Options Strategy Advisor

Overview

This skill provides comprehensive options strategy analysis and education using theoretical pricing models. It helps traders understand, analyze, and simulate options strategies without requiring real-time market data subscriptions.

Core Capabilities:

• - Black-Scholes Pricing: Theoretical option prices and Greeks calculation
• Strategy Simulation: P/L analysis for major options strategies
• Earnings Strategies: Pre-earnings volatility plays integrated with Earnings Calendar
• Risk Management: Position sizing, Greeks exposure, max loss/profit analysis
• Educational Focus: Detailed explanations of strategies and risk metrics

Data Sources:

• - FMP API: Stock prices, historical volatility, dividends, earnings dates
• User Input: Implied volatility (IV), risk-free rate
• Theoretical Models: Black-Scholes for pricing and Greeks

When to Use This Skill

Use this skill when:

• - User asks about options strategies ("What's a covered call?", "How does an iron condor work?")
• User wants to simulate strategy P/L ("What's my max profit on a bull call spread?")
• User needs Greeks analysis ("What's my delta exposure?")
• User asks about earnings strategies ("Should I buy a straddle before earnings?")
• User wants to compare strategies ("Covered call vs protective put?")
• User needs position sizing guidance ("How many contracts should I trade?")
• User asks about volatility ("Is IV high right now?")

Example requests:

• - "Analyze a covered call on AAPL"
• "What's the P/L on a $100/$105 bull call spread on MSFT?"
• "Should I trade a straddle before NVDA earnings?"
• "Calculate Greeks for my iron condor position"
• "Compare protective put vs covered call for downside protection"

Supported Strategies

Income Strategies

1. 1. Covered Call - Own stock, sell call (generate income, cap upside)
2. Cash-Secured Put - Sell put with cash backing (collect premium, willing to buy stock)
3. Poor Man's Covered Call - LEAPS call + short near-term call (capital efficient)

Protection Strategies

1. 4. Protective Put - Own stock, buy put (insurance, limited downside)
2. Collar - Own stock, sell call + buy put (limited upside/downside)

Directional Strategies

1. 6. Bull Call Spread - Buy lower strike call, sell higher strike call (limited risk/reward bullish)
2. Bull Put Spread - Sell higher strike put, buy lower strike put (credit spread, bullish)
3. Bear Call Spread - Sell lower strike call, buy higher strike call (credit spread, bearish)
4. Bear Put Spread - Buy higher strike put, sell lower strike put (limited risk/reward bearish)

Volatility Strategies

1. 10. Long Straddle - Buy ATM call + ATM put (profit from big move either direction)
2. Long Strangle - Buy OTM call + OTM put (cheaper than straddle, bigger move needed)
3. Short Straddle - Sell ATM call + ATM put (profit from no movement, unlimited risk)
4. Short Strangle - Sell OTM call + OTM put (profit from no movement, wider range)

Range-Bound Strategies

1. 14. Iron Condor - Bull put spread + bear call spread (profit from range-bound movement)
2. Iron Butterfly - Sell ATM straddle, buy OTM strangle (profit from tight range)

Advanced Strategies

1. 16. Calendar Spread - Sell near-term option, buy longer-term option (profit from time decay)
2. Diagonal Spread - Calendar spread with different strikes (directional + time decay)
3. Ratio Spread - Unbalanced spread (more contracts on one leg)

Analysis Workflow

Step 1: Gather Input Data

Required from User:

• - Ticker symbol
• Strategy type
• Strike prices
• Expiration date(s)
• Position size (number of contracts)

Optional from User:

• - Implied Volatility (IV) - if not provided, use Historical Volatility (HV)
• Risk-free rate - default to current 3-month T-bill rate (~5.3% as of 2025)

Fetched from FMP API:

• - Current stock price
• Historical prices (for HV calculation)
• Dividend yield
• Upcoming earnings date (for earnings strategies)

Example User Input:
CODEBLOCK0

Step 2: Calculate Historical Volatility (if IV not provided)

Objective: Estimate volatility from historical price movements.

Method:
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Output:

• - Historical Volatility (annualized percentage)
• Note to user: "HV = 24.5%, consider using current market IV for more accuracy"

User Can Override:

• - Provide IV from broker platform (ThinkorSwim, TastyTrade, etc.)
• Script accepts --iv 28.0 parameter

Step 3: Price Options Using Black-Scholes

Black-Scholes Model:

For European-style options:
CODEBLOCK2

Adjustments:

• - Subtract present value of dividends from S for calls
• American options: Use approximation or note "European pricing, may undervalue American options"

Python Implementation:
CODEBLOCK3

Output for Each Option Leg:

• - Theoretical price
• Note: "Market price may differ due to bid-ask spread and American vs European pricing"

Step 4: Calculate Greeks

The Greeks measure option price sensitivity to various factors:

Delta (Δ): Change in option price per $1 change in stock price
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Gamma (Γ): Change in delta per $1 change in stock price
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Theta (Θ): Change in option price per day (time decay)
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Vega (ν): Change in option price per 1% change in volatility
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Rho (ρ): Change in option price per 1% change in interest rate
CODEBLOCK8

Position Greeks:

For a strategy with multiple legs, sum Greeks across all legs:
CODEBLOCK9

Greeks Interpretation:

Greek	Meaning	Example
Delta	Directional exposure	Δ = 0.50 → $50 profit if stock +$1
Gamma

Delta acceleration | Γ = 0.05 → Delta increases by 0.05 if stock +$1 |
| Theta | Daily time decay | Θ = -$5 → Lose $5/day from time passing |
| Vega | Volatility sensitivity | ν = $10 → Gain $10 if IV increases 1% |
| Rho | Interest rate sensitivity | ρ = $2 → Gain $2 if rates increase 1% |

Step 5: Simulate Strategy P/L

Objective: Calculate profit/loss at various stock prices at expiration.

Method:

Generate stock price range (e.g., ±30% from current price):
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For each price point, calculate P/L:
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Key Metrics:

• - Max Profit: Highest possible P/L
• Max Loss: Worst possible P/L
• Breakeven Point(s): Stock price(s) where P/L = 0
• Profit Probability: Percentage of price range that's profitable (simplified)

Example Output:
CODEBLOCK12

Step 6: Generate P/L Diagram (ASCII Art)

Visual representation of P/L across stock prices:

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Example Output:
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Step 7: Strategy-Specific Analysis

Provide tailored guidance based on strategy type:

Covered Call:
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Protective Put:
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Iron Condor:
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Step 8: Earnings Strategy Analysis

Integration with Earnings Calendar:

When user asks about earnings strategies, fetch earnings date:
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Pre-Earnings Strategies:

Long Straddle/Strangle:
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Short Iron Condor:
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Step 9: Risk Management Guidance

Position Sizing:

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Portfolio Greeks Management:

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Adjustments and Exits:

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Output Format

Strategy Analysis Report Template:

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File Naming Convention:
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Example: INLINECODE1

Key Principles

Theoretical Pricing Limitations

What Users Should Know:

1. 1. Black-Scholes Assumptions:

- European-style options (can't exercise early)
- Constant volatility (IV changes in reality)
- No transaction costs
- Continuous trading

1. 2. Real vs Theoretical:

- Bid-ask spread: Actual cost higher than theoretical - American options: Can be exercised early (especially ITM puts) - Liquidity: Wide markets on illiquid options - Dividends: Ex-dividend dates affect pricing

1. 3. Best Practices:

- Use as educational tool and comparative analysis - Get real quotes from broker before trading - Understand theoretical price ≈ mid-market price - Account for commissions and slippage

Volatility Guidance

Historical vs Implied Volatility:

CODEBLOCK26

IV Percentile:

User provides current IV, we calculate percentile:
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Integration with Other Skills

Earnings Calendar:

• - Fetch earnings dates automatically
• Suggest earnings-specific strategies
• Calculate days to earnings (DTE critical for IV)
• Warn about IV crush risk

Technical Analyst:

• - Use support/resistance for strike selection
• Trend analysis for directional strategies
• Breakout potential for straddle/strangle timing

US Stock Analysis:

• - Fundamental analysis for longer-term strategies (LEAPS)
• Dividend yield for covered call/put analysis
• Earnings quality for earnings plays

Bubble Detector:

• - High bubble risk → focus on protective puts
• Low risk → bullish strategies
• Critical risk → avoid long premium (theta hurts)

Portfolio Manager:

• - Track options positions alongside stock positions
• Aggregate Greeks across portfolio
• Options as hedging tool for stock positions

Important Notes

• - All analysis in English
• Educational focus: Strategies explained clearly
• Theoretical pricing: Black-Scholes approximation
• User IV input: Optional, defaults to HV
• No real-time data required: FMP Free tier sufficient
• Dependencies: Python 3.8+, numpy, scipy, pandas

Common Use Cases

Use Case 1: Learn Strategy
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Use Case 2: Analyze Specific Trade
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Use Case 3: Earnings Strategy
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Use Case 4: Portfolio Greeks Check
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Troubleshooting

Problem: IV not available

• - Solution: Use HV as proxy, note to user
• Ask user to provide IV from broker platform

Problem: Negative option price

• - Solution: Check inputs (strike vs stock price)
• Deep ITM options may have numerical issues

Problem: Greeks seem wrong

• - Solution: Verify inputs (T, sigma, r)
• Check if using annual vs daily values

Problem: Strategy too complex

• - Solution: Break into legs, analyze separately
• Refer to references for strategy details

Resources

References:

• - references/strategies_guide.md - All 17+ strategies explained
• INLINECODE3 - Greeks deep dive
• INLINECODE4 - HV vs IV, when to trade

Scripts:

• - scripts/black_scholes.py - Pricing engine and Greeks
• INLINECODE6 - Strategy simulation
• INLINECODE7 - Earnings-specific analysis

External Resources:

• - Options Playbook: https://www.optionsplaybook.com/
• CBOE Education: https://www.cboe.com/education/
• Black-Scholes Calculator: Various online tools for verification

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Version: 1.0
Last Updated: 2025-11-08
Dependencies: Python 3.8+, numpy, scipy, pandas, requests
API: FMP API (Free tier sufficient)