Options, explained plainly.

Options basics

An option is a contract that gives you the right — but not the obligation — to buy or sell 100 shares of a stock at a fixed price before a set date. You pay a premium upfront for that right. If the market never moves in your favour, you simply lose the premium — nothing more.

Every option has three core properties:

Calls vs. puts

What moves an option's price

An option's premium has two components:

• Intrinsic value is how far in-the-money the option already is. A call with a $490 strike on a $500 stock has $10 of intrinsic value.
• Time value is everything else — the chance the stock could still move in your direction before expiry. It decays every day (see Theta).
• An option is at-the-money (ATM) when the strike equals the stock price — all premium is time value, and time value is highest here.
• An option is out-of-the-money (OTM) when it has no intrinsic value yet. These are cheaper but need a bigger move to pay off.

The Greeks

"The Greeks" are sensitivity measures that tell you how an option's price will change in response to different market forces. You don't need to memorise the maths — just understand what each one is measuring.

Implied Volatility

Implied Volatility (IV) is the market's consensus forecast of how much a stock will move over the next year, expressed as an annualised percentage. It's derived by working backwards from the option's market price — the more expensive options are, the higher the implied volatility.

IV doesn't tell you direction — only expected magnitude. A stock with 40% IV is expected to move roughly ±40% over the next year (about ±2.5% per day). But the market is often wrong, and that gap between implied and realised volatility is where most options selling strategies find their edge.

IV rank & IV percentile

Raw IV numbers are meaningless without context. 30% IV is high for a slow utility stock but low for a volatile biotech. Two normalised measures solve this:

Both measures range from 0–100. High values (above ~60–70) generally indicate elevated, expensive premium — a better environment for selling options. Low values indicate cheap premium, where buying strategies have more edge.

Rich vs. cheap premium

This is the practical output of IV analysis — the phrasing you'll see throughout TCP signals and alerts.

Spreads

Rather than trading a single option, a spread involves buying and selling two options simultaneously. The sold leg brings in premium to offset the cost of the bought leg — this caps both your potential gain and your maximum loss, which is what makes spreads appealing for defined-risk trading.

Put credit spreads (PCS) — the core TCP strategy

A put credit spread is a two-leg options position:

• Sell a put at a higher strike (closer to the money) — collect premium
• Buy a put at a lower strike (further out of the money) — define your max loss

You receive a net credit upfront. The trade profits if the stock stays above the short (sold) strike at expiration.

Risk & reward

The trade-off: you collect a small credit for a high probability of profit, but take a larger loss if wrong. Managing winners early (e.g. closing at 50% max profit) is a common way to improve the risk/reward over many trades.

Reading TCP signals

The Signals & Analytics dashboard surfaces three main datasets — max pain, net gamma exposure (GEX), and options flow. Here's what each one means and why it matters.

Max pain

Max pain is the strike price at which the total dollar value of all open options contracts (calls + puts) would expire worthless — meaning the underlying's sellers (who collected premium) keep the most money.

The theory is that market makers and large institutions who sold those contracts have an incentive to keep the price near max pain heading into expiration. This creates a gravitational pull that many traders use as a reference for expected trading ranges, especially in the final week before a major OpEx.

Net gamma exposure (GEX)

Gamma exposure (GEX) is the aggregate gamma position of market makers (dealers), displayed by strike. Because dealers typically take the opposite side of retail and institutional option buyers, you can estimate whether dealers are net long or short gamma at each price level.

• Positive GEX (dealers long gamma): Dealers buy dips and sell rips to hedge — this suppresses volatility and creates a "pinning" effect around that strike. Common in quiet, low-VIX markets.
• Negative GEX (dealers short gamma): Dealers must buy into rallies and sell into drops — amplifying moves in both directions. This is why markets become more volatile when GEX flips negative (e.g. after a large put-buying wave).

The highest positive GEX strike often acts as a strong resistance/magnet level. The zero-gamma line (where GEX flips from positive to negative) is a key level to watch for volatility regime changes.

Options flow

Options flow tracks the net value of calls vs. puts being bought at each moment. Large, one-sided flows — especially when they're bought on the ask (aggressive buyers) and accompanied by high volume relative to open interest — can signal informed positioning or institutional hedging activity.

• Bullish flow: Large call-buying, put-selling, or call-sweep activity in size
• Bearish flow: Large put-buying, especially far-OTM puts in size, can signal defensive hedging
• Context matters: Flow in isolation is noise. Combined with GEX, IV rank, and price action, it becomes a signal.

Glossary

Quick reference for terms you'll see across TradeChefPro.

ATM (at-the-money)

An option whose strike price equals (or is very close to) the current price of the underlying.

Call option

An option giving the buyer the right to purchase 100 shares at the strike price before expiration. Profitable when the underlying rises.

Credit (net credit)

Cash received upfront when you sell an option or a spread. You keep this if the trade expires worthless.

Delta (Δ)

Dollar change in option price per $1 move in the underlying. Also approximates the probability of expiring in-the-money.

DTE (days to expiration)

Calendar days remaining until the option expires. Time value decays faster as DTE approaches zero.

GEX (gamma exposure)

The aggregate gamma position of market makers by strike. Positive GEX suppresses vol; negative GEX amplifies moves.

Gamma (Γ)

Rate of change of delta per $1 move in the underlying. Highest for ATM options close to expiration.

ITM (in-the-money)

A call is ITM when the stock is above the strike; a put is ITM when the stock is below the strike.

IV (implied volatility)

The market's expected annualised price range for the underlying, derived from option prices. Higher IV = more expensive options.

IVR (IV rank)

Where current IV sits within its 52-week high-low range, expressed 0–100. Above 60 = elevated premium.

IVP (IV percentile)

Percentage of past trading days where IV was lower than today. Above 70 = historically expensive premium.

Max pain

The strike at which total open options would expire with the least payout to buyers — often acts as a gravitational price target near expiration.

OTM (out-of-the-money)

An option with no intrinsic value yet. A call is OTM when the stock is below the strike; a put is OTM when above the strike.

PCS (put credit spread)

A defined-risk strategy: sell a put at a higher strike, buy a put at a lower strike. Profits if the underlying stays above the short strike at expiration.

POP (probability of profit)

Estimated likelihood the trade expires profitable, often approximated by 1 minus the short delta.

Premium

The price of an option contract. One contract = 100 shares, so a $2.00 premium costs $200 total.

Put option

An option giving the buyer the right to sell 100 shares at the strike price before expiration. Profitable when the underlying falls.

Theta (Θ)

Daily time decay — how much an option loses in value per calendar day, all else equal. Accelerates sharply in the final 30 DTE.

Vanna

How delta changes as IV changes (or how vega changes as the stock moves). Drives dealer hedging flows when IV shifts.

Vega

Change in option price per 1% move in implied volatility. Options are worth more when IV rises.

VIX

The CBOE Volatility Index — a measure of expected S&P 500 volatility over the next 30 days, derived from SPX option prices. Often called the "fear gauge."