Catalog / Options and Futures Trading Cheat Sheet
Options and Futures Trading Cheat Sheet
A quick reference guide to options and futures trading, covering key concepts, strategies, and terminology for both beginners and experienced traders.
Options Basics
Core Concepts
Call Option |
Gives the buyer the right, but not the obligation, to buy an asset at a specific price (strike price) on or before a specific date (expiration date). |
Put Option |
Gives the buyer the right, but not the obligation, to sell an asset at a specific price (strike price) on or before a specific date (expiration date). |
Strike Price |
The price at which the underlying asset can be bought (for a call) or sold (for a put) when the option is exercised. |
Expiration Date |
The last date on which the option can be exercised. |
Premium |
The price paid by the buyer to the seller (writer) for the option contract. |
Underlying Asset |
The asset on which the option is based (e.g., a stock, index, or commodity). |
Option Positions
Long Call |
Buyer of a call option; profits if the underlying asset price increases. |
Short Call |
Seller (writer) of a call option; profits if the underlying asset price stays below the strike price or decreases. Has unlimited risk. |
Long Put |
Buyer of a put option; profits if the underlying asset price decreases. |
Short Put |
Seller (writer) of a put option; profits if the underlying asset price stays above the strike price or increases. Risk is limited to the strike price minus the premium received. |
Option Moneyness
In-the-Money (ITM)
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At-the-Money (ATM)
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Out-of-the-Money (OTM)
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Futures Contracts
Futures Fundamentals
Definition |
A futures contract is an agreement to buy or sell an asset at a predetermined price at a specified time in the future. |
Participants |
Hedgers (seek to reduce risk) and Speculators (seek to profit from price movements). |
Margin |
A performance bond required to enter and maintain a futures position. It is not a down payment. |
Mark-to-Market |
Daily settlement process where profits and losses are credited or debited to the margin account. |
Contract Specifications |
Each futures contract has standardized specifications: quantity, quality, delivery location, and delivery month. |
Key Terminology
Long Position |
Agreement to buy the underlying asset at the specified future date. |
Short Position |
Agreement to sell the underlying asset at the specified future date. |
Delivery |
The process of transferring the underlying asset from the seller to the buyer at the contract’s expiration. |
Settlement |
Can be physical delivery or cash settlement, depending on the contract. |
Futures vs. Options
Futures:
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Options:
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Options Strategies
Basic Strategies
Covered Call |
Selling a call option on a stock you already own. Generates income but limits upside potential. |
Protective Put |
Buying a put option on a stock you own. Limits downside risk. |
Long Straddle |
Buying both a call and a put option with the same strike price and expiration date. Profits if the underlying asset price moves significantly in either direction. |
Short Straddle |
Selling both a call and a put option with the same strike price and expiration date. Profits if the underlying asset price remains relatively stable. |
Advanced Strategies
Bull Call Spread |
Buying a call option with a lower strike price and selling a call option with a higher strike price (both with the same expiration date). Profits from a moderate increase in the underlying asset price. |
Bear Put Spread |
Buying a put option with a higher strike price and selling a put option with a lower strike price (both with the same expiration date). Profits from a moderate decrease in the underlying asset price. |
Butterfly Spread |
A combination of call or put options with three different strike prices, designed to profit from low volatility. |
Volatility and Greeks
Delta: Measures the sensitivity of an option’s price to a change in the underlying asset’s price. |
Gamma: Measures the rate of change of delta with respect to a change in the underlying asset’s price. |
Theta: Measures the time decay of an option’s value. |
Vega: Measures the sensitivity of an option’s price to a change in implied volatility. |
Rho: Measures the sensitivity of an option’s price to a change in interest rates. |
Futures Trading Strategies
Basic Strategies
Long/Buy |
Betting the price of the asset will increase. Profit is unlimited, and loss is limited to initial investment. |
Short/Sell |
Betting the price of the asset will decrease. Profit is limited to initial price and loss potential is unlimited. |
Advanced Strategies
Spread Trading |
Taking a position in two or more related futures contracts to profit from changes in the price differential (spread) between them. Examples: calendar spreads, inter-market spreads. |
Arbitrage |
Exploiting price differences in the same asset across different markets to generate risk-free profit. |
Pair Trading |
Identifying two highly correlated assets and taking opposing positions (long one, short the other) when the correlation temporarily breaks down. |
Risk Management
Stop-Loss Orders: Automatically exit a position when the price reaches a specified level, limiting potential losses. |
Position Sizing: Determining the appropriate amount of capital to allocate to each trade, based on risk tolerance and account size. |
Diversification: Spreading investments across different assets and markets to reduce overall portfolio risk. |
Hedging: Using futures contracts to offset potential losses in an existing portfolio. |