easy → expert
Options for beginners
From easy to expert: what each one does, what it needs, and where the risk is
Author: Kiếm Tiền Chợ
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Foundations
CALL
Like a deposit that holds the price of a house: you pay a small amount for the right to buy at a locked price, before a set date. If the house goes up, you profit. If it goes down, you only lose the deposit.
PUT
Like buying car insurance: you pay a premium for the right to sell at a locked price if the price falls hard. If nothing happens, you only lose the premium.
1 contract = 100 shares
The buyer pays the premium, has the right but no obligation
The seller collects the premium, must follow through if asked
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Foundations
Premium = Intrinsic value + Time value
Intrinsic value (built-in profit): what you would get by exercising right now. Time value (Extrinsic in many apps): what you pay for the chance of a move before expiration; more days and higher IV mean more.
For Puts it is the reverse: a strike above the stock price is ITM.
Time value goes to 0 at expiration, leaving only intrinsic value.
Paying time value is not a loss yet, it is the price of the opportunity. Buy a $55 Call for $1: stock at $58 at expiration, you make $2; still $50, you lose $1.
$5.80
$2.69
$1.00
This example uses a volatile stock. SPY moves much less, so its premium is only about one third.
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Foundations
You may buy at the strike. You expect a big rise.
You may sell at the strike. You expect a big drop, or want insurance.
You must sell at the strike if asked. You collect the premium now.
You must buy at the strike if asked. You collect the premium now.
The breakeven point (where the line crosses the horizontal axis) sits away from the strike by exactly the premium.
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Foundations
| Term | Plain meaning |
|---|---|
| Strike | The locked price to buy or sell the stock when you exercise |
| Premium | The option’s price. The buyer pays it for the right; the seller collects it for taking the risk |
| Margin | A broker loan against your assets. With margin you can lose more than you put in |
| Expiration | The day the option expires. After that day the right is gone |
| IV | How much movement the market prices in. High IV means a rich premium |
| DTE | Days to Expiration: the number of days left until expiration |
| Assignment (get assigned) | The seller must follow through: buy (Put) or sell (Call) the stock |
This edition writes numbers US-style ($5.80 · $4,500), the same as broker apps. SPY and QQQ are index ETFs, traded like stocks.
Click to learn more: DTE · ThetaDeltaIV
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Buyer: the option loses value bit by bit
$2.00
Today
30 days left
$1.63
20 days left
$1.15
10 days left
$0
Expiration
day
Seller: collects $2 now, the locked-in profit grows
$0
Today
30 days left
$0.37
20 days left
$0.85
10 days left
$2.00
Expiration
day
Example: an ATM option priced at $2, with the stock price and IV flat for all 30 days.
At Level 1, you sit on the side of the insurance company: you collect the money up front, and promise to buy (or sell) the stock at the agreed price if something happens. Only do it when you already own the stock or have enough cash.
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Foundations · Self-check
No math needed. Just remember: buyers may, sellers must.
Must buy 100 shares at $45 if the Put buyer asks. In return, you collected the premium at the start.
No. The buyer has a right, not an obligation. The Call expires worthless, and you only lose the premium you paid.
The Put seller. They collect the money up front, and promise to buy the stock at the strike if the price falls.
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Foundations
The value lost each day is called theta. The chart shows an ATM option, with DTE (days left) on the horizontal axis: it melts slowly over the first 60 days, and fastest in the last 30 days.
Sellers often pick 30–45 days: the premium is still rich, and it is before the final week, when the option price jumps hard around the strike.
Buyers: the further out the expiration, the slower the ice melts (LEAPS over 1 year are an example).
OTM options (sold at Level 1) melt fast from day one. Stock flat at $50, 30-day Calls, 15 days later: the $50 Call (ATM) keeps 71%, the $55 Call (OTM) only 42%. Sellers earn most of it early; still, no case for 0DTE: gamma peaks at expiration.
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Map
Level 1
Covered Call
Cash Secured Put
Wheel
Risk similar to holding the stock
Level 2
Buy Call / Buy Put
LEAPS
PMCC
You can lose the entire premium
Level 3
Vertical Spread
Iron Condor
Calendar / Diagonal
Limited loss, but many legs (several orders combined)
Level 4
Straddle / Strangle
Sell naked (no shares or cash to back it)
Ratio Spread
Loss can be unlimited
“Easy” means easy to understand, with risk similar to buying the stock. It does not mean risk-free.
Why is buying options harder than selling? A seller wins as long as the price does not move too far. A buyer must get all three right: the right direction, a big enough move, and the move arriving before expiration. Miss one and you lose the premium.
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Level 1 · Start with Delta (1/2)
Delta tells you how sensitive an option is to the stock price: from 0 to 1 for a Call, from 0 to −1 for a Put.
| Delta | Stock up $1, option up | Commonly seen in |
|---|---|---|
| 0.25 | about $0.25 ($25/contract) | Options far from the current price |
| 0.50 | about $0.50 ($50) | ATM options |
| 0.80 | about $0.80 ($80) | LEAPS used as a stock substitute |
| 1.00 | exactly $1.00 ($100) | Same as holding 100 shares |
Remember: the closer delta is to 1, the more the option moves like the stock.
Puts have negative delta (e.g. −0.27) because they move against the stock: the stock drops $1, the Put gains about $0.27.
Stock $50.00 · $50 Call worth $2.69 · delta 0.53: stock up $1, Call up about $0.53
The dark blue line is the price of a $50 Call with 30 days left. The slope of the orange segment is delta: the higher the stock, the steeper the line, the closer delta gets to 1.
Example: $50 strike Call, 30 days to expiration, Black-Scholes, zero interest rate. Delta holds for small price moves; on big moves delta changes on its own (gamma, Level 4).
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Level 1 · Start with Delta (2/2)
Delta 0.27 ≈ 27% chance of finishing ITM, when IV is low like SPY. See the table below.
| Sell Put strike | Distance from current price | Delta | Chance SPY is below the strike on expiration day | Cash received (1 contract) |
|---|---|---|---|---|
| $740 | −3.8% | −0.20 | about 20% | $424 |
| $750 | −2.5% | −0.27 | about 27% | $570 |
| $760 | −1.2% | −0.37 | about 37% | $783 |
| $770 | +0.1% | −0.50 | about 50% | $1,100 |
Remember: the closer the strike to the current price → the bigger the delta → the more cash you receive, but the more likely you get assigned.
Cash Secured Put (CSP) and Covered Call sellers usually pick delta 0.20–0.30: far enough from the current price while still collecting premium.
Touching $750 along the way is normal: the chance of touching is about twice the chance of finishing ITM, here over half. And assignment is not loss: sell the $750 Put for $5.70 (the bid), lose only under $744.30.
SPY $769.05, expiring Nov 20, 2026. Snapshot data for illustration: get_live_option_chain, Oct 21, 2026, after the close.
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Level 1 · Covered option selling
You hold 100 shares. Sell the right to buy at a price above today's to collect premium. Like renting out the stock, but the renter has the right to buy it outright at the agreed price.
At $50 · at expiration (solid): +$100 · 15 days left (dashed): +$58 / contract
Faint lines: the stock (gray) and the sold Call (orange). Added together they make the bold line, the same shape as selling a Put at the same strike1.
1 Put-call parity. Chart uses Black-Scholes, zero interest rate, no dividends.
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Level 1 · Covered option selling
Set aside enough cash to buy 100 shares. Sell the right to sell at a price below today's and collect premium.
At $50 · at expiration (solid): +$100 · 15 days left (dashed): +$58 / contract
Same shape as a Covered Call1. The difference is whether you start with shares or with cash. On SPY the premium is only 0.6–1.1% of the strike; the In Practice section shows that is not enough to cover the spread and one crash.
1 Ignoring interest rates. Cash set aside for a CSP usually still earns interest at the broker.
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Level 1 · Covered option selling
The stock is at $50. Receive +$100
The stock falls to $43. Buy 100 shares at $45
Holding 100 shares. Receive +$100
The stock rises to $48. Sell at $47: +$200
After 1 loop
+$400$100 + $100 + $200
Bad loop: after step 2 the stock keeps falling to $35 → down $900. The $47 Call barely sells: wait, or sell a Call below your cost basis and accept the loss.
Only run it on stocks you want to hold long term, never a 3x ETF
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Level 1 · Applies to every level
Options trade every day like stocks. Expiration day is just the deadline. Most trades should be closed before then in one of three ways.
Once you have about 35% of the premium, buy it back. In 271 backtested trades, 35% beat 50%.
Sell a Put for $100. The Put drops to $65 → buy it back, profit $35.
Set the loss level before you enter and close when it hits, do not wait to “win it back”. Volatile stocks often bounce, so exiting on time (7 days left) usually beats a premium-based stop.
Sell for $100. The option rises to $300 (a loss of 2 times the premium) → close.
Close the old trade, open a new one further out or at a different strike. Only do it when you still collect more cash.
$45 Put about to be assigned → close, sell next month's $45 Put for an extra $60 ($0.60/share).
Covered Call ITM: close or roll by the session before the ex-dividend date, or expect early assignment1. Deep ITM Puts can also be assigned early.
1 US stock/ETF options are American style and can be exercised on any day.
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Level 1 · Self-check
The stock is at $50. You sell a $45 strike Put, 30 days out, and collect $1.20/share.
$45 − $1.20 = $43.80. You only start losing below this level.
$120, exactly the cash you collected ($1.20 × 100).
You get assigned: you buy 100 shares at $45 and still keep the $120. Your real cost basis is $43.80, so at $44 you are up $20.
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Level 2 · Buying options
At $50 · at expiration (solid): −$100 · 15 days left (dashed): −$58 / contract
Buy the $55 Call for $1. The stock must rise above $56 to profit.
At $50 · at expiration (solid): −$100 · 15 days left (dashed): −$58 / contract
Buy the $45 Put for $1. The stock must fall below $44 to profit.
You must get all three right: direction, size and timing.
Drag the “days passed” slider to the right: the dashed line sinks toward the expiration line. That is theta.
Right direction, too slow: you can still lose the whole premium.
Needs: approval to buy options, a few hundred dollars a trade.
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Level 2 · Buying options
LEAPS are options with more than 1 year to expiration. Buy a deep ITM LEAPS Call (delta 0.70–0.85) and the option moves almost like the stock, for only about 1/3 of the money. PMCC (Poor Man’s Covered Call, a Covered Call for smaller accounts): hold LEAPS instead of 100 shares, then sell a short-term Call each month to collect premium.
Price goes past the short Call: close the whole pair, do not exercise the LEAPS1.
1 Early exercise throws away the time value left ($5/share = $500). $105 is the safe level if assigned; buying LEAPS at high IV also hurts. Deep ITM LEAPS have wide spreads: use a limit order at mid.
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Level 2 · Self-check
The stock is at $52. You buy a $55 strike Call, 30 days out, and pay $2/share.
$55 + $2 = $57.
The Call is worth $1 (56 − 55) and you paid $2: a $100 loss even though the stock rose $4.
The Call still has a lot of time value. The $57 breakeven only holds on expiration day.
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Level 3 · Multi-leg spreads
Same type, same expiration, different strikes. The long leg is the “fence” that stops the loss. Bear Call / Bear Put are the mirror versions. From Level 3 on, examples use a $100 stock for easy math.
Bull Put: stock at $100. Sell the $95 Put, buy the $90 Put, collect $1.10. Max profit $110, max loss $390.
Bull Call: buy the $100 Call, sell the $110 Call, pay $3.25. Max profit $675, max loss $325.
Faded blue line: the long leg. Faded orange line: the short leg. Add them up to get the bold line: both ends are cut flat.
2 legs, so commission and bid/ask spread double.
Needs: spread approval, usually a margin account.
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Level 3 · Multi-leg spreads
= Bull Put Spread below + Bear Call Spread above. 4 legs, you collect once.
At $100 · at expiration (solid): +$110 · 15 days left (dashed): +$65 / contract
Between $88.90 and $111.10: profit. Outside: loss, but with a floor.
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Level 3 · Multi-leg spreads
Back to the Bull Put example on the Vertical Spread slide: sell the $95 Put, buy the $90 Put, collect $1.10. Max loss “on paper” is $390.
The $95 Put gets assigned: you buy 100 shares at $95. The $90 Put expires worthless, because $92 is still above $90.
You now hold 100 shares, with no fence left. Same as owning the stock outright.
Loss ($95 − $85 − $1.10) × 100 = $890, more than double the max loss on paper.
Rule: close every short position before 4:00 PM New York time on expiration day, even if it is slightly OTM1.
1 Options ITM by $0.01 or more are auto-exercised by OCC. Buyers can still ask to exercise until ~5:30 PM New York time, after options stop trading; brokers usually cut off earlier (~4:30 PM). SPX/XSP settle in cash, so you never receive shares over the weekend.
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Level 3 · Multi-leg spreads
Sell the near-term option, buy the longer-term option. The near-term option loses value faster, and you keep that difference.
At $100 · at expiration (solid): +$235 · 15 days left (dashed): +$42 / contract
The bold line is when the 30-day leg expires. Profit peaks when price sits exactly at $100.
The short Call leg can get assigned early before the ex-dividend date if it is ITM.
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Level 3 · Self-check
Bull Put: sell the $95 Put, buy the $90 Put, same expiration, collect $1.10/share.
Max profit $110. Max loss ($5 − $1.10) × 100 = $390.
Above $95: both Puts expire worthless.
The $95 Put gets assigned: you buy 100 shares at $95. The $90 Put expires worthless. Over the weekend you hold the shares with no fence left.
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Level 4 · Volatility and naked selling
How much an option moves when IV changes. IV is usually high before an earnings report; after the news, IV drops (IV crush). The option can lose value even if the stock moves the right way but not far enough.
Try the IV slider on the next slide.
Near expiration day, gamma is very large: a $1 move around the strike makes delta jump, and P/L swings very fast. That is why sellers often close before the final week.
Drag the days slider right to expiration: the curve bends sharply around the strike.
At $100 · at expiration (solid): +$400 · 15 days left (dashed): +$117 / contract
Sell the $100 Put with the stock at $100, collect $4. The closer to expiration day, the steeper the section around $100.
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Level 4 · Volatility and naked selling
No guess on direction, only whether the price will move a lot or stay put. Straddle: Call + Put at the same strike. Strangle: two different strikes, cheaper.
At $100 · at expiration (solid): −$800 · 15 days left (dashed): −$234 / contract
Buy the $100 Call + $100 Put, $8/share total ($800). The price must go above $108 or below $92 to profit. Buyers fear falling IV most: drag IV left and the dashed line drops even after the price moved (IV crush).
At $100 · at expiration (solid): +$800 · 15 days left (dashed): +$234 / contract
Sell the $100 Call + $100 Put, collect $8/share. Max profit $800. A big rally means unlimited loss; a big drop means a max loss of $9,200. Needs a lot of margin.
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Level 4 · Volatility and naked selling
Naked Call: selling a Call without owning the stock. Ratio Spread: buy 1, sell 2; the extra short leg is a naked leg.
Beginners should not touch this level. It is the same Call sale as a Covered Call, but here there are no 100 shares behind it.
At $100 · at expiration (solid): +$200 · 15 days left (dashed): +$116 / contract
Drag the price to $108 and raise IV: the dashed line already shows a loss before the price reaches $110. With an unrealized loss, you can get a margin call before expiration day.
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Level 4 · Self-check
This level is for knowing where the risk is, not for starting to trade.
Unlimited. At $150 the loss is ($150 − $110 − $2) × 100 = $3,800, and higher prices lose more.
IV crush. IV is very high before the report; after the news, IV drops hard (Case 6: from 90% to 35%), pulling the Call down more than the stock's gain.
Loss of $700 = ($115 − $100 − $8) × 100. Selling a Straddle profits only if the price stays within $92–$108.
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In Practice · Measured 2017–2026
Level 1 said CSP and Covered Call carry the same risk as holding the stock. Holding SPY and holding a 3x leveraged ETF are very different things.
With a leveraged ETF, “max loss same as buying the stock” means holding something that once lost 90–99%. Do not run the Wheel on these tickers. If you sell Puts, you must have an exit rule before you get assigned (see the 271 short Puts slide).
Closing prices 2017 → Oct 20, 2026; later listings counted from their listing date. “A month” = 21 consecutive sessions. Internal measurement to illustrate risk, not a recommendation.
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In Practice · Snapshot 3:30 PM New York time, Oct 21, 2026
Puts with 20–45 days left, delta 0.20–0.30, the exact zone this deck tells you to sell. The left bar is the median bid/ask spread, as a % of the mid price.
OI of 300 or more. Spread no more than 10% of the mid price. For options under $0.50, spread no more than $0.05. These rules knock out almost every leveraged ticker, leaving only TQQQ and SOXL (blue: the median passes both spread and OI). Even so, 17–29% of contracts on these two still have spreads above 10%.
In the backtest, the OI ≥ 300 rule alone decides profit or not: without it, profit nearly vanishes and drawdown is 3× deeper. Internal, unverified; not a forecast.
OI = median open interest of contracts in the zone above. Source: snapshot 3:30 PM ET, Oct 21, 2026 (14 tickers, 9,164 rows). At the close, spreads are usually 2–3.5 times wider than at 3:30 PM.
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In Practice · Delta when IV is high
Delta ≈ odds of finishing ITM only holds when IV is low. The more volatile the ticker, the more the ITM odds exceed delta.
The SPY Put table on the Delta slide still works: IV is low, so the two numbers are close (27% and 29%).
On SOXL, selling a 0.27 delta Put means about a 40% chance of assignment if held to expiration, nearly 1.5 times the delta.
High-IV tickers: pick a smaller delta, or close early per the rules on the next slide.
30-day term, IV as of Oct 21, 2026. Put ITM odds = N(−d2), delta = N(−d1); d1 and d2 differ by IV × √(30 ÷ 365), so the higher the IV, the wider the gap.
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In Practice · Backtest 2017–2026
Sell Puts at delta 0.20–0.30, 20–40 days out, only on tickers that pass the three liquidity rules. Take profit at 35% of the premium. If not reached, exit with 7 days left, never hold until assignment.
This is the other half of CSP. In the 29 forced exits, the median stock price was 17% below entry. The median loss was 1.4 times the premium received, the worst was 17 times.
Read these numbers carefully: fills are assumed at the mid price, while 3x tickers have 6–9% spreads. The 35% and 7-day marks were chosen on this same data, so real results are usually worse.
“Points” = sum of each trade's % P/L; the other 6 trades fall in neither group. Entries use real 3:30 PM prices and real OI; commissions and interest on idle cash not included. Only 29 losing trades, not enough to measure the full tail risk.
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In Practice · Cross-check
| The deck teaches | Measured | Verdict |
|---|---|---|
| OTM options decay fast, sellers profit in the first half | 89% of take-profit trades hit the target in the first half of the term, 78% in the first third. Same for 1x indexes and 3x ETFs. | Confirmed |
| Take profit early | Taking profit at 35% beats 50%: 29 points more over 10 years, won 7 of 10 years, shallower drawdown. | Use 35% |
| Stop loss when the option hits 2–3 times the premium | On 3x ETFs: stopping at 1.5–2 times the premium cut profit by 12–16 points. 17–37 would-be winners were stopped out as losers, because prices often bounce back. | Not for 3x ETFs |
| Close before the final week | Exiting with 7 days left is the rule in use. Holding to expiration: 19 assignments, −17% drawdown. | Confirmed |
| Sellers choose 30–45 days | True for 1x indexes. For 3x ETFs, 25–35 days did better. | Depends on ticker |
| Delta 0.20–0.30 | Widening to 0.25–0.35: drawdown as deep as −24.5%. Lowering to 0.15–0.25: almost no difference. | Confirmed |
| Small account, use spreads | Bull Put Spread on the same signals was negative in all 12 variants: the long leg eats nearly half the premium, and spreads plus commissions on two legs cost 8–22% of the credit. | Comes at a cost |
Winning often is not the same as making money. The 1x index group won 87% of trades but still averaged −0.31% per trade: premium was only 0.6–1.1% of strike, not enough to cover the bid/ask spread and one crash. The 3x ETF group made money only thanks to all three liquidity rules, the 35% take profit and the 7-days-left exit; without those rules the result is very different.
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In Practice · Self-check
Three questions, using the numbers from the last five slides.
About 40%, not 27%. SOXL's IV is very high (128%), so the ITM odds are much higher than delta.
No. It fails both rules: spread above 10% and OI under 300. Enter and exit right away and you lose more than a third of the price.
The losers are many times bigger than the winners. Premium is only 0.6–1.1% of strike, so the bid/ask spread and one crash are enough to wipe out many winners.
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In Practice · From numbers to action
CSPs and Covered Calls teach the mechanics, let you buy a stock you want at a lower price, and add income on shares you hold. In the backtest, short Puts on 1x indexes won 87% of trades and still lost on average.
The group that made money in the 271 trades was 3x ETFs, and only with all three liquidity rules, a 35% profit target and a 7-day exit. That same group has lost 90–99% before: not a place to start.
One contract each, on a lower-priced stock you would hold for years (capital = strike × 100), no margin. Before entering: write down why, the profit target and the exit date. After closing: write down the result.
The goal of the first 10 trades is following the rules, not profit yet. Ten trades say nothing about skill; even 271 are too few to measure tail risk. What you are measuring is whether you did what you wrote down.
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Case Studies
Each case steps through DTE: where the stock goes, what the option is worth, and what to do at each point. Click ▶ to replay, drag the slider to move along, click a step to jump to it.
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Case study 1 · CSP
Setup: stock at $50. Sell 4 $45 Puts, 30 days out, collect $1/share, total $400. Set aside $18,000 cash (4 × $4,500).
Stock $50.00 · $45 Put (4 contracts): $1.00 · Unrealized P/L: $0
N/A does not mean zero. At 2 DTE, the remaining contract is still worth about $6 ($45 − $39). If you don't want 100 more shares, buy it back with a limit order near $6. If you hold, you must still have $4,500 cash.
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Case study 2 · Covered Call
Setup: you hold 100 shares at $50. Sell a $55 Call, 30 days out, collect $100. The company will pay a $0.80/share dividend; the ex-dividend date falls at 8 DTE.
Stock $50.00 · $55 Call: $1.00 · Unrealized P/L: $0
Call priced without the dividend; with it, time value is smaller still. Dividends are pre-tax.
Early assignment is not a loss: $600 = ($55 − $50 + $1) × 100, the max profit, just sooner. To keep the shares past the ex-dividend date, roll the Call up or out before it.
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Case study 3 · Covered Call
Setup: you hold 100 shares at $50. Sell a $55 Call, 30 days out, collect $100. Max profit if called away at $55: $600.
Stock $50.00 · $55 Call: $1.00 · Unrealized P/L: $0 · Stock only: $0
A Covered Call trades upside for premium. Only sell Calls at a strike where you are happy to sell the stock. This roll costs money, the opposite of the usual rule. It is only worth it if you really want to keep the stock and accept 45 more days of risk.
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Case study 4 · CSP
Setup: stock at $50. Sell 1 $45 Put, 30 days out, collect $100. You want to own this stock, but $45 still feels expensive.
Stock $50.00 · $45 Put: $1.00 · Unrealized P/L: $0
A roll closes the old trade and opens a new one. Only roll if you collect more money and still want to buy at the new strike. Paying to roll means paying to push the risk later.
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Setup: stock at $50. Buy 1 $55 Call, 30 days out, pay $100. Breakeven at expiration: $56.
Stock $50.00 · $55 Call: $1.00 · Call P/L: $0 · 100 shares instead: $0
Buyers must be right on direction, distance and time. Set a time-based exit up front: if the stock hasn't moved enough by the halfway point, sell. Selling at 15 DTE returns $88, a loss of only $12.
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Case study 6 · Buy Call · IV
Setup: stock at $50, the company reports earnings tonight. IV is 90% because everyone is waiting for the news. Buy 1 $50 Call, 14 days out, pay $351 ($3.51/share).
Stock $50.00 · IV: 90% · $50 Call: $3.51 · Call P/L: $0
Before earnings, option prices already include a big move. The stock must move further than that to profit. Beginners should avoid buying options right before an earnings report.
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Case Study 7 · After assignment
Setup: continuing Case 1. You hold shares at a cost basis of $44 (after the Put premium), now at $40. After the drop IV is up to 60%, so Calls pay more than usual. Per 100 shares, 30-day Calls.
| Choice | Collect now | In 30 days at $36 | At $40 | At $46 |
|---|---|---|---|---|
| A · Sell the $45 Call (above cost, 0.27 delta) | $107 | −$693 | −$293 | +$207 (called away at $45) |
| B · Sell the $42 Call (below cost, 0.42 delta) | $192 | −$608 | −$208 | −$8 (called away at $42) |
| C · No Call | $0 | −$800 | −$400 | +$200 |
A: a thin premium, but if the stock recovers you still exit with a profit.
B: nearly twice the premium, but a recovery gets you called away at $42: the loss is locked in just as the price turns up.
C: you keep the whole recovery, with nothing to cushion a further drop.
The Call cushions $1–2 while the stock has lost $4. Ask first: at $40 today, would you buy this stock? If yes, hold it and only sell Calls at a strike you are happy to sell at. If not, sell the shares at the exit you wrote down; don’t use Calls to repair a bad trade.
Call prices from Black-Scholes, 60% IV, zero rates, no dividends. P/L includes the shares and the Call premium, before trading costs.
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Case Study 8 · One leg of a spread assigned
Setup: a $2,000 account. Bull Put Spread, 10 contracts (10 × 100 = 1,000 shares): sell the $23 Put, buy the $22 Put, collect $200. Max loss on paper ($1 − $0.20) × 1,000 = $800. Expiration Friday, the stock closes at $22.50 and you do nothing.
The $23 Put is assigned: you buy 1,000 shares, $23 × 100 × 10 = $23,000.
The $22 Put expires worthless because $22.50 is still above $22. The fence is gone.
Cash −$21,000: that is a margin loan. Short on margin, the broker can sell you out at the open.
| Monday opens at | $23.50 | $22.50 | $21 | $19 |
|---|---|---|---|---|
| Sell all 1,000 shares at the open | +$700 | −$300 | −$1,800 | −$3,800 |
| Closed the whole spread before 4 pm Friday | −$300 | −$300 | −$300 | −$300 |
Holding for a bounce: needs margin, costs interest, can still be sold out, and there is no fence. Every $1 down is −$1,000.
A spread's max loss only holds while both legs are alive. Before opening, work out the cash needed if assigned: strike × 100 × contracts (here $23 × 100 × 10 = $23,000). Without it, close the whole spread before 4 pm New York on expiration day if the short leg is ITM or near the strike.
Illustrative: closing the spread at $22.50 costs about $0.50 (the $23 Put). Excludes commissions, bid/ask, margin interest.
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Wrap-up
Will the price rise, go sideways or fall? Is premium expensive (high IV) or cheap (low IV)? And a third: how much capital?
Expect a fall
Expect sideways
Expect a rise
No view on direction but expect a big move, and IV is still low: Buy Straddle / Strangle.
Small account: a CSP on SPY needs ~$75,000. Pick a cheaper stock, or a spread: capped loss, but the long leg eats about half the premium.
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Real-data example · session of Oct 20, 2026
IV is the volatility the market is pricing into the premium. IV rank compares today's IV with the same stock's IV over the last 2 months1: 0 is the cheapest, 100 the most expensive.
The dashed line marks 70: premium is rich, lean toward selling. But ask why IV is high first. ER = earnings before the Nov 20 expiration (see Case 6). SOXL just fell 40% from its 20-session high.
A 41-session rank moves fast: one session later, TSLA fell from 100 to 68 after earnings, NVDA from 62 to 53. Rank compares a stock only with itself.
1 Short-term IV rank: ~41 sessions (SOXL 31), not 52 weeks like thinkorswim/tastytrade. Source: get_atm_iv, sessions of Oct 20 and Oct 21, 2026; expected report dates from LSEG, subject to change.
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Real-data example · linking IV to strike choice
Expected move ≈ stock price × IV × √(days ÷ 365)
SPY $769.05 × 13.7% × √(30 ÷ 365) ≈ $30. Over 30 days, SPY has about a 2/3 chance of staying in the $739 to $799 range.
Remember: the $750 Put (delta 0.27) sits inside the range, about 0.6 of the expected move from the current price. A strike at the edge or outside the range is less likely to get assigned, but pays a thinner premium.
SPY IV of 13.7% from get_atm_iv, session of Oct 20, 2026. The formula is a model estimate of one standard deviation. Real markets sometimes move further.
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Real-data example · SPY, expiring Nov 20, 2026 (30 days)
SPY at $769.05. Sells use the bid, buys use the ask. Each row is 1 contract.
| Strategy | Order | Receive / pay | Max profit | Max loss | Cash set aside |
|---|---|---|---|---|---|
| Cash Secured Put | Sell $750 Put (delta −0.27) | Receive $570 | $570 | Like buying SPY at $744.30 | $75,000 |
| Covered Call | Hold 100 SPY, sell $790 Call | Receive $410 | $2,505 | Like holding SPY | 100 SPY ≈ $76,905 |
| Bull Put Spread | Sell $750 Put, buy $745 Put | Receive $77 | $77 | $423 | $423 |
| Iron Condor | Put $745/$750 + Call $790/$795 | Receive $203 | $203 | $297 | $297 |
| Buy Call | Buy $770 Call | Pay $1,349 | Unlimited | $1,349 | $1,349 |
| Buy Straddle | Buy $770 Call + Put | Pay $2,454 | Unlimited | $2,454 | $2,454 |
Small-account trap: a Bull Put sets aside only $423, so it is easy to open many contracts. 100 contracts can lose $42,300 if SPY drops about 3%.
Puts cost more than Calls: the $750 Put has 16.1% IV, the $790 Call only 12.2%. Big funds buy Puts to hedge crashes, so the Put side usually carries more premium.
Buying the $770 Call needs SPY above $783.49 (+1.9%) to profit. Straddle needs SPY to move more than about ±3%.
Snapshot figures for illustration, not updated. Source: get_live_option_chain, Oct 21, 2026 10:28 AM UTC, after the close, so prices may differ from intraday prices.
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Wrap-up · Psychology
Like selling insurance right after an earthquake: premium is high because aftershocks are real. How to avoid: ask why IV is high before you sell, and trade smaller.
In the 271 trades, the worst one lost 17 times the premium received. How to avoid: write down your exit date when you enter, and close on that date.
A roll you pay for is paying to push the risk later (Case 4). How to avoid: roll only for a credit, and set a max number of rolls in advance (for example, one).
Winning 9 of 10 trades is normal for sellers, but one loser can wipe out many winners. How to avoid: fix the number of contracts by account size, not by feel.
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Wrap-up · For readers in Vietnam
Do they accept residents of Vietnam? Do they grant options approval, and at what level? How do you deposit and withdraw, and what does it cost?
The broker will ask for form W-8BEN to confirm you are not a US resident. The US and Vietnam have no tax treaty in force yet, so dividends are usually taxed at the source. Ask your broker the withholding rate, and ask a tax professional about your obligations in Vietnam.
P/L is in USD. When you convert back to VND, the exchange rate can raise or lower your real result.
The US session is 20:30–03:00 Vietnam time (March–November), 21:30–04:00 in winter. “Close before 4 PM New York” means 3–4 AM: close that evening or earlier. Right after entering, leave a GTC Buy to Close at 65% of the credit to take the 35% profit for you.
This deck is not tax advice. The dividend examples (Case 2) show amounts before tax; non-US residents usually receive less.
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Wrap-up
| Strategy | Difficulty | Capital needed | Max loss | Fits when price… |
|---|---|---|---|---|
| Covered Call | 1 · Easy | 100 shares | Like owning stock | Moves sideways, rises slowly |
| Cash Secured Put | 1 · Easy | Strike × 100 | Like buying stock | Moves sideways or rises |
| Wheel | 1 · Easy | Strike × 100 | Like owning stock | Sideways, a stock you'd keep |
| Buy Call | 2 · Medium | Premium only | All the premium | Rises hard and fast |
| Buy Put | 2 · Medium | Premium only | All the premium | Falls hard / insurance |
| LEAPS / PMCC | 2 · Medium | About 1/3 of the stock price | The whole LEAPS | Rises over the long term |
| Credit Spread | 3 · Hard | (Width − credit) × 100 | Known upfront* | Does not move hard against you |
| Debit Spread | 3 · Hard | Premium paid | Premium paid | Has a clear direction |
| Iron Condor | 3 · Hard | (Width − credit) × 100 | Known upfront* | Moves sideways, high IV |
| Calendar / Diagonal | 3 · Hard | Premium paid | Premium paid | Stays near the strike |
| Buy Straddle | 4 · Expert | Both premiums | Both premiums | Makes a very big move |
| Sell naked | 4 · Expert | Large margin | Unlimited | Stays still, no sharp rise |
* Only true if you close before 4:00 PM New York time on expiration day (see “the fence can disappear”).
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Wrap-up
| Level | Account approval | Capital | Must understand | Discipline |
|---|---|---|---|---|
| 1 · Easy | Options Level 1 or 2, by broker; a cash account is enough | Enough for 100 shares (e.g. $5,000 for a $50 stock) | Strike, premium, expiration, assignment | Only stocks you want to own; open short Puts (strike × 100) within your cash; max 2 stocks per sector |
| 2 · Medium | Approved to buy options | A few hundred dollars a trade | Delta, theta, IV, time value | Accept losing the whole premium; cap the % of capital per trade |
| 3 · Hard | Approved for spreads; usually needs a margin account | (Width − credit) × 100 per trade | Multi-leg orders, early assignment, expiration-day risk | Take profit early, set a stop loss; risk only 1–2% of capital per trade |
| 4 · Expert | Highest level; approved to sell naked | Large margin, often $10,000+ | Vega, gamma, tail risk | Hard stop loss, check daily |
Always use limit orders with options, never market orders1. Count commissions: per contract, per side, per leg. Opening and closing an Iron Condor is 8.
1 Approval levels vary by broker. US margin minimum: $2,000. Overnight holds are not day trades, so PDT does not apply; the $25,000 rule ended Jun 4, 2026, but brokers may phase it in until Oct 20, 2027.
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Appendix · Reading an option chain
1 SPY $769.05 · Expires Nov 20, 2026 · 30 days left
| CALL (right to buy) | 2 | PUT (right to sell) | ||||||
|---|---|---|---|---|---|---|---|---|
| OI | Delta | Bid 4 | Ask | Strike | Bid | Ask | Delta 5 | OI |
| 7,444 | 0.57 | 16.72 | 16.83 | 765 | 9.25 | 9.30 | −0.43 | 21,248 |
| 4,284 | 0.53 | 14.69 | 14.84 | 768 | 10.25 | 10.31 | −0.47 | 5,053 |
| 3 stock price $769.05 is here: rows above the line have ITM Calls, rows below have ITM Puts | ||||||||
| 14,622 | 0.51 | 13.44 | 13.49 | 770 | 11.00 | 11.05 | −0.50 | 22,052 |
| 1,483 | 0.48 | 12.22 | 12.27 | 772 | 11.79 | 11.83 | −0.53 | 2,758 |
| 11,577 | 0.45 | 10.49 | 10.53 | 775 | 13.10 | 13.15 | −0.56 | 13,808 |
Prices are per share. Multiply by 100 for 1 contract: Put 770 bid 11.00 = you receive $1,100.
Source: get_live_option_chain, Oct 21, 2026 10:28 AM UTC, market closed. Many apps also show Last, Volume, IV (next slide).
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Appendix · Reading an option chain
| Column | Meaning | What to look for |
|---|---|---|
| Bid | The price others are paying to buy | If you sell, you get this price |
| Ask | The price others are asking to sell | If you buy, you pay this price |
| Mid / Mark | The price halfway between bid and ask | Where to place a limit order |
| Last | The last traded price, maybe from hours ago | Don't rely on it. SOXL $102 Put: last $17.48 but bid/ask is $14.30/$16.05 |
| Volume | Contracts traded today | Zero means no one has traded this strike today |
| Open Interest | Contracts still open | The bigger, the easier to get in and out. Usually 300 at minimum |
| Delta | How much the option moves when the stock moves $1; roughly the chance of finishing ITM | Use it to pick a strike |
| IV | How much movement the market is pricing into the premium | Compare only with the same ticker, not across tickers |
SOXL example: get_chain_contracts, expiration Nov 20, 2026, quote taken 7:54 PM UTC, Oct 20, 2026 (during the session).
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Appendix · Reading an option chain
Enter and exit right away, and you lose exactly this spread. Formula: (ask − bid) ÷ mid price.
0.7%
Bid 5.70 · ask 5.74 · spread $0.04
OI 71,596
Enter and exit right away: lose $4 per contract.
6%
Bid 11.35 · ask 12.05 · spread $0.70
OI 4,030
Enter and exit right away: lose $70 per contract.
29%
Bid 10.75 · ask 14.35 · spread $3.60
OI 1
Enter and exit right away: lose $360 per contract.
If the spread is over 10% of the mid price, skip that strike. For cheap options under $0.50, judge in dollars: a spread of $0.05 at most.
Two SOXL strikes $1.5 apart look completely different. Round strikes like $95 and $100 usually get more traders.
SPY: get_live_option_chain Oct 21, 2026, after the close. SOXL: get_chain_contracts, during the session Oct 20, 2026. All three expire Nov 20, 2026. Two different times: after the close, spreads are usually 2–3.5 times wider, so comparing SPY with SOXL only shows the size of the spread.
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Appendix · Reading an option chain
Example: you plan to sell a SPY $750 Put, expiration Nov 20, 2026.
Place the order: Sell to Open 1 Put, limit at mid $5.72, then wait about 30 minutes. If it doesn't fill, lower $0.01 at a time. Don't jump to the bid.
Data: get_live_option_chain and get_atm_iv, Oct 20–21, 2026. An example of how to read the chain, not a trade recommendation.
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Appendix · Placing orders in the app
Picking Open instead of Close adds a new position instead of closing the old one.
| Buyer side (long) | Seller side (short) | |
|---|---|---|
| Open a new position | Buy to Open (BTO): buy a Call or Put, pay the premium (Level 2). | Sell to Open (STO): sell a Put or Call, collect the premium. Level 1 starts here. |
| Close a position you hold | Sell to Close (STC): sell back an option you bought. | Buy to Close (BTC): buy back an option you sold, to take profit or cut a loss. |
Example: Sell to Open 1 SPY $750 Put at $5.72. Once filled, place a Buy to Close, GTC, at $3.72 (65% of $5.72): the 35% profit is taken while you sleep.
Button names vary a little between apps; some only show Buy/Sell and work out open or close from what you hold. Brokers may cancel GTC orders after a set period, so check with yours.
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Turn your phone sideways to read
The slides are made for a wide screen: sideways, the text is twice as big.