Before starting your options trading journey, you should have a good understanding of the key factors that determine the value of an option. These include the current stock price, time until expiration, implied volatility, the intrinsic value, interest rates and dividends (lesser effect). Sounds like a lot at first but once you break it down, it’s quite simply really.

Thankfully we’re not going to hand calculate the Black-Scholes option pricing model – your safe there huh? Of course it’s good to know, but gaining the essential knowledge is more important than boring you to death. So, we would rather focus on the inputs or option pricing as opposed to the calculations.

Interestingly enough, all of the factors that effect option pricing are known except volatility – which is estimated as future/implied volatility. Thus the effect of volatility is the most subjective and honestly the most difficult input to quantify and yet the most important.

This 7 part series will provide you with rock-solid guidance that will have you analyzing options better in no time.

Trading options can be a complicated affair if you do not take the time to understand the terminology and concepts of options before trading them. Thus many people simply have no idea at all of what Theta is, while others, searching for an explanation of some sort, end up associating it incorrectly. More often than not, it’s these simple differences that can mean thousands of dollars.

Learn how to use most important options concepts by signing up for free Option Alpha education as soon as it’s published.