6. Options and the volatility desk

Options and the volatility desk

Options from zero, then the chain, volatility and flow.

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  • 4 sections
  • 14 lessons
  • 1 h 9 min
About this chapter

Options from zero to the volatility desk: what an option is, how it is priced, what "vol" means, and how to read every options and volatility page in Gloom.

What you will be able to do

  • Explain a call and a put to a friend with an everyday example, and read profit at expiry from a tiny table.
  • Say what delta, gamma, theta and vega mean, with one number for each.
  • Tell implied volatility (what option prices assume) from realized volatility (what the stock actually did).
  • Describe what a bank's volatility desk does all day, and what "long vol" and "short gamma" mean.
  • Read an options chain (OMON), price one option (OVME), and build a multi-leg position (OSA).
  • Read a volatility surface and its skew (OVDV), and judge whether volatility is high or low for a name (HVG, HVT, HIVG, VCA).
  • Read the VIX curve and the cross-asset volatility board (VIX, VOLS).
  • Read where open interest sits, max pain and dealer gamma (OPX, GEX), and the tape of large option trades (FLOW).

How the chapter is built

Four sections. The first has no product at all beyond a few screenshots: it builds the ideas. The other three are the tools.

Diagram: 1. Options from zero, option, payoff, Greeks, volatility, the desk leads to 2. Chain and strategies, OMON, OSA; 1. Options from zero, option, payoff, Greeks, volatility, the desk leads to 3. Reading volatility, OVDV, HVG, HVT, HIVG, VCA, VIX, VOLS; 2. Chain and strategies, OMON, OSA leads to 4. Positioning and flow, OPX, GEX, FLOW; 3. Reading volatility, OVDV, HVG, HVT, HIVG, VCA, VIX, VOLS leads to 4. Positioning and flow, OPX, GEX, FLOW.

Five words to know before starting

option
a contract that gives the right, not the duty, to buy or sell at a fixed price before a date
strike
that fixed price
premium
the price you pay for the option
volatility
how much a price typically swings, as a yearly percentage
hedge
a trade that cancels some of the risk of another trade
  1. Section 15 lessons · 27 minOptions from zeroWhat an option is, what it is worth, and the Greeks.
    1. 1.1What an option is (calls and puts)5 min
    2. 1.2Value and payoff at expiry5 min
    3. 1.3The Greeks in plain words (OVME)6 min
    4. 1.4Implied vs realized volatility5 min
    5. 1.5What a volatility desk does5 min
  2. Section 22 lessons · 10 minThe chain and strategiesThe options chain, and one position built from several contracts.
    1. 2.1The options chain (OMON)4 min
    2. 2.2Building a position (OSA)5 min
  3. Section 34 lessons · 17 minReading volatilitySkew, term structure, realized vol, IV rank and the VIX.
    1. 3.1The volatility surface and skew (OVDV)4 min
    2. 3.2Realized volatility and the cone (HVG, HVT)4 min
    3. 3.3Is implied vol high or low? (HIVG, VCA)4 min
    4. 3.4The VIX and volatility indices (VIX, VOLS)4 min
  4. Section 43 lessons · 13 minPositioning and flowOpen interest, dealer gamma and the tape of big option trades.
    1. 4.1Open interest and max pain (OPX)4 min
    2. 4.2Dealer gamma (GEX)4 min
    3. 4.3Options flow (FLOW)4 min

Educational material about reading market data, not investment advice.