Library
70 explainers, organised by topic. Start with The Basics if you're new.
An option is a contract giving the buyer the right, but not the obligation, to buy or sell 100 shares at a set price by a set date. How buyers, writers, and the premium fit together.
Read the explainer →A call option is the right to buy 100 shares at a fixed strike price before expiration. Worked payoff tables for buying and writing calls, with breakevens and maximum gains and losses.
Read the explainer →A put option is the right to sell 100 shares at a fixed strike price before expiration. Worked payoffs for buying puts, using puts as insurance, and writing puts, with breakevens and max losses.
Read the explainer →An option's premium is intrinsic value plus extrinsic (time) value. How each part is calculated, what moves the price (stock, time, volatility, rates, dividends), and worked examples.
Read the explainer →How exchanges choose which strikes and expiration dates to list, the third-Friday convention, weekly and daily expirations, LEAPS, and the Canadian rules on the Montréal Exchange.
Read the explainer →What in the money, at the money, and out of the money mean for calls and puts, how moneyness affects price and risk, and worked examples comparing ITM and OTM options at expiration.
Read the explainer →What happens when an option is exercised: how OCC assigns it to a writer, the $0.01 automatic exercise rule, exercise cut-off times, early exercise, and why dividends trigger early assignment.
Read the explainer →American options can be exercised any day before expiration; European options only at expiration. How that plays out for stock options, SPX vs SPY, AM vs PM settlement, and cash vs physical delivery.
Read the explainer →A column-by-column guide to an options chain: strikes, bid and ask, last price, volume, open interest, implied volatility, and delta, with a worked hypothetical chain and the real cost of the spread.
Read the explainer →How listed options are traded and cleared: exchanges, OCC as guarantor, market makers, the Montréal Exchange and CDCC in Canada, and how splits and special dividends adjust contracts.
Read the explainer →How a covered call is built from 100 shares and one short call, with a payoff table, max gain, max loss, breakeven, assignment risk, and what decades of buy-write index data show.
Read the explainer →How a cash-secured put works: selling a put while holding the cash to buy the shares, with a payoff table, max gain, max loss, breakeven, assignment risk, and what can go wrong.
Read the explainer →How a protective put works: owning shares and buying a put as a floor, with a payoff table, max loss, breakeven, the cost of protection over time, and what can go wrong.
Read the explainer →How vertical spreads are built from two options at different strikes, debit vs credit, with payoff tables, max gain, max loss, breakevens, early assignment, and pin risk.
Read the explainer →How long and short straddles and strangles are built, with payoff tables, max gain, max loss, both breakevens, how time decay and IV crush affect them, and what can go wrong.
Read the explainer →How an iron condor is built from a bull put spread and a bear call spread, with a payoff table, max gain, max loss, breakevens, time decay, volatility, assignment risk, and what can go wrong.
Read the explainer →How long call butterflies and iron butterflies are built, with payoff tables, max gain, max loss, two breakevens, why time decay helps only near the center strike, and what can go wrong.
Read the explainer →How a calendar spread is built from two options with the same strike and different expiries, with an estimated payoff table, max loss, breakevens, the role of volatility, and assignment risk.
Read the explainer →How a collar combines owned shares, a long put, and a short call, with a payoff table, max gain, max loss, breakeven, what 'zero-cost' really means, assignment risk, and tax notes.
Read the explainer →How the wheel cycles between cash-secured puts and covered calls, with worked numbers, payoff tables, max gain, max loss, breakevens, assignment mechanics, and what can go wrong.
Read the explainer →What each option Greek measures, how to read them on a chain, and a worked example showing how delta, gamma, theta, and vega combine to move an option's price.
Read the explainer →What option delta measures, why it works as a hedge ratio, why it is only a rough probability of expiring in the money, and how market makers use it to hedge.
Read the explainer →What theta measures, why time decay speeds up near expiration, and worked numbers showing how at-the-money, out-of-the-money, and in-the-money options decay day by day.
Read the explainer →What implied volatility is, how it differs from historical volatility, why option prices collapse after earnings (IV crush), and how Cboe calculates the VIX.
Read the explainer →What option gamma measures, why it spikes for at-the-money options near expiration, the trade-off between gamma and theta, and what 'dealer gamma' means at an explainer level.
Read the explainer →How the Black-Scholes model prices an option, step by step with real numbers, what its assumptions are, how put-call parity links calls and puts, and where the model breaks down.
Read the explainer →The real risks of trading options, with arithmetic: how leverage cuts both ways, why buyers often lose the whole premium, why naked calls have no loss limit, and how spreads and assignment bite.
Read the explainer →What peer-reviewed studies find about retail options returns, and the mechanics behind the losses: bid-ask spreads, time decay, overpaying for volatility, and lottery-like payoffs.
Read the explainer →When short options get assigned early, why ex-dividend dates matter for short calls, how pin risk and after-hours moves create expiration surprises, and how OCC assigns exercises.
Read the explainer →What zero-days-to-expiration (0DTE) options are, how daily SPX expirations made them possible, Cboe's dated volume figures, and the gamma and time-decay arithmetic behind their risk.
Read the explainer →What happens to stock and index options on expiration day: OCC's automatic exercise, the 5:30 p.m. ET deadline, pin risk, AM vs PM cash settlement, and how spreads can leave unexpected positions.
Read the explainer →How the IRS taxes stock and index options: buyers vs writers, exercise and assignment basis rules, the Section 1256 60/40 rule, Form 6781, wash sales, and straddles.
Read the explainer →How the CRA taxes options: capital vs income account, buyers vs writers, section 49 rules for premiums, ACB adjustments on exercise and assignment, and superficial losses.
Read the explainer →Why brokers approve you before you can trade options: FINRA Rule 2360, the Options Disclosure Document, CIRO derivatives account rules in Canada, and how approval tiers work.
Read the explainer →What you can and cannot do with options in an IRA, Roth IRA, TFSA, or RRSP: the IRS borrowing rules, CRA qualified-investment rules, option writing, and the business-income risk.
Read the explainer →Who oversees listed options: the SEC, FINRA, OCC and the exchanges in the US; CIRO, the CSA, the Montreal Exchange and CDCC in Canada; plus SIPC and CIPF protection.
Read the explainer →Why equity index options trade at different implied volatilities by strike and expiry, how skew appeared after 1987, how desks model surface moves, and what a risk reversal trades.
Read the explainer →How put-call parity is derived, how conversions, reversals, and SPX box spreads use it to lend and borrow, and why early exercise and dividends break it for American options.
Read the explainer →How professionals price options when Black-Scholes is not enough: Cox-Ross-Rubinstein trees, Dupire local volatility, Heston stochastic volatility, and Merton jumps, with worked numbers.
Read the explainer →Why a delta-hedged option's P&L is gamma against theta, how realized versus implied volatility decides the result, and what hedging frequency, costs, and jumps do, with simulations.
Read the explainer →Why index options usually price more volatility than later occurs, how the gap is measured with variance swaps, what Carr and Wu and Bakshi and Kapadia found, and the crash risk behind it.
Read the explainer →How Cboe calculates the VIX from a strip of SPX options, a worked calculation, how VIX futures and options settle to the SOQ, the term structure, and why long VIX products lose value.
Read the explainer →How to read the move options price for an earnings report, how to separate event volatility from normal volatility, why IV collapses afterward, and what the research says about pricing.
Read the explainer →How risk-based portfolio margin differs from strategy-based (Reg T) margin for options, how FINRA Rule 4210(g) and OCC's TIMS work, worked examples, and Canada's CIRO rules as of 2026.
Read the explainer →Why index options price more volatility than their stocks justify, how Cboe's implied correlation index is calculated, and how dispersion trades are built, sized, and broken.
Read the explainer →How barrier, digital, Asian, and lookback options work and are priced, with worked numbers, and how they end up inside retail structured notes that FINRA has repeatedly flagged.
Read the explainer →Merton's rule that calls should not be exercised early, the dividend exception with an exact test, when puts should be exercised, and how dividend plays exploit OCC assignment.
Read the explainer →How implied volatility varies by expiry, how to extract forward and event-day volatility from two expiries, how FOMC and CPI show up in short-dated SPX vol, and calendars as vol trades.
Read the explainer →How professional options market makers quote, absorb customer flow, hedge delta and vega, size risk limits, and which exchange obligations and regulatory exemptions shape the business.
Read the explainer →How option dealers' hedging can dampen or amplify stock and index moves, what the research on pinning, intraday momentum, and 0DTE gamma actually finds, and why gamma exposure estimates mislead.
Read the explainer →How reverse convertibles, principal-protected notes, and autocallables are built from bonds and options, how issuers hedge them, what FINRA warns, and what the 2024 Korean Hang Seng ELS losses showed.
Read the explainer →How buffer (defined-outcome) ETFs, covered-call ETFs, and ELN-based income funds build their payoffs from options, as described in their prospectuses, with worked outcome tables and costs.
Read the explainer →How short-volatility ETPs lost about 96% in one evening: the VIX spike, the daily rebalance feedback loop, XIV's acceleration clause, SVXY's -0.5x reset, and what regulators found.
Read the explainer →How the Options Clearing Corporation guarantees every listed US option: novation, STANS expected-shortfall margin, the Cover 2 clearing fund, the default waterfall, and CDCC in Canada.
Read the explainer →How executives hedge concentrated stock with zero-cost collars and prepaid variable forwards, what Form 4, Item 407(i), and the 2022 Rule 10b5-1 amendments require, and what research finds.
Read the explainer →How institutions hedge market crashes with rolling index puts and VIX calls, what the protection costs, why CalPERS ended its program in 2019, and what the research says about tail hedging.
Read the explainer →How convertible arbitrage works: the bond-plus-call structure, delta hedging, financing and leverage, a worked P&L, and what the 2005 and 2008 episodes show about slow-moving capital.
Read the explainer →How payment for order flow works in US options versus stocks: consolidators, exchange auctions and fees, Rule 606 data per contract, the academic evidence, and where SEC rulemaking stands in 2026.
Read the explainer →How variance swaps work and how dealers hedge them with a 1/K² strip of options, why variance is convex in volatility, how jumps break replication, and what 2008 did to single-stock variance.
Read the explainer →A professional look at 0DTE options: dated Cboe and SEC volume data, who trades them, the gamma arithmetic dealers face, and the research on whether 0DTE trading dampens or amplifies moves.
Read the explainer →An option is at the money when the underlying trades at or very near the strike price. Why at-the-money options carry the most time value and how their delta behaves.
Read the explainer →Assignment is the notice that an option writer must fulfil the contract: sell shares for a call, buy shares for a put. How it is allocated, when it happens, and why it surprises people.
Read the explainer →The contract multiplier converts an option's quoted price into dollars: 100 shares for standard equity options, $100 per point for SPX and Canada's SXO index options.
Read the explainer →LEAPS are long-dated listed options, with expirations that can run up to about three years. How they differ from short-term options, what they cost, and their risks.
Read the explainer →Implied volatility is the future volatility the market is pricing into an option. How to read an IV number, how it differs from historical volatility, and why it drops after earnings.
Read the explainer →Intrinsic value is the amount by which an option is in the money: what it would be worth if exercised right now. Formulas for calls and puts, with worked examples.
Read the explainer →Open interest is the number of options contracts still open at the end of a trading day. How it differs from volume, how it changes, and what it can and cannot tell you.
Read the explainer →The option premium is the price a buyer pays and a writer receives for an options contract. How it is quoted, why you multiply by 100, and what it is made of.
Read the explainer →The strike price is the fixed price at which an option lets you buy or sell the underlying. How strikes are listed, how they set moneyness, and how they shape breakeven.
Read the explainer →Time value, or extrinsic value, is the part of an option's premium above its intrinsic value. Why it exists, why it shrinks toward zero at expiry, and what drives it.
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