Everyone wants to know how to trade Options!! Which is why in this class, we will be talking about how Options Trading works, as well as how to understand The Greeks when it comes to Options Contracts! I’m Meta Matt, Director of Education at Pennybois University, and welcome to Class #12 of Pennybois University LITE!! This is Class 2 in a 10 Class Series on Options Trading, part of PBU LITE, which is 100% free!!

I’m Meta Matt, Director of Education and welcome to PB University LITE! This is a 50 Class Trading 101 Series geared towards both new and veteran traders alike! We go over everything from Trading Psychology, Technical Analysis, and Options Trading to Commodity Trading, Forex, and more!! This 50 Class series is not designed be taken in order, it is instead designed for traders to browse and pick which classes interest them. I will include the list of classes at the bottom of this page.

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So there are ways to make, or lose money before the **expiration date. **You do this by trading the **premium**. In order to understand that we need to dive into **The Greeks.**

The Greeks are a set of metrics that options traders use to understand the risk and potential rewards of their positions.

Simply speaking, the Greeks help us determine what the Option is truly worth, and how much it can appreciate or depreciate based on certain factors such as **time, price movement, and volatility.**

**DELTA**

Delta measures the sensitivity of an option's premium to the price of the stock, so basically it shows **how much the premium will move if the stock price moves $1**.

A delta of **0.50** means that for every **$1 move **in the stock, the option premium will move by **$0.50.** It will go up that much if the stock goes up and down if the stock goes down…

So if the Delta is **.3**, that means the premium or price of the option will go up **$0.30** if the stock goes up** $1**, or down **$.30** if the stock was to go down $1. **Delta ranges from 0 to 1 for CALL options and -1 to 0 for PUT options. **

**GAMMA**

**Gamma **measures the rate of change of the delta. It tells us **how much the delta of an option will change for every $1 move in the stock.**

So when the stock price changes, the premium changes based on the delta, and the delta of the option changes as well, **the gamma is what tells us how much the delta is changing. **

For example, if a call option has a **delta** of **0.5** and a** gamma **of **0.05**, that means that if the stock price goes up by** $1,** the **delta** of the option will **increase** by **0.05**, so the delta of the option will become 0.55. In general, **options with a high gamma** will have a **more rapid change in delta as the stock price changes**, while options with a low gamma will have a slower change in delta. Meaning that the premium aka price of the option will most likely move slower as well.

**THETA**

**Theta** measures the rate at which an option's **value erodes over time**.

Meaning It tells you how much an option will lose in value each day as expiration approaches **(assuming there is no change in the stock price). **

**A high theta means that the option is losing value rapidly. **

**VEGA**

**Vega measures the sensitivity of an option's price to changes in implied volatility.** Implied volatility is a measure of the market's expectations for how much the underlying asset will move, or fluctuate in the future.

**Volatility** is when a stock goes up or down quickly, so Implied volatility is the market's measure of whether or not the stock in question will be volatile or not.

In general, a high vega option is more sensitive to changes in implied volatility, meaning that if **implied volatility goes up, the option price is likely to go up as well.** Conversely, if implied volatility goes down, the option price is likely to go down as well.

**RHO**

**Rho measures the sensitivity of an option's price to changes in interest rates.**

In general, **options on stocks with far out expiration dates are more sensitive to changes in interest rates,** and therefore have a higher rho, compared to options with shorter expiration dates.

A positive rho means that an increase in interest rates is expected to lead to an increase in the option's price, while a negative rho means that an increase in interest rates is expected to lead to a decrease in the option's price.** Rho is usually only important for options that are not close to expiration.**

So let’s say that it’s January 1st, and I buy a **CALL** for stock $XYZ with a **$30 Strike Price, February 3rd Expiration, and $.50 Premium**.

So this option CALL will cost me $50. Now let’s say that the **price** **of** **the** **stock** is** $30** when I buy the CALL, but a week later, it goes to **$33,** and based on that Options Greeks, remember the **delta shows us how much the premium goes up every time the stock goes up $1**, and in this example the stock has **gone up $3**. So let’s say that the premium is now no longer **$.50**, but is now **$1.50**.. Meaning my Options Contract that I bought for $50, is now worth $150.** So that’s a $100 profit if I sell the contract. **

A lot of people prefer to trade the premiums this way, especially if they don’t have the capital to actually buy the 100 shares at $30 if they were to execute the contract.

You can buy CALLS and PUTS, but you can also **short Sell **CALLS and PUTS. Tune into **Class #13** where we talk all about it!!** **

**1) Trading Terminology** **2) Stock Market Indices** **3) Common, Preferred, and Penny Stocks** **4) Diversification of Assets** **5) Fundamental Analysis Made Easy** **6) Technical Analysis Made Easy** **7) Risk Management In The Market** **8) Portfolio Management** **9) How To Follow Market News** **10) Trading Psychology** **11) Options Explained** **12) The Greeks In Options Trading** **13) How To Short Sell Options** **14) Covered CALLS** **15) Spread Trading** **16) Online Brokers for Options Trading** **17) Implied Volatility Calculators & Tools** **18) Protective PUTS** **19) Iron Condors** **20) Straddles** **21) Reading Level 2** **22) Taxes** **23) Trading Psychology Techniques** **24) The Art Of Trading** **25) Becoming A Jedi In The Stock Market** **26) Futures Trading Explained** **27) Commodity Trading 101** **28) Regulatory Environments** **29) How To Become A Millionaire** **30) $100K In 100 Days** **31) Wash Sale Rule** **32) Behavioral Finance Part 1** **33) Behavioral Finance Part 2** **34) 5 Charting Indicators** **35) Fair Value Gap** **36) Insider Trading and Market Manipulation** **37) Stock Chart Types** **38) Moving Averages 101** **39) Base vs Precious Metals** **40) Electricity Trading 101** **41) Trading Brokers 101** **42) 5 Trading Strategies** **43) 85% Trading Rule** **44) Are Win Rates A Scam?** **45) Futures Trading 101** **46) ATR Indicator Strategy With The Greeks** **47) MACD Indicator 101** **48) Bollinger Bands Indicator 101** **49) Wedges, Triangles, Flags and Pennants** **50) RSI Divergence 101**

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