
BINARIUM
Best Options Broker 2020!
Great Choice For Beginners!
Free Trading Education!
Free Demo Account 1000$!
Get Your SignUp Bonus Now!
Basics Of Options Trading Explained
Before we delve deep into the world of options trading, let’s take a moment to understand why do we need options at all. If you are thinking it is just another way to make money and was created by some fancy guys in suits working in Wall Street, well, you are wrong. The options world predates the modern stock exchanges by a large margin.
While some credit the Samurai for giving us the foundation on which options contracts were based, some actually acknowledge the Greeks for giving us an idea on how to speculate on a commodity, in this case, the harvest of olives. In both cases, humans were trying to guess the price of a food item and trade accordingly (rice in the case of samurais), long before the modern world put in various rules and set up exchanges.
With this in mind, let us try to answer the first question in your mind.
What is options trading?
Let’s take a very simple example to understand options trading. Consider that you are buying a stock for Rs. 3000. But the broker tells you about an exciting offer, that you can buy it now for Rs. 3000 or you can give a token amount of Rs. 30 and reserve the right to buy it at Rs. 3000 after a month, even if the stock increases in value at that time. But that token amount is nonrefundable!
You realise that there is a high chance that the stock would cross Rs. 3030 and thus, you can breakeven at least. Since you have to pay only Rs. 30 now, the remaining amount can be used elsewhere for a month. You wait for a month and then look at the stock price.
Now, depending on the stock price, you have the option to buy the stock from the broker or not. Of course, this is an oversimplification but this is options trading in a gist.In the world of trading, options are instruments that belong to the derivatives family, which means its price is derived from something else, mostly stocks. The price of an option is intrinsically linked to the price of the underlying stock.
A formal definition is given below:
A stock option is a contract between two parties in which the stock option buyer (holder) purchases the right (but not the obligation) to buy/sell shares of an underlying stock at a predetermined price from/to the option seller (writer) within a fixed period of time.
We are going to make sure that by the end of this article you are well versed with the options trading world along with trying out a few options trading strategies as well. We will cover the following points in this article. If you feel that you want to skip the basics of options, then head straight to the options trading strategies.
Let’s start now, shall we!
Options trading vs. Stock trading
There must be a doubt in your mind that why do we even have options trading if it is just another way of trading. Well, here are a few points which make it different from trading stocks
 The Options contract has an expiration date, unlike stocks. The expiration can vary from weeks, months to years depending upon the regulations and the type of Options that you are practising. Stocks, on the other hand, do not have an expiration date.
 Unlike Stocks, Options derive their value from something else and that’s why they fall under the derivatives category
 Options are not definite by numbers like Stocks
 Options owners have no right (voting or dividend) in a company unlike Stock owners
It is quite often that some people find the Option’s concept difficult to understand though they have already followed it in their other transactions, for e.g. car insurance or mortgages. In this part of the article, we will take you through some of the most important aspects of Options trading before we get down to the world of options trading.
Options terminologies
Strike Price
The Strike Price is the price at which the underlying stocks can be bought or sold as per the contract. In options trading, the Strike Price for a Call Option indicates the price at which the Stock can be bought (on or before its expiration) and for Put Options trading it refers to the price at which the seller can exercise its right to sell the underlying stocks (on or before its expiration)

BINARIUM
Best Options Broker 2020!
Great Choice For Beginners!
Free Trading Education!
Free Demo Account 1000$!
Get Your SignUp Bonus Now!
Premium
Since the Options themselves don’t have an underlying value, the Options premium is the price that you have to pay in order to purchase an Option. The premium is determined by multiple factors including the underlying stock price, volatility in the market and the days until the Option’s expiration. In options trading, choosing the premium is one of the most important components.
Underlying Asset
In options trading, the underlying asset can be stocks, futures, index, commodity or currency. The price of Options is derived from its underlying asset. For the purpose of this article, we will be considering the underlying asset as the stock. The Option of stock gives the right to buy or sell the stock at a specific price and date to the holder. Hence its all about the underlying asset or stocks when it comes to Stock in Options Trading.
Expiration Date
In options trading, all stock options have an expiration date. The expiration date is also the last date on which the Options holder can exercise the right to buy or sell the Options that are in holding. In Options Trading, the expiration of Options can vary from weeks to months to years depending upon the market and the regulations.
Options Style
There are two major types of Options that are practised in most of the options trading markets.
 American Options which can be exercised anytime before its expiration date
 European Options which can only be exercised on the day of its expiration
Moneyness (ITM, OTM & ATM)
It is very important to understand the Options Moneyness before you start trading in Stock Options. A lot of options trading strategies are played around the Moneyness of an Option.
It basically defines the relationship between the strike price of an Option and the current price of the underlying Stocks. We will examine each term in detail below.
When is an Option inthemoney?
 Call Option – when the underlying stock price is higher than the strike price
 Put Option – when the underlying stock price is lower than the strike price
When is an Option outofthemoney?
 Call Option – when the underlying stock price is lower than the strike price
 Put Option – when the underlying stock price is higher than the strike price
When is an Option atthemoney?
 When the underlying stock price is equal to the strike price.
Take a break here to ponder over the different terms as we will find it extremely useful later when we go through the types of options as well as a few options trading strategies.
Type of options
In the true sense, there are only two types of Options i.e Call & Put Options. We will understand them in more detail.
To Call or Put
A Call Option is an option to buy an underlying Stock on or before its expiration date. At the time of buying a Call Option, you pay a certain amount of premium to the seller which grants you the right (but not the obligation) to buy the underlying stock at a specified price (strike price).
Purchasing a call option means that you are bullish about the market and hoping that the price of the underlying stock may go up. In order for you to make a profit, the price of the stock should go higher than the strike price plus the premium of the call option that you have purchased before or at the time of its expiration.
In contrast, a Put Option is an option to sell an underlying Stock on or before its expiration date. Purchasing a Put Option means that you are bearish about the market and hoping that the price of the underlying stock may go down. In order for you to make a profit, the price of the stock should go down from the strike price plus the premium of the Put Option that you have purchased before or at the time of its expiration.
In this manner, both Put and Call option buyer’s loss is limited to the premium paid but profit is unlimited. The above explanations were from the buyer’s point of view. We will now understand the putcall options from the seller’s point of view, ie options writers. The Put option seller, in return for the premium charged, is obligated to buy the underlying asset at the strike price.
Similarly, the Call option seller, in return for the premium charged, is obligated to sell the underlying asset at the strike price. Is there a way to visualise the potential profit/loss of an option buyer or seller? Actually, there is. An option payoff diagram is a graphical representation of the net Profit/Loss made by the option buyers and sellers.
Before we go through the diagrams, let’s understand what the four terms mean. As we know that going short means selling and going long means buying the asset, the same principle applies to options. Keeping this in mind, we will go through the four terms.
 Short call – Here we are betting that the prices will fall and hence, a short call means you are selling calls.
 Short put – Here the short put means we are selling a put option
 Long call – it means that we are buying a call option since we are optimistic about the underlying asset’s share price
 Long put – Here we are buying a put option.
S = Underlying Price
X = Strike Price
Breakeven point is that point at which you make no profit or no loss.
The long call holder makes a profit equal to the stock price at expiration minus strike price minus premium if the option is in the money. Call option holder makes a loss equal to the amount of premium if the option expires out of money and the writer of the option makes a flat profit equal to the option premium.
Similarly, for the put option buyer, profit is made when the option is in the money and is equal to the strike price minus the stock price at expiration minus premium. And, the put writer makes a profit equal to the premium for the option.
All right, until now we have been going through a lot of theory. Let’s switch gears for a minute and come to the real world. How do options look like? Well, let’s find out.
What does an options trading quote consist of?
If you were to look for an options quote on Apple stock, it would look something like this:
When this was recorded, the stock price of Apple Inc. was $196. Now let’s take one line from the list and break it down further.
Eg.
In a typical options chain, you will have a list of call and put options with different strike prices and corresponding premiums. The call option details are on the left and the put option details are on the right with the strike price in the middle.
 The symbol and option number is the first column.
 The “last” column signifies the amount at which the last time the option was bought.
 “Change” indicates the variance between the last two trades of the said options
 “Bid” column indicates the bid submitted for the option.
 “Ask” indicates the asking price sought by the option seller.
 “Volume” indicates the number of options traded. Here the volume is 0.
 “Open Interest” indicates the number of options which can be bought for that strike price.
The columns are the same for the put options as well. In some cases, the data provider signifies whether the option is in the money, at the money or out of money as well. Of course, we need an example to really help our understanding of options trading. Thus, let’s go through one now.
Options Trading Example
We will go through two cases to better understand the call and put options.
For simplicity’s sake, let us assume the following:
 Price of Stock when the option is written: $100
 Premium: $5
 Expiration date: 1 month after the option is bought
Case 1:
The current price of stock: $110. Strike price: $120
Case 2:
The current price of stock: $120. Strike price: $110
Considering that we have gone through the detailed scenario of each option, how about we combine a few options together. Let’s understand an important concept which many professionals use in options trading.
What is PutCall Parity In Python?
Putcall parity is a concept that anyone who is interested in options trading needs to understand. By gaining an understanding of putcall parity you can understand how the value of call option, put option and the stock are related to each other. This enables you to create other synthetic position using various option and stock combination.
The principle of putcall parity
Putcall parity principle defines the relationship between the price of a European Put option and European Call option, both having the same underlying asset, strike price and expiration date. If there is a deviation from putcall parity, then it would result in an arbitrage opportunity. Traders would take advantage of this opportunity to make riskless profits till the time the putcall parity is established again.
The putcall parity principle can be used to validate an option pricing model. If the option prices as computed by the model violate the putcall parity rule, such a model can be considered to be incorrect.
Understanding PutCall Parity
To understand putcall parity, consider a portfolio “A” comprising of a call option and cash. The amount of cash held equals the call strike price. Consider another portfolio “B” comprising of a put option and the underlying asset.
S0 is the initial price of the underlying asset and ST is its price at expiration.
Let “r” be the riskfree rate and “T” be the time for expiration.
In time “T” the Zerocoupon bond will be worth K (strike price) given the riskfree rate of “r”.
Portfolio A = Call option + Zerocoupon bond
Portfolio B = Put option + Underlying Asset
If the share price is higher than X the call option will be exercised. Else, cash will be retained. Hence, at “T” portfolio A’s worth will be given by max(ST, X).
If the share price is lower than X, the put option will be exercised. Else, the underlying asset will be retained. Hence, at “T”, portfolio B’s worth will be given by max (ST, X).
If the two portfolios are equal at time, “T”, then they should be equal at any time. This gives us the putcall parity equation.
Equation for putcall parity:
C + XerT = P + S0
In this equation,
 C is the premium on European Call Option
 P is the premium of European Put Option
 S0 is the spot price of the underlying stock
 And, XerT is the current value (discounted value) of Zerocoupon bond (X)
We can summarize the payoffs of both the portfolios under different conditions as shown in the table below.
From the above table, we can see that under both scenarios, the payoffs from both the portfolios are equal.
Required Conditions For Putcall Parity
For putcall parity to hold, the following conditions should be met. However, in the real world, they hardly hold true and putcall parity equation may need some modifications accordingly. For the purpose of this blog, we have assumed that these conditions are met.
 The underlying stock doesn’t pay any dividend during the life of the European options
 There are no transaction costs
 There are no taxes
 Shorting is allowed and there are no borrow charges
Hence, putcall parity will hold in a frictionless market with the underlying stock paying no dividends.
Arbitrage Opportunity
In options trading, when the putcall parity principle gets violated, traders will try to take advantage of the arbitrage opportunity. An arbitrage trader will go long on the undervalued portfolio and short the overvalued portfolio to make a riskfree profit.
How to take advantage of arbitrage opportunity
Let us now consider an example with some numbers to see how trade can take advantage of arbitrage opportunities. Let’s assume that the spot price of a stock is $31, the riskfree interest rate is 10% per annum, the premium on threemonth European call and put are $3 and $2.25 respectively and the exercise price is $30.
In this case, the value of portfolio A will be,
C+XerT = 3+30e0.1 * 3/12 = $32.26
The value of portfolio B will be,
P + S0 = 2.25 + 31 = $33.25
Portfolio B is overvalued and hence an arbitrageur can earn by going long on portfolio A and short on portfolio B. The following steps can be followed to earn arbitrage profits.
 Short the stock. This will generate a cash inflow of $31.
 Short the put option. This will generate a cash inflow of $2.25.
 Purchase the call option. This will generate cash outflow of $3.
 Total cash inflow is 3 + 2.25 + 31 = $30.25.
 Invest $30.25 in a zerocoupon bond with 3 months maturity with a yield of 10% per annum.
Return from the zero coupon bond after three months will be 30.25e 0.1 * 3/12 = $31.02.
If the stock price at maturity is above $30, the call option will be exercised and if the stock price is less than $30, the put option will be exercised. In both the scenarios, the arbitrageur will buy one stock at $30. This stock will be used to cover the short.
Total profit from the arbitrage = $31.02 – $30 = $1.02
Well, shouldn’t we look at some codes now?
Python Codes Used For Plotting The Charts
The below code can be used to plot the payoffs of the portfolios.
So far, we have gone through the basic concepts in options trading and looked at an options trading strategy as well. At this juncture, let’s look at the world of options trading and try to answer a simple question.
Why is Options Trading attractive?
Options are attractive instruments to trade in because of the higher returns. An option gives the right to the holder to do something, with the ‘option’ of not to exercise that right. This way, the holder can restrict his losses and multiply his returns.
While it is true that one options contract is for 100 shares, it is thus less risky to pay the premium and not risk the total amount which would have to be used if we had bought the shares instead. Thus your risk exposure is significantly reduced.However, in reality, options trading is very complex and that is because options pricing models are quite mathematical and complex.
So, how can you evaluate if the option is really worth buying? Let’s find out.
The key requirement in successful options trading strategies involves understanding and implementing options pricing models. In this section, we will get a brief understanding of Greeks in options which will help in creating and understanding the pricing models.
Options Pricing
Options Pricing is based on two types of values
Intrinsic Value of an option
Recall the moneyness concept that we had gone through a few sections ago. When the call option stock price is above the strike price or when put option stock price is below the strike price, the option is said to be “InTheMoney (ITM)”, i.e. it has an intrinsic value. On the other hand, “Out of the money (OTM)” options have no intrinsic value. For OTM call options, the stock price is below the strike price and for OTM put options; stock price is above the strike price. The price of these options consists entirely of time value.
Time Value of an option
If you subtract the amount of intrinsic value from an options price, you’re left with the time value. It is based on the time to expiration. You can enroll for this free online options trading python course on Quantra and understand basic terminologies and concepts that will help you in options trading. We know what is intrinsic and the time value of an option. We even looked at the moneyness of an option. But how do we know that one option is better than the other, and how to measure the changes in option pricing. Well, let’s take the help of the greeks then.
Options Greeks
Greeks are the risk measures associated with various positions in options trading. The common ones are delta, gamma, theta and vega. With the change in prices or volatility of the underlying stock, you need to know how your options pricing would be affected. Greeks in options help us understand how the various factors such as prices, time to expiry, volatility affect the options pricing.
Delta measures the sensitivity of an option’s price to a change in the price of the underlying stock. Simply put, delta is that options greek which tells you how much money a stock option will rise or drop in value with a $1 rise or drop in the underlying stock. Delta is dependent on underlying price, time to expiry and volatility. While the formula for calculating delta is on the basis of the BlackScholes option pricing model, we can write it simply as,
Delta = [Expected change in Premium] / [Change in the price of the underlying stock]
Let’s understand this with an example for a call option:
We will create a table of historical prices to use as sample data. Let’s assume that the option will expire on 5th March and the strike price agreed upon is $140.
Thus, if we had to calculate the delta for the option on 2nd March, it would be $5/$10 = 0.5.
Here, we should add that since an option derives its value from the underlying stock, the delta option value will be between 0 and 1. Usually, the delta options creeps towards 1 as the option moves towards “inthemoney”.
While the delta for a call option increases as the price increases, it is the inverse for a put option. Think about it, as the stock price approaches the strike price, the value of the option would decrease. Thus, the delta put option is always ranging between 0 and 1.
Gamma measures the exposure of the options delta to the movement of the underlying stock price. Just like delta is the rate of change of options price with respect to underlying stock’s price; gamma is the rate of change of delta with respect to underlying stock’s price. Hence, gamma is called the secondorder derivative.
Gamma = [Change in an options delta] / [Unit change in price of underlying asset]
Let’s see an example of how delta changes with respect to Gamma. Consider a call option of stock at a strike price of $300 for a premium of $15.
 Strike price: $300
 Initial Stock price: $150
 Delta: 0.2
 Gamma: 0.005
 Premium: $15
 New stock price: $180
 Change in stock price: $180 – $150 = $30
Thus, Change in Premium = Delta * Change in price of stock = 0.2 * 30 = 6.
Thus, new premium = $15 + $6 = $21
Change in delta = Gamma * Change in stock price = 0.005 * 30 = 0.15
Thus, new delta = 0.2 + 0.15 = 0.35.
Let us take things a step further and assume the stock price increases another 30 points, to $210.
Now,
New stock price: $210
Change in stock price: $210 – $180 = $30
Change in premium = Delta *Change in 0.35*30 = $10.5
Thus, new premium = $21 + $10.5 = $31.5
Change in delta = Gamma * Change in stock price = 0.005 * 30 = 0.15
Thus, new delta = 0.35 + 0.15 = 0.5.
In this way, delta and gamma of an option changes with the change in the stock price. We should note that Gamma is the highest for a stock call option when the delta of an option is at the money. Since a slight change in the underlying stock leads to a dramatic increase in the delta. Similarly, the gamma is low for options which are either out of the money or in the money as the delta of stock changes marginally with changes in the stock option.
Highest Gamma for Atthemoney (ATM) option
Among the three instruments, atthemoney (ATM), outofthemoney (OTM) and inthemoney (ITM); at the money (ATM) has the highest gamma. You can watch this video to understand it in more detail.
Theta measures the exposure of the options price to the passage of time. It measures the rate at which options price, especially in terms of the time value, changes or decreases as the time to expiry is approached.
Vega measures the exposure of the option price to changes in the volatility of the underlying. Generally, options are more expensive for higher volatility. So, if the volatility goes up, the price of the option might go up to and viceversa.
Vega increases or decreases with respect to the time to expiry?
What do you think? You can confirm your answer by watching this video.
One of the popular options pricing model is Black Scholes, which helps us to understand the options greeks of an option.
BlackScholes options pricing model
The formula for the BlackScholes options pricing model is given as:
C is the price of the call option
P represents the price of a put option.
S0 is the underlying price,
X is the strike price,
σ represents volatility,
r is the continuously compounded riskfree interest rate,
t is the time to expiration, and
q is the continuously compounded dividend yield.
N(x) is the standard normal cumulative distribution function.
The formulas for d1 and d2 are given as:
To calculate the Greeks in options we use the BlackScholes options pricing model.
Delta and Gamma are calculated as:
In the example below, we have used the determinants of the BS model to compute the Greeks in options.
At an underlying price of 1615.45, the price of a call option is 21.6332.
If we were to increase the price of the underlying by Rs. 1, the change in the price of the call, put and values of the Greeks in the option is as given below.
As can be observed, the Delta of the call option in the first table was 0.5579. Hence, given the definition of the delta, we can expect the price of the call option to increase approximately by this value when the price of the underlying increases by Rs.1. The new price of the call option is 22.1954 which is
22.1954
22.1911
Let’s move to Gamma, another Greek in option.
If you observe the value of Gamma in both the tables, it is the same for both call and put options contracts since it has the same formula for both options types. If you are going long on the options, then you would prefer having a higher gamma and if you are short, then you would be looking for a low gamma. Thus, if an options trader is having a netlong options position then he will aim to maximize the gamma, whereas in case of a netshort position he will try to minimize the gamma value.
The third Greek, Theta has different formulas for both call and put options. These are given below:
In the first table on the LHS, there are 30 days remaining for the options contract to expire. We have a negative theta value of 0.4975 for a long call option position which means that the options trader is running against time.
He has to be sure about his analysis in order to profit from trade as time decay will affect this position. This impact of time decay is evident in the table on the RHS where the time left to expiry is now 21 days with other factors remaining the same. As a result, the value of the call option has fallen from 21.6332 to 16.9 behaviour 319. If an options trader wants to profit from the time decay property, he can sell options instead of going long which will result in a positive theta.
We have just discussed how some of the individual Greeks in options impact option pricing. However, it is very essential to understand the combined behaviour of Greeks in an options position to truly profit from your options position. If you want to work on options greeks in Excel, you can refer to this blog.
Let us now look at a Python package which is used to implement the Black Scholes Model.
Python Library – Mibian
What is Mibian?
Mibian is an options pricing Python library implementing the BlackScholes along with a couple other models for European options on currencies and stocks. In the context of this article, we are going to look at the BlackScholes part of this library. Mibian is compatible with python 2.7 and 3.x. This library requires scipy to work properly.
How to use Mibian for BS Model?
The function which builds the BlackScholes model in this library is the BS() function. The syntax for this function is as follows:
The first input is a list containing the underlying price, strike price, interest rate and days to expiration. This list has to be specified each time the function is being called. Next, we input the volatility, if we are interested in computing the price of options and the option greeks. The BS function will only contain two arguments.
If we are interested in computing the implied volatility, we will not input the volatility but instead will input either the call price or the put price. In case we are interested in computing the putcall parity, we will enter both the put price and call price after the list. The value returned would be:
(call price + price of the bond worth the strike price at maturity) – (put price + underlying asset price)
The syntax for returning the various desired outputs are mentioned below along with the usage of the BS function. The syntax for BS function with the input as volatility along with the list storing underlying price, strike price, interest rate and days to expiration:
Attributes of the returned value from the abovementioned BS function:
The syntax for BS function with the input as callPrice along with the list storing underlying price, strike price, interest rate and days to expiration:
Attributes of the returned value from the abovementioned BS function:
The syntax for BS function with the input as putPrice along with the list storing underlying price, strike price, interest rate and days to expiration:
Attributes of the returned value from the abovementioned BS function:
The syntax for BS function with the inputs as callPrice and putPrice along with the list storing underlying price, strike price, interest rate and days to expiration:
Attributes of the returned value from the abovementioned BS function:
While BlackScholes is a relatively robust model, one of its shortcomings is its inability to predict the volatility smile. We will learn more about this as we move to the next pricing model.
Derman Kani Model
The Derman Kani model was developed to overcome the longstanding issue with the Black Scholes model, which is the volatility smile. One of the underlying assumptions of Black Scholes model is that the underlying follows a random walk with constant volatility. However, on calculating the implied volatility for different strikes, it is seen that the volatility curve is not a constant straight line as we would expect, but instead has the shape of a smile. This curve of implied volatility against the strike price is known as the volatility smile.
If the Black Scholes model is correct, it would mean that the underlying follows a lognormal distribution and the implied volatility curve would have been flat, but a volatility smile indicates that traders are implicitly attributing a unique nonlognormal distribution to the underlying. This nonlognormal distribution can be attributed to the underlying following a modified random walk, in the sense that the volatility is not constant and changes with both stock price and time. In order to correctly value the options, we would need to know the exact form of the modified random walk.
The Derman Kani model shows how to take the implied volatilities as inputs to deduce the form of the underlying’s random walk. More specifically a unique binomial tree is extracted from the smile corresponding to the random walk of the underlying, this tree is called the implied tree. This tree can be used to value other derivatives whose prices are not readily available from the market – for example, it can be used in standard but illiquid European options, American options, and exotic options.
What is the Heston Model?
Steven Heston provided a closedform solution for the price of a European call option on an asset with stochastic volatility. This model was also developed to take into consideration the volatility smile, which could not be explained using the Black Scholes model.
The basic assumption of the Heston model is that volatility is a random variable. Therefore there are two random variables, one for the underlying and one for the volatility. Generally, when the variance of the underlying has been made stochastic, closedform solutions will no longer exist.
But this is a major advantage of the Heston model, that closedform solutions do exist for European plain vanilla options. This feature also makes calibration of the model feasible. If you are interested in learning about these models in more detail, you may go through the following research papers,
 Derman Kani Model – “The Volatility Smile and Its Implied Tree” by Emanuel Derman and Iraj Kani.
 Heston Model – “A ClosedForm Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options”
So far, you have understood options trading and how to analyse an option as well as the pricing models used. Now, to apply this knowledge, you will need access to the markets, and this is where the role of a broker comes in.
Opening an options trading account
How to choose a broker for Options Trading?
Before we open an options trading account with a broker, let’s go over a few points to take into consideration when we choose a broker.
 Understand your aim when you tread the options trading waters, whether it is a way of hedging risk, as a speculative instrument, for income generation etc.
 Does the broker provide option evaluation tools of their own? It is always beneficial to have access to a plethora of tools when you are selecting the right option.
 Enquire the transaction costs or the commission charged by the broker as this will eat into your investment gains.
 Some brokers give access to research materials in various areas of the stock market. You can always check with the broker about access to research as well as subscriptions etc.
 Check the payment options provided by the broker to make sure it is compatible with your convenience.
Searching for the right broker
Once the required background research is done, you can choose the right broker as per your need and convenience. In the global market, a list of the top brokers is provided below:
List of Top International Brokers (Options Trading)
The list of top international options brokers is given below:
 Etrade ($0.65 per options contract)
 Ally Invest ($0.5 per contract traded)
 TD Ameritrade ($0.65 fee per contract)
 Interactive Brokers (starts at $0.25 per options contract)
 Schwab Brokerage ($0.65 per options contract)
List of Top Indian Brokers (Options Trading)
The list of top Indian options brokers is given below:
 Zerodha
 ICICI Direct
 HDFC Securites
 ShareKhan
 Kotak Securities
 Angel Broking
 Axis Direct
Great! Now we look at some options trading strategies which can be used in the real world.
Options Trading Strategies
There are quite a few options trading strategies which can be used in today’s trading landscape. One of the most popular options trading strategies is based on Spreads and Butterflies. Let’s look at them in detail.
Spreads and Butterflies
Spreads or rather spread trading is simultaneously buying and selling the same option class but with different expiration date and strike price. Spread options trading is used to limit the risk but on the other hand, it also limits the reward for the person who indulges in spread trading.
Thus, if we are only interested in buying and selling call options of security, we will call it a call spread, and if it is only puts, then it will be called a put spread.
Depending on the changing factor, spreads can be categorised as:
 Horizontal Spread – Different expiration date, Same Strike price
 Vertical Spread – Same Expiration date, Different Strike price
 Diagonal Spread – Different expiration date, Different Strike price
Remember that an option’s value is based on the underlying security (in this case, stock price). Thus, we can also distinguish an option spread on whether we want the price to go up (Bull spread) or go down (Bear spread).
Bull call spread
In a bull call spread, we buy more than one option to offset the potential loss if the trade does not go our way.
Let’s try to understand this with the help of an example.
The following is a table of the available options for the same underlying stock and same expiry date:
Normally, if we have done the analysis and think that the stock can rise to $200, one way would be to buy a call stock option with a strike price of $180 for a premium of $15. Thus, if we are right and the stock reaches $200 on expiry, we buy it at the strike price of $180 and pocket a profit of ($20 $15) = $5 since we paid the premium of $15.
But if we were not right and the stock price reaches $180 or less, we will not exercise the option resulting in a loss of the premium of $15. One workaround is to buy a call option at $180 and sell a call option for $200 at $10.
Thus, when the stock’s price reaches $200 on expiry, we exercise the call option for a profit of $5 (as seen above) and also pocket a profit of the premium of $10 since it will not be exercised by the owner. Thus, in this way, the total profit is ($5 + $10) = $15.
If the stock price goes above $200 and the put option is exercised by the owner, the increase in the profit from bought call option at $180 will be the same as the loss accumulated from the sold call option at $200 and thus, the profit would always be $15 no matter the increase in the stock price above $200 at expiry date.
Let’s construct a table to understand the various scenarios.
You can go through this informative blog to understand how to implement it in Python.
Bear put spread
The bull call spread was executed when we thought the stock would be increasing, but what if we analyse and find the stock price would decrease. In that case, we use the bear put spread.
Let’s assume that we are looking at the different strike prices of the same stock with the same expiry date.
One way to go about it is to buy the put option for the strike price of 160 at a premium of $15 while selling a put option for the strike price of $140 for the strike price of $10.
Thus, we create a scenario table as follows:
In this way, we can minimize our losses by simultaneously buying and selling options. You can go through this informative blog to understand how to implement it in Python.
Butterfly Spread
A butterfly spread is actually a combination of bull and bear spreads. One example of the Butterfly Options Strategy consists of a Body (the middle double option position) and Wings (2 opposite end positions).
 Its properties are listed as follows:
 It is a threeleg strategy
 Involves buying or selling of Call/Put options (unlike Covered Call Strategy where a stock is bought and an OTM call option is sold)
 Can be constructed using Calls or Puts
 4 options contracts at the same expiry date
 Have the same underlying asset
 3 different Strike Prices are involved (2 have the same strike price)
 Create 2 Trades with these calls
Other Trading Strategies
We will list down a few more options trading strategies below:
Summary
We have covered all the basics of options trading which include the different Option terminologies as well as types. We also went through an options trading example and the option greeks. We understood various options trading strategies and things to consider before opening an options trading account.
If you have always been interested in automated trading and don’t know where to start, we have created a learning track for you at Quantra, which includes the. “Trading using Option Sentiment Indicators” course.
Disclaimer: All data and information provided in this article are for informational purposes only. QuantInsti ® makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information in this article and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an asis basis.
Teucrium Corn Fund (CORN)
Previous Close  12.69 
Open  12.75 
Bid  12.51 x 800 
Ask  12.72 x 1200 
Day’s Range  12.59 – 12.76 
52 Week Range  12.55 – 17.55 
Volume  173,503 
Avg. Volume  58,833 
Net Assets  N/A 
NAV  12.65 
PE Ratio (TTM)  N/A 
Yield  N/A 
YTD Daily Total Return  N/A 
Beta (5Y Monthly)  N/A 
Expense Ratio (net)  N/A 
Inception Date  N/A 
Contract Name  Last Trade Date  Strike 

Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility CORN200417C00013000 20200403 3:31PM EDT 13.00 0.12 0.05 0.15 0.10 45.45% 84 156 26.95% CORN200417C00014000 20200331 3:25PM EDT 14.00 0.05 0.00 0.15 0.00 – 2 263 55.86% CORN200417C00015000 20200326 12:29PM EDT 15.00 0.03 0.00 0.00 0.00 – 50 75 25.00% CORN200417C00016000 20200313 12:03PM EDT 16.00 0.05 0.00 0.10 0.00 – 1 4 74.22%
Contract Name  Last Trade Date  Strike 

Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility CORN200417P00011000 20200320 5:41PM EDT 11.00 0.05 0.00 0.05 0.00 – 1 1 54.30% CORN200417P00012000 20200401 1:09PM EDT 12.00 0.07 0.00 0.10 0.00 – 10 27 35.74% CORN200417P00013000 20200403 9:54AM EDT 13.00 0.45 0.35 0.45 0.05 10.00% 10 266 28.13% CORN200417P00014000 20200403 9:59AM EDT 14.00 1.30 1.05 1.65 0.00 – 20 250 82.03% CORN200417P00016000 20200324 11:20AM EDT 16.00 3.10 3.00 3.60 0.00 – 1 1 56.25%
Soft Commodity ETFs Showing Better Resistance to Virus
Agricultural or soft commodity ETFs have been outperforming the broader market.
3 Stocks We’re Doubling Down On in 2020
Motley Fool CEO Issues 2020 Double Down Buy Alert
How farms can be part of the climate change solution: US Agriculture Secretary
How farms can be part of the climate change solution: US Agriculture Secretary Sonny Perdue
Do Agriculture ETFs Make a Right Investment Choice for 2020?
The prospects of USChina signing a trade deal have raised optimism about the performance of the agriculture ETFs.
NAFTA Gone, USMCA In: ETFs in Focus
The U.S. House of Representatives passed the USMCA deal, which is now likely to be approved by the Senate. The deal could make or break these ETFs.
Trade Deal Cut in Principle? Sector ETFs to Soar
The Trump administration is likely to have delayed new tariffs on Chinese imports and halved existing tariffs. These sector ETFs may soar on this.
Biggest Transfer of Wealth in US History Has Begun
A Maryland multimillionaire says the biggest legal transfer of wealth in American history has just gotten underway—here’s #1 step you must take.
USMCA Trade Deal ‘Within Range’: ETFs to Benefit
These ETFs should benefit if the USMCA deal sees the light of day soon.
Why the USChina trade war and bad weather create more problems for farmers
Farmers just began harvesting their crops but a wet spring and the U.S.China trade war are creating uncertainty that is depressing crop prices.
JapanUS Deal in September: ETFs to Shine
We highlight some ETFs which are poised to gain from the recently reached trade deal between the United States and Japan.
ETF of the Week: The Teucrium Corn Fund (NYSE: CORN)
ETF Trends CEO Tom Lydon discussed The Teucrium Corn Fund (CORN) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show. CORN tracks three futures contracts for corn that are traded on the Chicago Board of Trade, including 35% second to expire contracts, 30% third to expire contracts and 35% December following the third to expire. “Recently agriculture has been beaten up pretty badly, but there are a couple things with that in mind that those investors that are opportunistic might consider when looking at agriculture.
From 95 Job To $2.8M Trading From Home—How?
Kyle Dennis took a leap of faith and decided to invest his savings of $15K — $2.8M later, he owes his success to these strategies for volatile markets
Extreme weather takes economic toll on Midwest, damages total $12.5 billion
AccuWeather founder and CEO Dr. Joel Myers talks about the flooding in the Midwest and climate change.
Wet Spring Reduces Crop, Raises Corn Prices: ‘It’s Hard To Get Your Head Around Just How Bad It Is’
A deluge of spring rains left many of the Midwest’s corn belt fields unplanted late this year, resulting in the smallest corn crop forecast in four years. The wet weather has raised corn prices, but added to uncertainty for Heartland farmers.
Trading Grain ETFs
CLS’ Grant Engelbart discusses how his firm uses Teucrium’s singlecommodity funds.
3 Charts Suggest Crop Prices Are Poised to Move Higher
A rainy start to the planting season set farmers week behind schedule. The adverse weather is now acting as a catalyst for higher prices over the weeks or months ahead.
Homeowners Should Only Pay This Much for Home Ins.
Illinois homeowners should read this! New “Tool” uncovers how much you should really pay for home insurance. Insurers hope less people know about this.
Mexico Tariff Plan Dropped: ETF Areas to Win
With Trump taking back Mexico tariffs, global stocks and a few U.S. sectors should rally in the coming days.
Floods & Tariffs Lift Grain ETFs
Why are five of the month’s 10 bestperforming ETPs corn, soybeans and wheat funds?
After China, US Hits Mexico With Tariffs: ETFs Under Threat
As Trump announces tariffs on all imports from Mexico as a curb against illegal immigration, these ETFs and stocks could come under pressure.
Top and Flop ETFs of May
Inside the bestandworstperforming ETFs of the tradewarinflicted May.
Waffle House Waitress Didn’t Know She Was Recorded
A hidden camera captured what this waitress does to an elderly man’s food and the waitress had no idea.
What farmers can expect from Trump’s ‘phase one’ China trade deal
President Trump says China will buy $50B worth of farm products as a part of the ‘phase one’ deal, but China reportedly never came anywhere close to that amount. Teucrium Funds Founder Sal Gilbertie joins On the Move to break it down.
Trade Advisor on Trump & Farmers: “I don’t think they’ll abandon him”
Yahoo Finance’s Jen Rogers, Akiko Fujita, Tendayi Kapfidze – Lending Tree Chief Economist and Tom Kehoe – U.S. Agricultural Technical Advisory Committee for Trade in Animals and Animal Products discuss U.S.China trade negotiations.
Farmers face tight credit conditions
Farmers continue to struggle after major weather events over the past year and the ongoing U.S.China trade war. Yahoo Finance’s Julie Hyman, Adam Shapiro, Rick Newman, Dan Howley and Nathan Kaufman, Vice President of the Kansas City Federal Reserve Bank discuss.
Farmer: There could be trouble for Trump come election time
As the trade war with China drags out farmers are losing patience with the President’s policies. Yahoo Finance’s Adam Shapiro, Brian Sozzi, Oliver Pursche, Brruderman Asset Management Chief Market Strategist and Blake Hurst Missouri Farm Bureau President discuss.
The most addictive World War 3 strategy game
Join millions of players on the Conflict of Nations battlefields and fight for global domination in realtime. Register right now for free!
Farmer: We’re experiencing ‘perfect storm’ of weather and trade
Corn markets have taken a hit with flooding, tornadoes and the trade war. Yahoo Finance’s Julie Hyman, Adam Shapiro, Brian Cheung, Emily McCormick, Kevin Mahn – Hennion & Walsh Asset Management President & Chief Investment Officer and corn farmer Glenn Brunkow discuss.
Will extreme weather’s impact on harvest supply increase prices for farmers?
Yahoo Finance’s Adam Shapiro, Julie Hyman, and Rick Newman join Teucrium Funds Founder Sal Gilbertie discuss.
Inclement weather poses problem to corn farmers
Millions of farm acres are set to go unplanted with corn this spring as heavy, repeated rains have left fields saturated. The inclement weather adding another stress for farmers, who have felt the impact of the trade war with china. Illinois Farm Bureau President Richard Guebert Jr. chats with Yahoo Finance’s Julie Hyman, Adam Shapiro, Dan Roberts, and BBG Ventures Partner Nisha Dua over the phone.
CORN Option Chain
Detailed and comprehensive option chain for each expiration listed for CORN. Includes volume, open interest, implied volatility, and bid/ask for each strike. Investigate further by clicking on a strike and seeing trade activity, volatility movement, and yesterday’s closing values.
Most Active Call & Put
1 Month High/Low
Avg Up/Avg Down Move
Teucrium Corn Etv (CORN) Option Chain Frequently Asked Questions
Where can I find Teucrium Corn Etv (CORN) options prices?
The Teucrium Corn Etv (CORN) option chain shows the call options quotes to the left side of the table and the put options quotes on the right side. The bid is where the current market is indicating a desire to buy at the specified price, while the ask is where the market is indicating a desire to sell at the specified price.
Where can I find the delta of Teucrium Corn Etv (CORN) options?
Delta is a value that represents the ratio between change in price of the underlying asset, and the change in price of the derivative (an option). For call options, delta is usually positive, meaning if the price of the underlying stock goes up, the price of the call option will go up. For put options, it is typically negative.
A delta of 0.75 means that if the underlying stock price goes up $1, then the price of the option will go up $0.75. Correspondingly, a delta of 0.75 means the option price would go down $0.75 if the the stock price goes up $1.
On Market Chameleon’s Teucrium Corn Etv (CORN) option chain, the delta of each call option is in the leftmost column of the table above. The delta of each put option is in the rightmost column of the table.
What is the options volume for Teucrium Corn Etv (CORN)?
Under the table that says Select Expiration above, you will see a list of expirations for Teucrium Corn Etv (CORN). Each expiration has the current options trading volume listed to the right side of the table.
You can also see the current options trading volume for each individual option by looking at the option chain table above. Call volume is towards the lefthand side, while put volume is towards the righthand side.
Where can I find options time and sales information for Teucrium Corn Etv (CORN)?
As a feature of Market Chameleon’s option chain, you can view the list of option trades for each individual Teucrium Corn Etv (CORN) option by clicking on the corresponding volume number in the table above. It will bring up a display with the time and sales listed. On this display, you can see trade details, like time of the trade, price, condition, the trade’s implied volatility, and the exchange on which the trade was executed. Click here to watch an instructional video on option time and sales.
Can I find summary statistics for time and sales of Teucrium Corn Etv (CORN) options?
The time and sales display also shows summary statistics for all the trades of that particular option. You can see total options volume, the number of individual trades, the total notional value of the trades, open interest, the high price and low price that the option traded, and the range of the implied volatility for the day’s trades. Click here to watch a helpful video on option time and sales statistics.
How do I calculate an option price for Teucrium Corn Etv (CORN)?
In the option chain, we provide a column that calculates a theoretical option price for each Teucrium Corn Etv (CORN) option, based on a specified option pricing model. You can compare the market’s current prices against a series of benchmarks, to see if the current price is overvalued or undervalued. To change the benchmark, click on the box above the option chain titled Theoretical Value. You are able to run theoretical values for the following parameters:
 the stock’s historical volatility for the last 20 days
 the stock’s historical volatility for the last year
 your own custom volatility assumption
 historical median implied volatility for options that have had the same number of days to go before expiration and are a similar distance from the atthemoney spot
 an option price calculated using the results of a historical stock return distribution
Click here to watch an instructional video on theoretical option prices using a return distribution, or here to watch a video on pricing options using various underlying volatility inputs.
Where can I find option greeks for Teucrium Corn Etv (CORN)?
In the Teucrium Corn Etv (CORN) option chain above, you will see one column to the furthermost lefthand side and one column to the furthermost righthand side that have a drop down icon. If you click on these drop downs, you can change the view to see different option greeks, including:
 Delta
 Open Interest
 Gamma
 Vega
 Theta
 Rho
 Implied Volatility change from the option’s previous close
 Market price change from the option’s previous close
How do you calculate profit or loss of Teucrium Corn Etv (CORN) options or option strategies?
Market Chameleon provides a feature to run an options payout diagram for Teucrium Corn Etv (CORN) options. This enables you to see potential profit or loss of a particular option or particular option strategy. In the CORN Option Chain, you can select the option by clicking on the bid price (to simulate selling the option) or clicking on the ask price (to simulate buying the option). A display will appear with several more inputs to test your theoretical option trade. Click “Load Strategy” to generate a payout diagram.
Can I get the implied volatility rank for a specific Teucrium Corn Etv (CORN) option?
The option chain has an implied volatility rank for each Teucrium Corn Etv (CORN) option, based on historical IV observations. For each option, historical IV values are compiled to match the same number of days til expiration and how far away the strike is from the spot price. The option’s IV percent rank shows you the comparison between the current IV and those historical results. Click here to watch an instructional video on IV % Rank.
How do I find Teucrium Corn Etv (CORN) historical option prices?
You can find historical Teucrium Corn Etv (CORN) option prices by clicking on the dateselection drop down at the top left of the option chain. A calendar widget will appear, enabling you to select a historical date. There, you can see the option chain as it was on the close of that particular trading day.
Can I run a backtest for Teucrium Corn Etv (CORN) options?
At the top of the option chain, you will see toggles for “Backtest” on either the call side (to the left) or the put side (to the right). Clicking on that toggle will display a new set of columns related to the backtest — including historical win rate and average return. Clicking on the win rate will bring up a backtest display for that particular option. On the display, you can change parameters and compare CORN option backtest results for 3 separate hedging techniques:
 being long the option and holding until expiration (unhedged)
 hedging the delta at the time of the trade and holding until expiration
 rehedging the delta at the end of each day from trade until expiration (a method of trading gamma)
Different hedging techniques work for different options investors, so Market Chameleon includes all 3 choices as a way of comparison.

BINARIUM
Best Options Broker 2020!
Great Choice For Beginners!
Free Trading Education!
Free Demo Account 1000$!
Get Your SignUp Bonus Now!
Spot Price 