Lesson 3: What They Won’t Teach You

This lesson covers the concepts that most beginner courses skip — but these are exactly the concepts that separate consistent winners from repeat losers.

The Greeks — Your Dashboard

If you were flying a plane, you’d need instruments showing altitude, speed, and fuel. Options have their own instruments called The Greeks.

There are five Greeks in total, but for our purposes, two matter most: Delta and Theta. Master these two and you’ll be ahead of most retail traders.

Delta (Δ) — The Probability Gauge

Delta measures two things:

1. How much your option moves per $1 move in the stock. If your option has a Delta of 0.30, the option gains $0.30 in value for every $1 the stock goes up.

2. The approximate probability that your option will expire In The Money. A 0.30 Delta option has roughly a 30% chance of ending ITM.

Target: When buying options, look for Delta between 0.30 and 0.50 for balanced risk/reward. Lower Delta (further OTM) = cheaper but needs bigger moves. Higher Delta (closer to ATM) = more expensive but moves faster with the stock.

Theta (Θ) — Time Decay

Theta measures how much your option LOSES in value per day simply from time passing.

• If Theta is -0.05, your option loses $5 per contract every day
• Theta accelerates as expiration approaches — the final 2 weeks are brutal
• Options are a “melting ice cube” for buyers

This is why we don’t buy options with less than 4 days to expiration. The theta decay will destroy the option faster than the stock can move to save it.

Implied Volatility (IV)

IV is the market’s forecast of how much a stock will move. Not direction — just magnitude.

• High IV = options are expensive (market expects big moves)
• Low IV = options are cheap (market expects quiet trading)
• IV goes DOWN after major events (earnings, Fed meetings) — this is called IV Crush

The Rule

When buying options, you want:

• HIGH Delta (0.30+)
• LOW Theta (so decay doesn’t eat you alive)
• Tight bid/ask spread
• Volume of 200+
• Open Interest of 500+

Memorize this checklist. Check it every single trade.

Keep an Eye on SPY

SPY is the single most important ticker in the entire market.

SPY is an ETF that tracks the S&P 500 — the 500 largest publicly traded companies in the U.S. It is the heartbeat of the market.

• When SPY is rising, most stocks are rising
• When SPY falls hard, most stocks fall with it
• When SPY is sideways, most stocks chop

Practical Application

Before every trade, check SPY. If you’re about to buy calls on Microsoft but SPY just broke down 2%, reconsider — even great Microsoft news may not save the trade if the broader market is selling off. You can be right about the stock and wrong about the market, and lose money.

Also watch: Nasdaq (QQQ), Russell 2000 (IWM), Dow Jones (DIA) — these give you a complete picture of market health.

Sympathy Plays

A sympathy play is when one stock moves because of news about a related stock.

Classic Examples

• Uber and Lyft — Competitors in the same sector. Good news for Uber usually helps Lyft.
• Airlines — Delta’s great earnings typically lift United, American, Southwest.
• Banks — JP Morgan’s performance often moves Bank of America, Wells Fargo.
• Tesla and lithium miners — Tesla announces big battery production, lithium stocks rise.

Inverse Sympathy

Sometimes good news for one stock is BAD for another:

• A vaccine announcement is good for Pfizer but terrible for Zoom (stay-at-home stocks fall).
• Rising interest rates help banks but hurt growth tech stocks.

Application: When a major company announces news, think about who else in their ecosystem is affected. These are often your best second-order trades.

Option Flow

Remember the big fish/small fish analogy? There’s a way to actually SEE what the big fish are buying in real-time — it’s called Option Flow.

Institutional traders place large orders called sweeps that are visible on specialized platforms. When you see $500K+ worth of calls being bought on a stock, that’s a meaningful signal.

What to Watch

• Large sweeps in one direction (indicates conviction)
• Unusual activity compared to daily average
• Strike prices and expiration dates (tells you how far and fast they expect movement)

Platforms

• FlowAlgo, QuantData, Cheddar Flow — paid services with trials
• These tools are expensive but worth it if you can afford them

Do not blindly follow flow. Use it as one data point among many.

Analyst Projections

Financial analysts at major firms (Goldman Sachs, JP Morgan, etc.) publicly issue reports with price targets and ratings.

• Buy/Overweight — Analyst thinks the stock will go up
• Hold/Neutral — No strong opinion
• Sell/Underweight — Analyst thinks the stock will decline

Price target upgrades are bullish catalysts. Downgrades are bearish. These ratings move stocks, especially when they come from respected firms.

Check: marketwatch.com/tools/upgrades-downgrades for a running list.

Earnings — The Big Day

Every quarter, public companies report their earnings. This is a major event that causes big price movements.

Earnings Run-Up Strategy

Companies with highly anticipated earnings often see their stock rally in the days LEADING UP to the report. This happens because traders buy in before the report, increasing demand and price.

How to trade it:

1. Find upcoming earnings at earningswhispers.com
2. Look for companies with strong interest or bullish positioning
3. Buy calls 3-7 days before the report
4. Sell BEFORE the report is released — do NOT hold through earnings

Why Not Hold Through Earnings?

Because of IV Crush. Before earnings, Implied Volatility is extremely high (uncertainty). The moment earnings are released, IV collapses — and even if the stock moves in your direction, your option can LOSE value due to the IV crush.

Earnings swings are essentially gambling. Don’t do it. Take your profits before the report and watch from the sidelines.

You can go to marketchameleon.com and look for the Implied Move on earnings for a ticker. The stock has to move more than the implied move, for your options to work, especially if you’re trading weeklies.

Quadruple Witching — Beware

This concept is critical and rarely taught.

Quad Witching is a day where four types of contracts expire simultaneously: stock index futures, stock index options, stock options, and single stock futures.

It happens four times a year: the third Friday of March, June, September, and December.

Why It Matters

Institutions rebalance massive positions during Quad Witching. This creates:

• Unusual volatility in the days leading up
• Often a market selloff the week of and week after
• Stocks move sideways or crash unpredictably — BAD for both calls AND puts

Protocol for Quad Witching Week

1. Reduce position size 2-3 weeks before
2. Consider going mostly to cash the week of
3. If you must trade, use only 5-10% of your portfolio
4. Monitor positions closely