Track 02Module 1 of 615 sources
Pricing and the Greeks, beyond the definitions
Use delta, gamma, theta and vega to explain an option's profit and loss over a real day.
Key ideas
- An option's price is the cost of replicating it by trading the underlying. That is why volatility, not direction, is the thing being priced.
- Gamma and theta are two sides of one trade. Long gamma earns from movement and pays theta. Short gamma collects theta and loses on movement.
- Delta is roughly the hedge ratio and only loosely a probability. Both change as price, time and volatility change.
- Vega matters most for longer-dated options. Gamma matters most near expiry and near the strike.
Start hereWatch or read these first. They carry the core idea.
Course
Varsity Module 5: Options Theory for Professional Trading
Zerodha Varsity
The best free written course on options, with Indian examples. Skim the early chapters and slow down at the Greeks.
Option Greeks Explained for Beginners
Video · projectoption · 14:45
The four main Greeks with clear visuals.
Option Gamma Explained (Option Greeks Tutorial)
Video · projectoption · 15:26
Gamma on its own. The Greek that explains expiry-day behaviour.
Option Vega Explained (The Volatility Greek Tutorial)
Video · projectoption · 13:20
Vega and why volatility changes hit long-dated options hardest.
Options Trading Explained under 15 minutes
Video · Zero1 by Zerodha · 15:06
A fast refresher if you have not traded options for a while.
1. Introduction to Options
Video · Zerodha Varsity · 8:41
The opening lesson of the Varsity video course. Skip it if you already trade options.
CoreThe standard references. Work through them once the idea is clear.
Complete Guide to Options Trading
Playlist · Zerodha Varsity · 14 lessons
The Varsity options course as fourteen videos.
Learn to Measure Options Trading RISKS (The Option Greeks for Beginners)
Playlist · projectoption · 9 videos
Nine videos that take each Greek in turn.
Book
Option Volatility and Pricing
Sheldon Natenberg
The floor trader's bible. Chapters on theoretical pricing, volatility and risk are the core.
Course
19. Black-Scholes Formula, Risk-neutral Valuation
Video · MIT OpenCourseWare · 49:52
Black-Scholes derived properly at MIT. Watch once to see where the formula comes from.
Go deeperResearch, primary sources and data for when you want the detail.
20. Option Price and Probability Duality
Video · MIT OpenCourseWare · 1:20:29
Why option prices encode a probability distribution.
Book
Options, Futures, and Other Derivatives
John C. Hull
The reference textbook. Use it to look things up.
Book
Dynamic Hedging
Nassim Nicholas Taleb
How Greeks behave in the real world, by a former trader. Dense and opinionated.
MIT 18.S096 Topics in Mathematics w Applications in Finance
Playlist · MIT OpenCourseWare · 24 lessons
The full MIT course on mathematics in finance.
Practice
Pick one Nifty option. Before the open, write its delta, gamma, theta and vega. At the close, explain the day's price change using those four numbers.
See it live
Where this leads
02.2 · Options and Options FlowVolatility: implied, realised, skew and term structureDecide whether options are cheap or expensive by comparing implied volatility with realised, and read skew and term structure as positioning.02.6 · Options and Options FlowStructures that fit a view, and how sellers blow upMatch a structure to a view on direction, volatility and time, with the worst case written down first.