Options Trading 101

Calls, puts, the Greeks, and common strategies — the building blocks every options trader needs to understand.

Beginner 15 min read

What Are Options?

An option is a financial contract that gives you the right, but not the obligation, to buy or sell an underlying asset at a specific price (the strike price) before a certain date (the expiration date).

Options are powerful because they allow you to:

Profit from price movements with less capital than buying stock directly
Generate income by selling options and collecting premium
Hedge existing positions against adverse price moves
Define your exact maximum risk before entering a trade

Why Options for SPX? IntelliTrade focuses on SPX (S&P 500 Index) options because they are European-style (cash-settled, no early assignment risk), extremely liquid, and offer tax advantages (60% long-term / 40% short-term capital gains under Section 1256).

Key Terminology

Premium: The price you pay to buy an option, or the price you receive when you sell one. This is the option's market price.
Strike Price: The price at which the option allows you to buy (call) or sell (put) the underlying asset.
Expiration Date: The last day the option is valid. After this date, the option ceases to exist. 0DTE options expire on the same day they are traded.
In-the-Money (ITM): A call is ITM when the stock price is above the strike price. A put is ITM when the stock price is below the strike price. ITM options have intrinsic value.
Out-of-the-Money (OTM): The opposite of ITM. A call is OTM when the stock price is below the strike price. OTM options have only time (extrinsic) value.
At-the-Money (ATM): When the stock price is very close to the strike price.

Calls vs. Puts

There are two types of options, and each can be bought or sold:

Call Option

Gives the holder the right to buy the underlying asset at the strike price. Buying a call is a bullish bet — you profit when the price goes up. Selling a call is a bearish or neutral bet.

Put Option

Gives the holder the right to sell the underlying asset at the strike price. Buying a put is a bearish bet — you profit when the price goes down. Selling a put is a bullish or neutral bet.

Buyers vs. Sellers

Every options trade has a buyer and a seller. Their roles and risk profiles are very different:

	Buyer (Long)	Seller (Short)
Pays/Receives	Pays premium (debit)	Receives premium (credit)
Max Loss	Limited to premium paid	Can be substantial (unless spread)
Max Profit	Potentially unlimited (calls)	Limited to premium received
Time Decay	Works against you	Works in your favor

IntelliTrade's Approach: IntelliTrade primarily sells options (credit strategies) rather than buying them. This means time decay works in our favor — as the day progresses, options lose value, and we profit from the premium collected.

The Greeks

The Greeks are measurements that describe how an option's price changes in response to various factors. Understanding them is essential for managing options positions.

Delta

How much the option price changes for a $1 move in the underlying. A delta of 0.30 means the option gains $0.30 for every $1 the stock moves. Calls have positive delta; puts have negative delta.

Gamma

How much delta changes for a $1 move in the underlying. High gamma means delta can change rapidly. Gamma is the foundation of GEX analysis — it tells us how market makers need to hedge.

Theta

How much value the option loses per day from time decay. A theta of -0.50 means the option loses $0.50 per day. Theta accelerates as expiration approaches — this is why 0DTE strategies are powerful for sellers.

Vega

How much the option price changes for a 1% change in implied volatility. High vega means the option is very sensitive to volatility changes. Rising VIX generally increases all option prices.

Options Pricing

An option's price (premium) has two components:

Intrinsic Value

The amount the option is in-the-money. A call with a strike of 6000 when SPX is at 6050 has $50 of intrinsic value. Out-of-the-money options have zero intrinsic value.

Extrinsic (Time) Value

Everything beyond intrinsic value. This is the "hope" premium — the chance that the option could become more valuable before expiration. Extrinsic value is influenced by:

Time to expiration — More time = more extrinsic value
Implied volatility — Higher volatility = more extrinsic value
Distance from the money — ATM options have the most extrinsic value

Time Decay in Action: A 0DTE option at 10:00 AM might be worth $5.00. By 2:00 PM, even with no price change, it could be worth only $2.00 due to theta decay. By 3:30 PM, it might be worth just $0.50. This rapid decay is what makes selling 0DTE options profitable.

Common Strategies

Rather than buying or selling single options, most traders use spreads — combinations of options that define both maximum risk and maximum reward.

Credit Spread (Vertical Spread)

Sell one option and buy another at a different strike, same expiration. You collect a net credit. If the underlying stays away from your sold strike, you keep the credit as profit.

Bull Put Spread (bullish) — Sell a put, buy a lower-strike put. Profit if price stays above your sold strike.
Bear Call Spread (bearish) — Sell a call, buy a higher-strike call. Profit if price stays below your sold strike.

Iron Condor (IC)

A combination of a bull put spread and a bear call spread. You collect credit from both sides, creating a "profit zone" between the two sold strikes. Best used when you expect the market to stay range-bound.

  Bear Call Spread (above)    Sell 6080C / Buy 6100C
  ─────────────────────────────────────────────────
  SPX Price:  6050
  ─────────────────────────────────────────────────
  Bull Put Spread (below)     Sell 6020P / Buy 6000P

Iron Fly (IF)

Like an Iron Condor, but the sold call and sold put share the same strike (at-the-money). Collects more premium than an Iron Condor but has a narrower profit zone. Best used when you expect the market to pin at a specific level — exactly what GEX analysis can predict.

Directional Spreads

When the market has a clear direction, IntelliTrade uses directional spreads:

Put Spread (bullish) — Used in positive GEX regimes when the market bias is upward
Call Spread (bearish) — Used in negative GEX regimes when the market bias is downward

Important Rule: IntelliTrade never goes bullish (put spread) when GEX is negative, and never goes bearish (call spread) when GEX is positive. This GEX regime alignment is a core safety feature.

How IntelliTrade Uses Options

IntelliTrade combines multiple layers of analysis to select and execute options trades:

GEX Analysis — Identifies support, resistance, and pinning levels from options market maker positioning (learn more)
Quality Gates — Checks VIX levels, ATR (volatility), consolidation, and momentum before allowing any trade (learn more)
Strategy Selection — Chooses between Iron Fly, Iron Condor, or directional spreads based on market conditions
Dynamic Exit Management — Monitors positions every 30 seconds with trailing stops, breakeven protection, and GEX-based exits (learn more)

All of this happens automatically through the trading agents, with the AI Brain providing additional market context and suggestions.