OptionHive / Learn

Sell a call option against stock you own. You collect the premium as income, but cap your upside at the strike price. Best in sideways-to-slightly-bullish markets.

The market's expectation of future price movement, embedded in option prices. Higher IV = higher premiums = more income for sellers, but also higher risk of large moves.

The foundational formula for pricing European options. Inputs: stock price, strike, time to expiry, risk-free rate, and volatility. Assumes log-normal distribution and continuous hedging.

Sensitivity measures: Delta (price sensitivity), Theta (time decay), Vega (volatility sensitivity), Gamma (delta acceleration). For covered call sellers, Theta is your friend.

The relationship between call and put prices: C - P = S - K×e^(-rT). Violations create arbitrage opportunities. Understanding this helps you evaluate whether to sell calls or puts.

IV varies by strike price. OTM puts typically have higher IV than OTM calls (skew). When ATM calls have higher IV than puts, the market expects upside — ideal for covered call selling.

Options are priced assuming investors are risk-neutral — the expected return of every asset equals the risk-free rate. This is why you can price options without knowing the stock's expected return.

If you sell a stock at a loss and repurchase it (or a substantially identical security) within 30 days, the loss is disallowed for tax purposes. Critical for active covered call strategies.