Options & Derivatives

Options give portfolio constructors something linear instruments cannot: payoffs that bend. That flexibility comes with its own vocabulary and mechanics - pricing models, the Greeks, moneyness, and the structures practitioners actually trade. This guide collects every Knowledge Hub entry on options and derivatives, from first principles (what a call is worth and why) through the second-order behaviour that drives real P&L.

Each entry follows the same discipline: a precise definition, the formula where one exists, a worked example, and a section on how the concept fails in practice. Written and reviewed by the EC Assets Volatility & Derivatives desk.

All entries in this guide

• Black-Scholes Model - The Black-Scholes model is a continuous-time framework that prices European options by assuming the…
• Calendar Spread - A calendar spread sells a near-dated option and buys a longer-dated one at the same strike, isolating the…
• Cash-Secured Put - A cash-secured put sells a put option while holding enough cash to buy the shares if assigned.
• Charm - Charm, also called delta decay, measures how an option's delta drifts purely with the passage of time while…
• Covered Call - A covered call pairs a long position in an asset with a short call written against it, converting some of…
• Delta - Delta is the first-order sensitivity of an option's price to a one-unit move in the underlying asset.
• Gamma - Gamma measures how an option's delta changes as the underlying price moves.
• Gamma Exposure - Gamma exposure aggregates the option gamma held by dealers across the listed chain into a single dollar…
• Gamma Scalping - Gamma scalping is holding a delta-hedged long-gamma (long options) position and re-hedging as the underlying…
• Iron Butterfly - An iron butterfly sells an at-the-money call and put and buys a further out-of-the-money call and put as…
• Iron Condor - An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread at once, collecting…
• Moneyness - Moneyness describes where an option's strike sits relative to the spot price - in, at, or out of the money -…
• Open Interest - Open interest is the number of option or futures contracts currently outstanding: opened but not yet closed…
• Options - An option is a contract that grants its buyer the right, but not the obligation, to buy (call) or sell (put)…
• Put-Call Parity - Put-call parity is a model-free no-arbitrage relationship that fixes the price gap between a European call…
• Rho - Rho measures how much an option's price changes when the risk-free interest rate moves by one percentage…
• Risk Reversal - Two things share this name. As a position it is a long out-of-the-money call financed by a short…
• Second-Order Greeks - Second-order Greeks measure how the first-order Greeks themselves change.
• Straddles and Strangles - A straddle buys a call and a put at the same strike; a strangle buys them at different out-of-the-money…
• Swaption - An option to enter an interest rate swap on set terms.
• Theta - Theta measures the rate at which an option loses value as time passes, all else equal.
• Vanna - Vanna is the cross-sensitivity between spot and volatility: it measures how an option's delta changes when…
• Vega - Vega is how much an option's price changes for a one-point move in implied volatility: vega 0.12 means the…
• Vertical Spread - A vertical spread buys one option and sells another of the same type and expiry at a different strike…
• Volga - Volga, also called vomma, measures how an option's vega changes as implied volatility moves.

More topic guides

• Volatility
• Macro & Multi-Asset
• Performance Measurement
• Risk Management
• Hedge Funds & Alternative Strategies
• Portfolio Construction
• Fund Structure
• Fund Operations
• Asset Allocation

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