It is often a daunting task deciphering the tremendous amount of information contained within an option chain for the trader beginning his study of the world of options.

Classic parables of warning are often offered to traders considering exploring the world of option trading by those who do not understand the physiology of the various option "beasts".

For traders entering the new world of option trading, there are many points of confusion.

One infrequently discussed topic important to understand in becoming familiar with the mechanics of option trading is that of the various settlement mechanisms.

One of the bullish strategies in the armamentarium of the options trader is that of selling puts. The sales can be accomplished either as naked sales (aka selling "cash secured" puts when cash is set aside for potentially buying the stock in the event of assignment) or as one of two legs of a vertical credit spread (aka a bull put spread, a put credit spread, or for "those in the know" simply selling a put spread).

One of the major differences in option trading as opposed to equity trading is the impact of time on the various trade vehicles. Remember that quoted option premiums reflect the sum of both intrinsic (if any) and extrinsic (time) value.

One of the hallmarks of option trading is its extreme flexibility in both the initial construction of positions and in the ability to mutate forms to accommodate the evolution of a trader’s thesis regarding the impending behavior of the underlying.

The weekly options have been the topic of our blog discussions over several weeks now. Despite this topic being the trendy subject and in the forefront of many discussions, it is helpful to recognize the functional flexibility this dramatically shortened lifespan brings to a variety of strategies.

Time to expiration, price of the underlying, implied volatility, historical volatility, puts, calls, delta, gamma, theta, vega, in the money, at the money, out of the money, intrinsic value, extrinsic value, higher commissions, egregious bid ask spreads, no options traded on a stock with a beautiful technical set up, multiple potential beasts and physiologies, LEAPS; why would one even bother with options? If I retain a shred of rationality, an open question to be sure, there must be some reason to complicate my life with these additional variables.

Implied volatility is a major determinate of the magnitude of the extrinsic option premium. Considered together with time, these two factors act in concert to define the pricing of the time value (extrinsic value) of options.