# What is Options

### How options work (the basics)

* Each contract usually controls 100 shares. If an option is priced at $2.50, the contract costs about $250.
* Calls profit when the underlying rises above your strike; puts profit when it falls below your strike.
* Option price = intrinsic value  (in-the-money amount) + extrinsic value (time + volatility).
* OTM options are cheaper but decay faster; ITM options move more like the stock.

### The Greeks (the 3 you must know)

* Delta: how much the option price changes for a $1 move in the underlying (also a rough ‘probability’ of finishing ITM).
* Theta: time decay, how much value is lost each day as expiration approaches (accelerates near expiration).
* Vega: sensitivity to implied volatility (IV). High IV makes options expensive; IV can collapse after big events (“IV crush”).

### Why we use spreads (and not just buying options)

* Buying options fights theta (time decay). You must be right on direction, speed, and timing.
* Credit spreads let you sell premium: time decay works in your favor and risk is defined (max loss known upfront).
* Example idea: a bull put spread profits if price stays above your short strike; a bear call spread profits if price stays below your short strike.