Options 101

https://www.investopedia.com/terms/o/option.asp

An option is a financial tool that grants a buyer the right, but not obligation, to buy or sell a given asset at a set price within a specific time frame.

Options are powerful tools because they give investors the ability to take financial positions without committing to the purchase or selling of a given asset. They're a common tool used by investors to either perform market speculation or hedge against market fluctuation.

The downside of an option is that it eventually needs to be exercised (bought or sold) or the option holder takes a loss.

Option types

There are two types of options: Calls and Puts. Calls are focused on buying, Puts are focused on selling.

A call option gives the holder the right (but not obligation) to buy the underlying asset at the price set within a specific time frame. Calls are typically bullish: someone placing a call on a stock, for example, is expecting that stock to increase in value. The call ensures that if the asset's price goes up over the course of the option's time frame, the holder will be able to buy the now more valuable asset at its original lower price.

A put option gives the holder the right (but not obligation) to sell the underlying asset at the price set within a specific time frame. Puts are bearish in nature: someone placing a put on a stock is watching the market conditions and sees that the stock will suffer a significant drop in value. When the stock actually suffers its devaluation, the holder is able to either retain their earnings or in some cases, make a profit.

Option styles

There are two option styles: American and European. 

American-style options can be exercised at any time within the option's time frame, but tend to have higher premiums due to this flexibility. European-style options can only be exercised at the expiration date of the option's time frame, but tend to have lower premiums in return.

The "Greeks"

Options traders & the options market use several Greek letters to represent the rate of change of an option. Colloquially, these Greek letters are known as the "Greeks".

Delta (Δ)

The rate of change between the option's price and a $1 change in the underlying asset's price.

Think of an option's delta as what happens to the price of the option when the price of the asset changes by $1.

If an option has a delta of 0.5, it means that if the underlying asset increases in value by $1, the premium of the option goes up by 50 cents. If it decreases in value by $1, the premium drops by 50 cents.

Theta (Θ)

The rate of change between the option's price and time. Essentially, as time marches on, the option's price would lose value as the expiration date approaches. 

Theta sounds strange at first glance: why is an option constantly losing value? It's not like a car that inherently loses resale value, right?

Remember that options are either bullish or bearish in nature: they're tools that have value based on the increase or decrease of an asset's value. Stability is incompatible with options: if an asset remains stable, the price paid on the option becomes a loss as the expiration date approaches and the asset remains stable.

Gamma (Γ)

The rate of change between the delta of a given option and the underlying asset's price.

Gamma is simpler than it sounds: it represents the stability of the option's delta. If the asset increases or decreases in value, how much will the delta change in response? Gamma is a good indicator if the option is too sensitive to change, or not sensitive enough.

Vega (V)

The rate of change between the value of an option and the asset's implied volatility (IV). If the IV of an asset changes by 1%, how will the option price be impacted?

Vega's a tough one in terms of analysis, but the definition is simple: the higher the vega, the more sensitive the option's price is to market volatility.

Rho (p)

The rate of change between the value of an option and a 1% change in the interest rate. Basically, how sensitive the option is to changes in the interest rate.