Chapter 6: Basic Features of Options

In this section

• The History of Options
  Explore the origins of options trading from ancient civilizations to modern electronic markets, tracing key milestones like the Black–Scholes–Merton model and the rise of the Montréal Exchange.
• Key Option Terminology and Definitions
  Explore essential option terms such as calls, puts, strike price, premium, and more, with practical examples and diagrams illustrating how these concepts drive strategic decisions and risk management in options trading.
• Application of Key Terms and Definitions
  Explore the real-world relevance of key option terms—like assignment, exercise, bullish exposure, and more—to ensure clear communication, accurate record-keeping, and confident strategy execution under CIRO regulations.
• Why Investors Buy Options
  Discover the main motivations for purchasing options, from speculation and hedging to leveraging positions and controlling risk, all within a friendly guide that helps both novices and experienced traders.
• Why Investors Write Options
  Explore the key motivations behind writing (selling) options, including income generation, conditional entry/exit strategies, partial hedging, and the advantage of time decay, with a focus on Canadian markets and CIRO margin requirements.
• Other Related Benefits of Options
  Discover the additional benefits options can bring to your trading and investing strategies, including portfolio flexibility, capital efficiency, and risk diversification, as well as how they contrast with other option-like assets.
• Advantages of Exchange-Traded Options vs. OTC Options
  Explore the strengths and benefits of exchange-traded options—like standardization, liquidity, and regulatory oversight—versus OTC options, which can be tailored but entail higher counterparty risk and less transparency.
• Reading Option Quotations
  Explore how to interpret key data points in an options chain—such as underlying asset symbol, strike price, expiration date, bid/ask, volume, and open interest—and learn best practices for reading option quotes in the Canadian market under CIRO oversight.
• Common Questions Pertaining to the Options Market
  Explore commonly asked questions about options trading, including risk considerations, margin requirements, expiration outcomes, and tax implications in Canada.
• Role of CIRO and the Bourse de Montréal in Regulating Listed Options
  Explore the regulatory framework shaping listed options trading in Canada, focusing on CIRO’s responsibilities as the national self-regulatory organization and the Bourse de Montréal’s role as the primary exchange for derivatives.
• Retail Growth in Options Markets (Lower Commissions, Educational Platforms)
  Explore how lower commissions, user-friendly platforms, and expanded educational resources have led to a sudden rise of retail participants in Canada’s options market.
• Introduction to Option Greeks (Beyond Delta)
  Understand Gamma, Theta, Vega, and Rho, and learn how they enhance option risk management, strategy building, and CIRO compliance in Canadian derivatives markets.