Options 101: Derivatives Masterclass

Options for Blackrock's ETF have just been approved by the SEC, opening even more doors for large capital to enter the space. Today we explore the fundamentals of what options are from the ground up.

G’day Folks,

Last week, news broke that the SEC has approved options to trade on Blackrock’s Bitcoin ETF. This is a major development in my opinion, and one which was destined to be in the pipeline ever since the ETFs went live.

Options on ETFs are likely to be the killer application for Wall Street.

Options are one of the more sophisticated instruments available for traders, investors, and portfolio managers to take directional bets, or hedge risk in markets. They are a sign of a maturing asset class, and in many ways are a prerequisite for large capital to enter.

I am sure that many readers are only loosely familiar with what options are, so this news may not resonate the the extent it deserves.

This post will be a ground up crash course on the fundamentals of options covering:

• What options are (Calls and Puts).

• The difference between option buyers and sellers.

• What the win conditions and incentives are for buyers and sellers.

• The three factors which give option premiums value (price, volatility and time).

• Three example strategies to illustrate how options are likely to be applied.

Enjoy folks!