The four basic positions, Theta time decay, LEAPS, covered calls, cash-secured puts, and exercise and assignment: how option value changes and how to use it.
For: learners who have finished "Options Basics"
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
This course uses ideas from the courses below (optional; you can start right away).
More advanced courses that build on this one.
Compare long call, short call, long put and short put side by side, and tweak the payoff curves in real time.
Time value is like a melting ice cube: it shrinks every day, and melts faster the closer expiration gets.
For the same rise in the stock, why do a 30-day option and a 730-day LEAPS behave so differently?
You already hold 100 shares, so you sell 1 call to collect a premium. If the stock doesn't rise you earn extra income; if it soars, your shares get bought at the strike. You trade upside for cash.
Set aside the cash to buy the stock, then sell a put and collect the premium up front. If the price doesn't drop, you keep the money; if it does, you buy a stock you wanted anyway at a cost of strike − premium.
What actually happens on expiration day? In-the-money options are auto-exercised, sellers get randomly assigned, and your shares and cash change hands. Plus, why exercising early usually doesn't pay.