Tutorial Series

Introduction to Options

About

The goal of this series is to introduce options to those who are option novices and have basic knowledge of applied mathematics, statistics and financial markets. We will primarily talk about the fundamentals of options and cover topics such as what are options, key terms and concepts option traders need to be familiar with(exercise and assignment, The moneyness, Intrinsic and time value of options etc.) After knowing the basics of options, we will teach how to use QuantConnect API to conduct your options research with over 4000 underlying stock symbols.

The following few options tutorials were created to help you understand exactly how options are used as the investment and risk hedging tools. We will further discuss the pricing method of options like BSM model and Monte Carlo method. And then several metrics to gauge the options risks like the Greek letters, different kinds of volatilities used in options pricing and trading. At the end of some tutorials, we will apply the knowledge in that tutorial to demonstrate some simple algorithms developed with Python on Quantconnect attempting to help you gain an insight into options trading and learn more efficient API tools to better customize your own trading algorithms.

8 Tutorials

3 Backtests

65 Code Snippets

What Will I learn ?

General Features of Options
QuantConnect Options API
Options Pricing: Black-Sholes-Merton Model
Stochastic Process
Monte Carlo Method
The Greek Letters
Historical Volatility and Implied Volatility
Local Volatility and Stochastic Volatility

Tutorials

1

General Features of Options


Options Contracts
The Value of Options
Option Moneyness
Option Exercise and Assignment
Read Tutorial
2

QuantConnect Option API


Option Data Access
Option Contracts filtration
Properties of Contracts
Order Placement
Read Tutorial
3

Put-Call Parity and Arbitrage Strategies


Options Payoff
Put-Call Parity
Synthetic Positions
Arbitrage Strategy
Read Tutorial
4

Stochastic Processes and Monte Carlo Method


Brownian Motion
Wiener Process
Monte Carlo Simulation of Stock Price
Monte Carlo Simulation of European Options Price
Read Tutorial
5

Options Pricing: Black Scholes Merton Model


Determinants of Options Price
Factors of BSM model
Model Assumptions
BSM pricing Formulas
Read Tutorial
6

The Greek Letters


Delta (definition, impact factors, charts)
Gamma (definition, impact factors, charts)
Vega (definition, charts)
Theta (definition, charts)
Rho (definition, charts)
Read Tutorial
7

Historical Volatility and Implied Volatility


Historical Volatility (Definition, Calculation)
Implied Volatility(Definition, Calculation, affect factors)
Volatility Smile
Volatility Skew
Read Tutorial
8

Local Volatility and Stochastic Volatility


Local Volatility (Definition, Calculation)
Stochastic Volatility(Definition, Calculation)
Read Tutorial

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