Learn About Extrinsic Value

This is a key to options trading! Find out why from our very own Mike Butler

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Options Crash Course

Options Crash Course: Ep #4 - Profit, Direction, and Probability

Options Crash Course

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

To round out the first week of our Options Crash Course, we take a look at option delta - a derivative of the BSM, and the one variable that can measure profit, direction, and probability, simultaneously. Once we understand that the textbook definition of delta shows us how an option’s price will move when the stock price moves, we then turn to understanding how delta measures our directional risk and position probability.

Specifically, delta can show us both the directional exposure of our option position, relative to a pure stock position, and it measures the probability of that specific option expiring ITM at expiration.

LINKS TO ALL CRASH COURSE EPISODES:

Ep #1: The Source of all Strategies

Ep #2: Deconstructing Option Prices

Ep #3: Extrinsic Value Extras

Ep #4: Profit, Direction, and Probability

Ep #5: The Natural Decay of Options

Ep #6: Trading Changes in Implied Volatility

Ep #7: Gamma: Sign, Magnitude, and Risk

Ep #8: Contracts, Decay, and IV Overstatement

Ep #9: Defined-Risk Strategies: Part One

Ep #10: Defined-Risk Strategies: Part Two

Ep #11: Undefined-Risk Strategies: Part One

Ep #12: Undefined-Risk Strategies: Part Two

Ep #13: Managing Winners, Losers, and Rolling

Ep #14: Directional Bias at the Portfolio Level

Ep #15: Positive Theta at the Portfolio Level

Ep #16: Putting it all Together: Trade Entry and Exit

Ep #17: Putting it all Together: Trade Management

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