Options Course: From First Contract to Iron Condor

EDUCATION, NOT ADVICE · Options can lose all of their value quickly. The example stock. Every price in this course comes from the Black-Scholes model for one example stock: price $100, volatility 25% a year, interest rate 4%, no dividends, 90 days to expiration. Real quotes differ. Full disclosures →

How the course works

Every lesson uses the same example stock. It costs $100, its volatility is 25% a year, the interest rate is 4% and it pays no dividend. The options have 90 days to expiration.

A model script calculates every price, payoff and chance of profit with the Black-Scholes model. So the numbers agree from one lesson to the next, and you can check each one. Real quotes differ from these model prices.

The lessons

An option is a right with a deadline. Calls, puts, strikes and the 100-share contract.
Four positions build every strategy. Long and short calls and puts, at expiration.
An option price is intrinsic value plus time value. Intrinsic value, time value, five inputs and put-call parity.
The Greeks tell you how an option price will move. Delta, gamma, theta, vega and rho for one contract.
Time decay speeds up as expiration gets near. Theta near expiration, implied volatility and the expected move.
A covered call and a cash-secured put are almost the same trade. Two income trades, and why they have the same shape.
Protection costs money, or it costs upside. A floor under your shares, and two ways to pay for it.
A spread caps the gain to cut the cost. Debit and credit spreads, and the two rules that size them.
Straddles and iron condors are bets on how far the stock moves. Trades on the size of a move, not its direction.
Know the exit rules before you trade an option. Exercise, assignment, leverage and the costs the model leaves out.

Every strategy on one page

The table shows each strategy in the course, for one contract. A cost is money that you pay at the start. A credit is money that you receive.

Strategy	Position	Cost or credit	Largest gain	Largest loss	Break-even	Chance of profit
Long call	buy 105 call	$331 cost	No limit	$331	$108.31	27%
Long put	buy 95 put	$241 cost	$9,259	$241	$92.59	26%
Short call	sell 105 call	$331 credit	$331	No limit	$108.31	73%
Short put	sell 95 put	$241 credit	$241	$9,259	$92.59	74%
Covered call	own stock, sell 110 call	$189 credit	$1,189	$9,811	$98.11	57%
Cash-secured put	sell 95 put, hold cash	$241 credit	$241	$9,259	$92.59	74%
Protective put	own stock, buy 95 put	$241 cost	No limit	$741	$102.41	43%
Collar	own stock, buy 95 put, sell 110 call	$52 cost	$948	$552	$100.52	49%
Bull call spread	buy 100 call, sell 110 call	$354 cost	$646	$354	$103.54	40%
Bear put spread	buy 100 put, sell 90 put	$333 cost	$667	$333	$96.67	39%
Bull put spread	sell 95 put, buy 90 put	$129 credit	$129	$371	$93.71	71%
Bear call spread	sell 105 call, buy 110 call	$142 credit	$142	$358	$106.42	69%
Long straddle	buy 100 call and 100 put	$988 cost	No limit	$988	$90.12 and $109.88	43%
Long strangle	buy 95 put and 105 call	$572 cost	No limit	$572	$89.28 and $110.72	39%
Iron condor	buy 90 put, sell 95 put, sell 105 call, buy 110 call	$271 credit	$271	$229	$92.29 and $107.71	47%

For a trade with stock, the cost or credit is for the options only. The 100 shares cost $10,000 more, and a cash-secured put holds $9,500 in cash.

The chance of profit is for the model stock. It does not tell you which trade is better. A trade that wins often usually wins small amounts, as lesson 2 shows.

The rest of the field guide: all sections. Start here: lesson 1.

Sources

SEC, Investor Bulletin: An Introduction to Options, for the definitions of calls, puts and assignment, and the 100-share contract.
OCC, Characteristics and Risks of Standardized Options, for the document that investors must read before they trade.
Fischer Black and Myron Scholes, The Pricing of Options and Corporate Liabilities, Journal of Political Economy, 1973, for the model that gives every price in this course.