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One thing I keep coming back to in options is the bid-ask spread, the gap between the highest price a buyer will pay and the lowest price a seller will accept. It is a cost that does not show up as a commission, but it is paid every time yo…
Here is a question I keep returning to. Suppose you buy a straddle into an event where implied volatility is elevated, and the underlying moves less than the market priced in. The position can lose money even when your directional read was …
Implied volatility is the market's estimate of how much a stock might move, baked into an option's price. When it is high, options are expensive; when it is low, they are cheap. A simple way to see this: if a stock's option costs 2.00 when …
Choosing an expiration is one of the first practical decisions in options, and it is easy to overlook. A short-dated option is cheaper, but it has less time for the underlying to move in your favour, and time decay speeds up as expiry nears…
Time decay, often called theta, is the idea that an option loses some of its extrinsic value as expiration approaches, all else being equal. I find it helps to make the idea concrete with round, made-up numbers. Imagine an option priced at …
