Collar
Long stock + protective put (lower K) + covered call (higher K) — bounded return with downside protection.
Collar: long stock + long put(K_put) + short call(K_call), K_put < S < K_call. Often structured zero-cost (premium from short call ≈ premium of long put). Maximum profit = K_call − S + net premium. Maximum loss = S − K_put + net premium. A zero-cost collar eliminates net premium but caps upside and insures downside. Used to protect concentrated equity positions without selling.
Protective Put
Owning the underlying and buying a put option as insurance against downside loss.
Covered Call
Owning the underlying asset and selling a call option against it to generate premium income.
Put-Call Parity
The no-arbitrage relationship between European call and put prices: C − P = S·e^(−δT) − K·e^(−rT).
Black-Scholes-Merton Model (BSM)
The foundational option pricing formula that gives the fair value of a European call or put as a function of spot, strike, rate, volatility, and time.
Delta (Δ)
The sensitivity of an option's price to a $1 change in the underlying spot price.
Gamma (Γ)
The rate of change of delta with respect to the spot price — the curvature of the option's value.