Tutorial #7 – Volcube Option Mini-games
By Simon Gleadall, CEO of Volcube.
The Volcube Option Mini-games allow you to train yourself in the fundamentals of options theory until they become second nature. Play these games over and over until you understand the basics of options 100%. The Mini-games are a fantastic options education training program in their own right. So make sure you play them as much as possible!
Follow the ‘Show detailed example’ links to see how to play each game in detail.
Buy or sell
Make sure you have mastered the basics of bid and ask. For new traders, learning that ‘bids’ can be sold but not bought and learning that ‘offers’ are there for buying, not selling, can take a long time. This game will make bid and offer something completely familiar to you.
Call and put payoffs
This mini-game ensures you understand the risk and reward associated with straightforward puts and calls at expiration. You will be told whether you have bought or sold a call or a put and at what price. You will be told the strike and the price of the spot at expiration. Your task is to calculate the profit or loss in this situation. Show detailed example.
Learn how to correctly calculate the intrinsic and extrinsic value of an option. This is one of the most fundamental facts about options that every trader should understand. Show detailed example.
The strike price, spot price, call value and put value are all linked via put-call parity. This game tests you until put-call parity is something you understand and can apply 100%. Show detailed example.
Following on from Intrinsic/Extrinsic and Put-Call Parity, the straddle value can be derived without knowing both the call and put value. If a straddle is trading at a certain price versus a certain spot price, can you calculate the equivalent value in the call or put options? Learning this technique is a core skill for the best option traders who can use it to spot opportunities in the option markets. Show detailed example.
This game ensures you fully understand the relationship between vega, implied volatility and option value. No skill is more important to the options volatility trader, than to understand how changes in implied volatility affect the option value. Can you convert a change in option value in dollars and cents back into an equivalent change in implied volatility? Learning to speak this language fluently is at the heart of understanding how to accurately price options in implied volatility terms. Show detailed example.
The change in an option’s value and the change in spot price are related via the option delta. Delta tells us the sensitivity of an option to a change in the spot price. This game will test your understanding of this relationship and your ability to calculate how changes in the spot price will impact on an option’s value, given its delta. Show detailed example.
A delta hedge often needs to be applied as quickly as possible. If you trade some options and you want to delta hedge them, knowing exactly what you need to do in the spot market is critical. This game will tell you the option contract multiplier, the delta of the options and whether you bought or sold calls or puts and how many. Your job is to calculate the appropriate delta hedge and decide whether to buy or sell the underlying. Practise this game to reduce the chances of your delta hedging inaccurately in years to come. Show detailed example.
Mini-games scoring system
Your score is recorded in the Mini-games menu. Your %age score for your last 50 attempts is displayed in the Mini-game menu.
: Volcube : Options Education Technology