options-strategy-advisor

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

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"

Income Strategies

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

Directional Strategies

1. 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. 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. 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. 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)

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:

```

Ticker: AAPL

Strategy: Bull Call Spread

Long Strike: $180

Short Strike: $185

Expiration: 30 days

Contracts: 10

IV: 25% (or use HV if not provided)

```

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

Objective: Estimate volatility from historical price movements.

Method:

```python

# Fetch 90 days of price data

prices = get_historical_prices("AAPL", days=90)

# Calculate daily returns

returns = np.log(prices / prices.shift(1))

# Annualized volatility

HV = returns.std() * np.sqrt(252) # 252 trading days

```

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:

```

Call Price = S N(d1) - K e^(-rT) N(d2)

Put Price = K e^(-rT) N(-d2) - S N(-d1)

Where:

d1 = [ln(S/K) + (r + σ²/2) T] / (σ √T)

d2 = d1 - σ * √T

S = Current stock price

K = Strike price

r = Risk-free rate

T = Time to expiration (years)

σ = Volatility (IV or HV)

N() = Cumulative standard normal distribution

```

Adjustments:

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

Python Implementation:

```python

from scipy.stats import norm

import numpy as np

def black_scholes_call(S, K, T, r, sigma, q=0):

"""

S: Stock price

K: Strike price

T: Time to expiration (years)

r: Risk-free rate

sigma: Volatility

q: Dividend yield

"""

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

d2 = d1 - sigma*np.sqrt(T)

call_price = Snp.exp(-qT)norm.cdf(d1) - Knp.exp(-rT)norm.cdf(d2)

return call_price

def black_scholes_put(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

d2 = d1 - sigma*np.sqrt(T)

put_price = Knp.exp(-rT)norm.cdf(-d2) - Snp.exp(-qT)norm.cdf(-d1)

return put_price

```

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

```python

def delta_call(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

return np.exp(-qT) norm.cdf(d1)

def delta_put(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

return np.exp(-qT) (norm.cdf(d1) - 1)

```

Gamma (Γ): Change in delta per $1 change in stock price

```python

def gamma(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

return np.exp(-qT) norm.pdf(d1) / (S sigma np.sqrt(T))

```

Theta (Θ): Change in option price per day (time decay)

```python

def theta_call(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

d2 = d1 - sigma*np.sqrt(T)

theta = (-Snorm.pdf(d1)sigmanp.exp(-qT)/(2*np.sqrt(T))

- rKnp.exp(-rT)norm.cdf(d2)

+ qSnorm.cdf(d1)np.exp(-qT))

return theta / 365 # Per day

```

Vega (ν): Change in option price per 1% change in volatility

```python

def vega(S, K, T, r, sigma, q=0):

d1 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigma*np.sqrt(T))

return S np.exp(-qT) norm.pdf(d1) np.sqrt(T) / 100 # Per 1%

```

Rho (ρ): Change in option price per 1% change in interest rate

```python

def rho_call(S, K, T, r, sigma, q=0):

d2 = (np.log(S/K) + (r - q + 0.5sigma2)T) / (sigmanp.sqrt(T)) - sigmanp.sqrt(T)

return K T np.exp(-rT) norm.cdf(d2) / 100 # Per 1%

```

Position Greeks:

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

```python

# Example: Bull Call Spread

# Long 1x $180 call

# Short 1x $185 call

delta_position = (1 delta_long) + (-1 delta_short)

gamma_position = (1 gamma_long) + (-1 gamma_short)

theta_position = (1 theta_long) + (-1 theta_short)

vega_position = (1 vega_long) + (-1 vega_short)

```

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):

```python

current_price = 180

price_range = np.linspace(current_price 0.7, current_price 1.3, 100)

```

For each price point, calculate P/L:

```python

def calculate_pnl(strategy, stock_price_at_expiration):

pnl = 0

for leg in strategy.legs:

if leg.type == 'call':

intrinsic_value = max(0, stock_price_at_expiration - leg.strike)

else: # put

intrinsic_value = max(0, leg.strike - stock_price_at_expiration)

if leg.position == 'long':

pnl += (intrinsic_value - leg.premium_paid) * 100 # Per contract

else: # short

pnl += (leg.premium_received - intrinsic_value) * 100

return pnl * num_contracts

```

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:

```

Bull Call Spread: $180/$185 on AAPL (30 DTE, 10 contracts)

Current Price: $180.00

Net Debit: $2.50 per spread ($2,500 total)

Max Profit: $2,500 (at $185+)

Max Loss: -$2,500 (at $180-)

Breakeven: $182.50

Risk/Reward: 1:1

Probability Profit: ~55% (if stock stays above $182.50)

```

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

Visual representation of P/L across stock prices:

```python

def generate_pnl_diagram(price_range, pnl_values, current_price, width=60, height=15):

"""Generate ASCII P/L diagram"""

# Normalize to chart dimensions

max_pnl = max(pnl_values)

min_pnl = min(pnl_values)

lines = []

lines.append(f"\nP/L Diagram: {strategy_name}")

lines.append("-" * width)

# Y-axis levels

levels = np.linspace(max_pnl, min_pnl, height)

for level in levels:

if abs(level) < (max_pnl - min_pnl) * 0.05:

label = f" 0 |" # Zero line

else:

label = f"{level:6.0f} |"

row = label

for i in range(width - len(label)):

idx = int(i / (width - len(label)) * len(price_range))

pnl = pnl_values[idx]

price = price_range[idx]

# Determine character

if abs(pnl - level) < (max_pnl - min_pnl) / height:

if pnl > 0:

char = '█' # Profit

elif pnl < 0:

char = '░' # Loss

else:

char = '─' # Breakeven

elif abs(level) < (max_pnl - min_pnl) * 0.05:

char = '─' # Zero line

elif abs(price - current_price) < (price_range[-1] - price_range[0]) * 0.02:

char = '│' # Current price line

else:

char = ' '

row += char

lines.append(row)

lines.append(" " 6 + "|" + "-" (width - 6))

lines.append(" " 6 + f"${price_range[0]:.0f}" + " " (width - 20) + f"${price_range[-1]:.0f}")

lines.append(" " * (width // 2 - 5) + "Stock Price")

return "\n".join(lines)

```

Example Output:

```

P/L Diagram: Bull Call Spread $180/$185

------------------------------------------------------------

+2500 | ████████████████████

| ██████

| ██████

| ██████

0 | ──────

| ░░░░░░

|░░░░░░

-2500 |░░░░░

|____________________________________________________________

$126 $180 $234

Stock Price

Legend: █ Profit ░ Loss ── Breakeven │ Current Price

```

Step 7: Strategy-Specific Analysis

Provide tailored guidance based on strategy type:

Covered Call:

```

Income Strategy: Generate premium while capping upside

Setup:

• Own 100 shares of AAPL @ $180
• Sell 1x $185 call (30 DTE) for $3.50

Max Profit: $850 (Stock at $185+ = $5 stock gain + $3.50 premium)

Max Loss: Unlimited downside (stock ownership)

Breakeven: $176.50 (Cost basis - premium received)

Greeks:

• Delta: -0.30 (reduces stock delta from 1.00 to 0.70)
• Theta: +$8/day (time decay benefit)

Assignment Risk: If AAPL > $185 at expiration, shares called away

When to Use:

• Neutral to slightly bullish
• Want income in sideways market
• Willing to sell stock at $185

Exit Plan:

• Buy back call if stock rallies strongly (preserve upside)
• Let expire if stock stays below $185
• Roll to next month if want to keep shares

```

Protective Put:

```

Insurance Strategy: Limit downside while keeping upside

Setup:

• Own 100 shares of AAPL @ $180
• Buy 1x $175 put (30 DTE) for $2.00

Max Profit: Unlimited (stock can rise infinitely)

Max Loss: -$7 per share = ($5 stock loss + $2 premium)

Breakeven: $182 (Cost basis + premium paid)

Greeks:

• Delta: +0.80 (stock delta 1.00 - put delta 0.20)
• Theta: -$6/day (time decay cost)

Protection: Guaranteed to sell at $175, no matter how far stock falls

When to Use:

• Own stock, worried about short-term drop
• Earnings coming up, want protection
• Alternative to stop-loss (can't be stopped out)

Cost: "Insurance premium" - typically 1-3% of stock value

Exit Plan:

• Let expire worthless if stock rises (cost of insurance)
• Exercise put if stock falls below $175
• Sell put if stock drops but want to keep shares

```

Iron Condor:

```

Range-Bound Strategy: Profit from low volatility

Setup (example on AAPL @ $180):

• Sell $175 put for $1.50
• Buy $170 put for $0.50
• Sell $185 call for $1.50
• Buy $190 call for $0.50

Net Credit: $2.00 ($200 per iron condor)

Max Profit: $200 (if stock stays between $175-$185)

Max Loss: $300 (if stock moves outside $170-$190)

Breakevens: $173 and $187

Profit Range: $175 to $185 (58% probability)

Greeks:

• Delta: ~0 (market neutral)
• Theta: +$15/day (time decay benefit)
• Vega: -$25 (short volatility)

When to Use:

• Expect low volatility, range-bound movement
• After big move, think consolidation
• High IV environment (sell expensive options)

Risk: Unlimited if one side tested

• Use stop loss at 2x credit received (exit at -$400)

Adjustments:

• If tested on one side, roll that side out in time
• Close early at 50% max profit to reduce tail risk

```

Step 8: Earnings Strategy Analysis

Integration with Earnings Calendar:

When user asks about earnings strategies, fetch earnings date:

```python

from earnings_calendar import get_next_earnings_date

earnings_date = get_next_earnings_date("AAPL")

days_to_earnings = (earnings_date - today).days

```

Pre-Earnings Strategies:

Long Straddle/Strangle:

```

Setup (AAPL @ $180, earnings in 7 days):

• Buy $180 call for $5.00
• Buy $180 put for $4.50
• Total Cost: $9.50

Thesis: Expect big move (>5%) but unsure of direction

Breakevens: $170.50 and $189.50

Profit if: Stock moves >$9.50 in either direction

Greeks:

• Delta: ~0 (neutral)
• Vega: +$50 (long volatility)
• Theta: -$25/day (time decay hurts)

IV Crush Risk: ⚠️ CRITICAL

• Pre-earnings IV: 40% (elevated)
• Post-earnings IV: 25% (typical)
• IV drop: -15 points = -$750 loss even if stock doesn't move!

Analysis:

• Implied Move: √(DTE/365) × IV × Stock Price

= √(7/365) × 0.40 × 180 = ±$10.50

• Breakeven Move Needed: ±$9.50
• Probability Profit: ~30-40% (implied move > breakeven move)

Recommendation:

✅ Consider if you expect >10% move (larger than implied)

❌ Avoid if expect normal ~5% earnings move (IV crush will hurt)

Alternative: Buy further OTM strikes to reduce cost

• $175/$185 strangle cost $4.00 (need >$8 move, but cheaper)

```

Short Iron Condor:

```

Setup (AAPL @ $180, earnings in 7 days):

• Sell $170/$175 put spread for $2.00
• Sell $185/$190 call spread for $2.00
• Net Credit: $4.00

Thesis: Expect stock to stay range-bound ($175-$185)

Profit Zone: $175 to $185

Max Profit: $400

Max Loss: $100

IV Crush Benefit: ✅

• Short high IV before earnings
• IV drops after earnings → profit on vega
• Even if stock moves slightly, IV drop helps

Greeks:

• Delta: ~0 (market neutral)
• Vega: -$40 (short volatility - good here!)
• Theta: +$20/day

Recommendation:

✅ Good if expect normal earnings reaction (<8% move)

✅ Benefit from IV crush regardless of direction

⚠️ Risk if stock gaps outside range (>10% move)

Exit Plan:

• Close next day if IV crushed (capture profit early)
• Use stop loss if one side tested (-2x credit)

```

Step 9: Risk Management Guidance

Position Sizing:

```

Account Size: $50,000

Risk Tolerance: 2% per trade = $1,000 max risk

Iron Condor Example:

• Max loss per spread: $300
• Max contracts: $1,000 / $300 = 3 contracts
• Actual position: 3 iron condors

Bull Call Spread Example:

• Debit paid: $2.50 per spread
• Max contracts: $1,000 / $250 = 4 contracts
• Actual position: 4 spreads

```

Portfolio Greeks Management:

```

Portfolio Guidelines:

• Delta: -10 to +10 (mostly neutral)
• Theta: Positive preferred (seller advantage)
• Vega: Monitor if >$500 (IV risk)

Current Portfolio:

• Delta: +5 (slightly bullish)
• Theta: +$150/day (collecting $150 daily)
• Vega: -$300 (short volatility)

Interpretation:

✅ Neutral delta (safe)

✅ Positive theta (time working for you)

⚠️ Short vega: If IV spikes, lose $300 per 1% IV increase

→ Reduce short premium positions if VIX rising

```

Adjustments and Exits:

```

Exit Rules by Strategy:

Covered Call:

• Profit: 50-75% of max profit
• Loss: Stock drops >5%, buy back call to preserve upside
• Time: 7-10 DTE, roll to avoid assignment

Spreads:

• Profit: 50% of max profit (close early, reduce tail risk)
• Loss: 2x debit paid (cut losses early)
• Time: 21 DTE, close or roll (avoid gamma risk)

Iron Condor:

• Profit: 50% of credit (close early common)
• Loss: One side tested, 2x credit lost
• Adjustment: Roll tested side out in time

Straddle/Strangle:

• Profit: Stock moved >breakeven, close immediately
• Loss: Theta eating position, stock not moving
• Time: Day after earnings (if earnings play)

```

Strategy Analysis Report Template:

```markdown

# Options Strategy Analysis: [Strategy Name]

Symbol: [TICKER]

Strategy: [Strategy Type]

Expiration: [Date] ([DTE] days)

Contracts: [Number]

---

Leg Details

| Leg | Type | Strike | Price | Position | Quantity |

|-----|------|--------|-------|----------|----------|

| 1 | Call | $180 | $5.00 | Long | 1 |

| 2 | Call | $185 | $2.50 | Short | 1 |

Net Debit/Credit: $2.50 debit ($250 total for 1 spread)

---

Max Profit: $250 (at $185+)

Max Loss: -$250 (at $180-)

Breakeven: $182.50

Risk/Reward Ratio: 1:1

Probability Analysis:

• Probability of Profit: ~55% (stock above $182.50)
• Expected Value: $25 (simplified)

---

[ASCII art diagram here]

---

Position Greeks (1 spread)

• Delta: +0.20 (gains $20 if stock +$1)
• Gamma: +0.03 (delta increases by 0.03 if stock +$1)
• Theta: -$5/day (loses $5 per day from time decay)
• Vega: +$8 (gains $8 if IV increases 1%)

Interpretation

• Directional Bias: Slightly bullish (positive delta)
• Time Decay: Working against you (negative theta)
• Volatility: Benefits from IV increase (positive vega)

---

Maximum Risk

Scenario: Stock falls below $180

Max Loss: -$250 (100% of premium paid)

% of Account: 0.5% (if $50k account)

Assignment Risk

Early Assignment: Low (calls have time value)

At Expiration: Manage positions if in-the-money

---

Entry

✅ Enter if: [Conditions]

• Stock price $178-$182
• IV below 30%
• >21 DTE

Profit Taking

• Target 1: 50% profit ($125) - Close half
• Target 2: 75% profit ($187.50) - Close all

Stop Loss

• Trigger: Stock falls below $177 (-$150 loss)
• Action: Close position immediately

Adjustments

• If stock rallies to $184, consider rolling short call higher
• If stock drops to $179, add second spread at $175/$180

---

When to Use This Strategy

✅ Moderately bullish on AAPL

✅ Expect upside to $185-$190

✅ Want defined risk

✅ 21-45 DTE timeframe

When to Avoid

❌ Very bullish (buy stock or long call instead)

❌ High IV environment (wait for IV to drop)

❌ Earnings in <7 days (IV crush risk)

---

| Strategy | Max Profit | Max Loss | Complexity | When Better |

|----------|-----------|----------|------------|-------------|

| Bull Call Spread | $250 | -$250 | Medium | Moderately bullish |

| Long Call | Unlimited | -$500 | Low | Very bullish |

| Covered Call | $850 | Unlimited | Medium | Own stock already |

| Bull Put Spread | $300 | -$200 | Medium | Want credit spread |

Recommendation: Bull call spread is good balance of risk/reward for moderate bullish thesis.

---

Disclaimer: This is theoretical analysis using Black-Scholes pricing. Actual market prices may differ. Trade at your own risk. Options are complex instruments with significant loss potential.

```

File Naming Convention:

```

options_analysis_[TICKER]_[STRATEGY]_[DATE].md

```

Example: options_analysis_AAPL_BullCallSpread_2025-11-08.md

Theoretical Pricing Limitations

What Users Should Know:

1. Black-Scholes Assumptions:

- European-style options (can't exercise early)

- Constant volatility (IV changes in reality)

- No transaction costs

- Continuous trading

1. 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. 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:

```

Historical Volatility (HV): What happened

• Calculated from past price movements
• Objective, based on data
• Available for free (FMP API)

Implied Volatility (IV): What market expects

• Derived from option prices
• Subjective, based on supply/demand
• Requires live options data (user provides)

Comparison:

• IV > HV: Options expensive (consider selling)
• IV < HV: Options cheap (consider buying)
• IV = HV: Fairly priced

```

IV Percentile:

User provides current IV, we calculate percentile:

```python

# Fetch 1-year HV data

historical_hvs = calculate_hv_series(prices_1yr, window=30)

# Calculate IV percentile

iv_percentile = percentileofscore(historical_hvs, current_iv)

if iv_percentile > 75:

guidance = "High IV - consider selling premium (credit spreads, iron condors)"

elif iv_percentile < 25:

guidance = "Low IV - consider buying options (long calls/puts, debit spreads)"

else:

guidance = "Normal IV - any strategy appropriate"

```

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

• 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

Use Case 1: Learn Strategy

```

User: "Explain a covered call"

Workflow:

1. Load strategy reference (references/strategies_guide.md)
2. Explain concept, risk/reward, when to use
3. Simulate example on AAPL
4. Show P/L diagram
5. Compare to alternatives

```

Use Case 2: Analyze Specific Trade

```

User: "Analyze $180/$185 bull call spread on AAPL, 30 days"

Workflow:

1. Fetch AAPL price from FMP
2. Calculate HV or ask user for IV
3. Price both options (Black-Scholes)
4. Calculate Greeks
5. Simulate P/L
6. Generate analysis report

```

Use Case 3: Earnings Strategy

```

User: "Should I trade options before NVDA earnings?"

Workflow:

1. Fetch NVDA earnings date (Earnings Calendar)
2. Calculate days to earnings
3. Estimate IV percentile (if user provides IV)
4. Suggest straddle/strangle vs iron condor
5. Warn about IV crush
6. Simulate both strategies

```

Use Case 4: Portfolio Greeks Check

```

User: "What are my total portfolio Greeks?"

Workflow:

1. User provides current positions
2. Calculate Greeks for each position
3. Sum Greeks across portfolio
4. Assess overall exposure
5. Suggest adjustments if needed

```

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

References:

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

Scripts:

• scripts/black_scholes.py - Pricing engine and Greeks
• scripts/strategy_analyzer.py - Strategy simulation
• scripts/earnings_strategy.py - 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

---

Version: 1.0

Last Updated: 2025-11-08

Dependencies: Python 3.8+, numpy, scipy, pandas, requests

API: FMP API (Free tier sufficient)