Cluster A: Options Foundations
What options are, how they work, and the mechanics of trading them. The essential building blocks for everything that follows.
What Is an Option Contract
Rights vs obligations, calls vs puts, American vs European, contract specifications (multiplier, expiration, strike)
Intrinsic and Extrinsic Value
Moneyness (ITM, ATM, OTM), time value decomposition, why OTM options have value
The Options Chain
Reading an options chain, bid/ask spreads, open interest, volume, implied volatility
Payoff Diagrams and P&L at Expiration
Building payoff diagrams for long/short calls and puts, breakeven calculation, maximum loss/gain
How Options Trade: Market Mechanics
Order types (market, limit, stop), the role of market makers, assignment and exercise, early exercise scenarios
The Options Lifecycle
From listing to expiration: opening, rolling, closing, assignment, settlement (cash vs physical), pin risk
Margin, Collateral, and Buying Power
Reg-T margin, portfolio margin overview, cash-secured vs naked, how brokers calculate margin requirements
Dividend Effects on Options
How dividends affect option pricing, ex-dividend date mechanics, early exercise for dividends, dividend impact on put-call parity
Forwards and Futures Basics
Forward contracts, futures vs forwards, cost of carry, forward price calculation, connection to options pricing