risk management services, OCC furthers its mission to promote market stability and integrity. What is OCC's Daily Process? The Mark-to-Market Process Flow

In November, OIC hosted two webinars, Navigating ETFs & Indices: Trading Vehicles for Broad Market Exposure led by OIC instructors Ken Keating and Mark Benzaquen and the other Cash-Settled Options Explained: Mechanics and Strategic Applications led by OIC instructor Roma Colwell.   These sessions explored index and ETF options, volatility products, and cash settlement mechanics. Both sessions provided practical, foundational knowledge needed to navigate these products, clarifying structural differences that potentially have major implications for risk, assignment, and trading outcomes. They explained how end-of-day values ensure a fair and orderly market and how cash-settled index options reduce the risk of unwanted assignment or losing shares through exercise.  What We Covered: Structural Differences Between Index Options and Equity/ ETF Options Matter  Settlement: Index options settle in cash, while equity/ETF options typically settle physically.  Exercise Style: Index options are commonly European-style (exercise only at expiration), while equity/ETF options are American-style (exercise anytime).  Timing: Some index contracts have AM settlement, while all ETF options follow PM settlement.  Deliverables: Index options have no shares delivered—only a cash transfer.  Cash Settlement Preserves the Underlying Portfolio  At expiration, the intrinsic value—if any—is simply transferred as cash (settling T+1). This makes broad-based index options particularly appealing for:  Hedging diversified portfolios  Managing index-level exposure  Avoiding the operational complexities of physical delivery  End-of-Day Values Are Calculated, Not Traded  OCC determines the end-of-day theoretical price for all options using a smoothing algorithm, rather than relying on the last trade. These closing marks serve as the basis for:  Daily P&L  Margin requirements  Risk monitoring.  Keep Learning:      Key Moments from Navigating ETFs & Indices: Trading Vehicles for Broad Market Exposure  Key Moments from Cash-Settled Options Explained: Mechanics and Strategic Applications  Meet OIC instructor Roma Colwell:   Roma Colwell Roma Colwell is an Associate Principal, Investor Education at OCC and is an instructor for The Options Industry Council (OIC). Roma has more than 27 years in the securities industry, 18 of which were spent as a floor broker, market maker, specialist and risk manager in both San Francisco and Chicago.

At the Benzinga Fintech Day & Awards 2025, leaders across trading, technology, and financial innovation gathered to explore the forces shaping today's markets.

In October, OIC hosted two webinars, “The Iron Butterfly: Combining Credit Spreads for Defined Risk Trading” and “The Iron Condor: An Advanced Strategy for Range-Bound Markets” both led by Ken Keating, OIC Instructor and Principal, Investor Education, OCC.

OIC instructor Mat Cashman recently joined Kirk Du Plessis of Option Alpha for a focused discussion on the mechanics and market implications of zero-days-to-expiration (0DTE) options and gamma exposure

In a recent three-part video series filmed on the trading floor of Cboe, OIC instructor Mat Cashman joined Henry Schwartz of Cboe and Lex Luthringshausen from Tradier to explore one of the most discussed topics in today's options landscape—zero days to expiration (0DTE) options.