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What should I know to trade options?
Volatility, probability, leverage and execution foundations before the option contract itself.
- 01Markets & trading · intermediateRead guide
Options basics
An option is a time-limited contract giving its buyer a right, but not an obligation, under defined terms. Calls relate to buying the underlying; puts relate to selling it.
- 02Risk & returns · beginnerRead guide
What does volatility actually mean?
Volatility describes how widely and quickly prices move, not whether an investment is good or bad.
- 03Reading the evidence · beginnerRead guide
Probability
Probability represents uncertainty on a scale from impossible to certain under a defined model or evidence base. It describes possible outcomes, not a hidden guarantee about one event.
- 04Risk & returns · intermediateRead guide
Expected value
Expected value is the probability-weighted average of possible outcomes under a model. It describes the long-run centre of that model, not what must happen next.
- 05Risk & returns · intermediateRead guide
Leverage
Leverage uses borrowing or derivatives so gains and losses apply to exposure larger than the capital committed. It magnifies sensitivity and can create forced action.
- 06Markets & trading · beginnerRead guide
What is the bid/ask spread?
The bid is the best current buying price. The ask is the best current selling price. The gap is the spread.
- 07Markets & trading · beginnerRead guide
Market orders
A market order prioritises execution against available prices rather than setting a maximum purchase or minimum sale price. It is an instruction to trade, not a guarantee of the last quoted price.
- 08Markets & trading · beginnerRead guide
Limit orders
A limit order sets the worst price the trader will accept: no more than the limit when buying and no less when selling. Price control is gained by accepting execution uncertainty.
- 09Markets & trading · beginnerRead guide
Market liquidity
Market liquidity is the ability to trade a useful quantity promptly without moving the price greatly. It depends on size, cost, speed and current market conditions.
- 10Risk & returns · intermediateRead guide
Position sizing
Position sizing decides how much capital or risk to allocate to one exposure. It shapes portfolio damage when the thesis, price path or execution goes wrong.