Options Trading Cheat Sheet

A visual guide to understanding the core mechanics of options contracts and the "Greeks" that drive their pricing.

The Core Engines

CALL Option

The Right to BUY

Bullish

You believe the underlying stock will go UP. You pay a premium for the right to buy 100 shares at a specific "Strike Price" before expiration.

Long Call Payoff Diagram

Stock Price Profit Loss Strike Price Break-even
Max Risk Premium Paid
Max Reward Unlimited

PUT Option

The Right to SELL

Bearish

You believe the underlying stock will go DOWN. You pay a premium for the right to sell 100 shares at a specific "Strike Price" before expiration.

Long Put Payoff Diagram

Stock Price Strike Price Break-even
Max Risk Premium Paid
Max Reward Substantial (Strike - Premium)
In-The-Money (ITM)

Option has intrinsic value. (Call: Stock > Strike. Put: Stock < Strike)

At-The-Money (ATM)

Stock price is roughly equal to the Strike price. High extrinsic value.

Out-of-The-Money (OTM)

Option has NO intrinsic value, only time value. Cheaper premium.

The "Greeks" Dashboard

If an options contract is a car, the Greeks are the dashboard instruments telling you how the car behaves. They measure the option's sensitivity to various market forces.

Delta Δ

Speedometer

Directional Exposure

How much the option price changes for every $1 move in the underlying stock.

Call Range 0 to +1.00
Put Range -1.00 to 0
Pro Tip: Delta is often used as a rough proxy for the probability of the option expiring In-The-Money (e.g., 0.30 Delta ≈ 30% chance).

Gamma Γ

Accelerator

The Rate of Change

How much Delta changes for every $1 move in the underlying stock. It's the convexity of the option.

Highest When At-The-Money
Buyer/Seller Long = +Γ, Short = -Γ
Analogy: If Delta is speed, Gamma is acceleration. High Gamma means your Delta will change very rapidly as the stock moves.

Theta Θ

The Clock

Time Decay

How much value the option loses each day simply because time passes.

Option Buyers Negative (Enemy)
Option Sellers Positive (Friend)
Decay Curve: Theta decay is not linear. It accelerates rapidly in the last 30-45 days before expiration.

Vega ν

Shock Absorber

Implied Volatility (IV)

How much the option price changes for a 1% change in Implied Volatility.

When IV Spikes Option Prices ↑
When IV Drops Option Prices ↓
IV Crush: Buying options right before earnings is risky due to high IV. After earnings, IV drops sharply, causing "IV Crush" (rapid loss of premium).

Rho ρ

Interest

Interest Rates

How much the option price changes for a 1% change in the risk-free interest rate.

Impact Level Generally Minimal
Calls vs Rates Positive correlation
Good to Know: Rho is the least used Greek in day-to-day retail trading. It only becomes significant for long-term options (LEAPS) when interest rates shift dramatically.

The Option Price Engine

An option's premium is made of two parts:

Premium = Intrinsic Value (Built-in value if exercised today) + Extrinsic Value (Time value + Volatility value)