Articles and Updates

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.

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.

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.