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Jul

2025

Short Calls vs Long Calls: Complete Comparison

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

Short Calls vs Long Calls
What Are Short Calls?
What Are Long Calls?
Comparing Short Calls vs Long Calls
FAQ

Short and long calls are opposing options strategies: one seeks to profit from rising prices, the other from stability or market declines.

Each involves different risk profiles, trading costs or margin requirements, and sensitivities to time and volatility. Understanding how they work can help traders navigate the complexities of directional options trading.

We’ll break down how each strategy works, look at trade examples, and highlight the differences in payoff potential, time decay, and risk.

Key Points

• Short calls involve selling call options, collecting a premium that may result in income if the option expires worthless.

• Risk may be unlimited with a short call if the stock rises sharply, unless the call is covered.

• Short calls can be used to hedge against a decline in stock value.

• Long calls give option buyers the right to buy a stock at a set price, benefiting from price increases.

• Long calls offer leverage, allowing control of a large number of shares with less capital.

What’s the Difference Between Short Calls and Long Calls?

Every time a call option contract transaction takes place there is a seller and a buyer. The seller is said to be short the calls and the buyer is long the calls. “Short calls” and “long calls” are simply shorthand for two different positions and strategies.

Short calls are a bearish options strategy that may benefit from a decline in the underlying asset’s price, or from time decay in low-volatility conditions when used in a covered call. On the other hand, a long call is a bullish options strategy that aims to capitalize on upward price movements on an asset, such as a stock or exchange-traded fund (ETF).

Short calls are the opposite strategy to long calls and their potential payoffs reflect that. Long calls may offer theoretically unlimited upside, while the maximum profit for a short call is capped at the premium received.

What Are Short Calls?

“Short calls” are an options strategy involving selling a call option.

Short call sellers receive a premium when the call is sold. The seller hopes to see a decrease in the underlying asset’s price to achieve the maximum profit.

It is also possible for the seller to profit if the underlying asset price stays the same. Options prices are based on intrinsic value (the difference between the strike price and the asset price) and extrinsic value, influenced by time to expiration and volatility.

If the asset price remains below the strike price, the call has no intrinsic value — only extrinsic value, which erodes over time due to time decay. There are two types of short calls: naked calls and covered calls. Short calls are “naked” when the seller does not own the underlying asset (considered an extremely risky strategy). Short calls are “covered” when the seller owns the underlying asset at the time of sale.

Short calls have a fixed maximum profit equal to the premium collected, but risk is technically unlimited if the asset rallies sharply. Theoretically, a stock could rise to infinity, so there is no cap on how high the value of a call option could be.

Therefore short calls can be highly risky. For this reason, traders should have a risk management plan in place when they engage in naked call selling.

Short Call Example

It’s helpful to see an example of a short call to understand the upside reward potential and downside risks involved with such a strategy.

Suppose your outlook on shares of XYZ stock is neutral to bearish. You think that the stock, currently trading at $50, will trade between $45 and $50 in the next three months.

A plausible trade to execute would be to sell the $50 strike calls expiring in three months. We’ll assume those options trade at $5. The breakeven price on a short call is the strike price plus the premium collected.

In this example, the breakeven price is thus $50 plus $5 which is $55. You profit so long as the stock is below $55 by the time the options expire, but will experience losses if the stock is above $55 by expiry.

Two months pass, and the stock is at $48. The calls have dropped in value thanks to a minor share price decline and since there is less time until expiration. The drop in time value relates to decaying theta, one of the option Greeks, as they’re called. Your short calls are now valued at $2 in the market.

Fast-forward three weeks, and there are just a few days until expiration. Despite a modest rise to $49, the call options declined in value due to accelerated time decay. They are now worth just $1. Time decay has eaten away at the value of the calls — more than offsetting the rise in the underlying shares. Time decay becomes quicker as expiration approaches.

You choose to buy-to-close your options in the market rather than risk a late surge in the stock price. Most options are closed out rather than left to expire (or be exercised) as closing options positions before expiration can save on transaction costs and added margin requirements. You cover your short calls at $1 and enjoy a net profit of $4 on the trade ($5 collected at the trade’s initiation minus a $1 buyback to close the position).

Pros and Cons of Short Calls

Pros of Short Calls	Cons of Short Calls
Benefits from time decay	Unlimited risk if the underlying asset rises sharply
Can be used in combination with a long stock position to generate extra income (covered call)	You may be required to deliver shares if the options holder exercises the call option
The underlying stock can move sideways to even slightly higher, and you may still profit	Reward is capped at the premium you received at the onset of the trade

Finally, user-friendly options trading is here.^*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

What Are Long Calls?

Long calls are the opposite strategy to a short call. With a long call, the trader is bullish on the underlying asset. Once again, a key aspect of the options trade is timing.

A long call benefits when the security rises in value, but it must do so before the options expire.

Long calls have unlimited upside potential and limited downside risk. A long vs. short call differs in that respect since a short call has limited profit potential and unlimited risk.

A long call is a basic options strategy that may serve as a speculative, bullish bet on an underlying asset. It’s a simple options strategy with limited risk, which may appeal to newer traders learning directional trades.

Long Call Example

Buying a long call option is straightforward. Long calls vs. short calls involve different order types. With long calls, you input a buy-to-open order and then choose the calls you wish to purchase.

You must enter the underlying asset (often a stock or ETF, but it could be an option on a futures contract such as on a commodity or currency), along with the strike price, options expiration date, and whether the order is a market or limit order.

Suppose you go long calls on XYZ shares. The stock trades at $50 and you want to profit should the stock rise dramatically over the next month. You could buy the $60 strike calls expiring one month from now. The option premium — the cost to buy the option — might be $2. Because the call is out-of-the-money, that $2 is composed entirely of extrinsic value (also known as time value).

Since you are going long on the calls, you want the underlying stock price to rise above the strike price by expiration. It’s important to know your breakeven price with a long call — that is the strike price plus the premium paid. In our example, that is $60 plus $2 which is $62. If the stock is above $62 at expiration, you profit.

After three weeks, the stock has risen to $70 per share. Your calls are now worth $13.

That $13 of premium is made up of $10 of intrinsic value (the stock price minus the strike) and $3 of time value since there is still a chance the stock could keep increasing before expiry.

A few days before expiration, the shares have steadied at $69. Your $60 strike calls are worth $10. You decide to take your money and run.

You enter a sell-to-close order to exit the position. Your proceeds from the sale are $10, resulting in an $8 gain relative to your $2 premium outlay.

Pros and Cons of Long Calls

Pros of Long Calls	Cons of Long Calls
Potential for unlimited gains	The premium paid can be substantial
Risk is limited to the premium paid	You can be correct with the directional bet and still lose money if your timing is wrong
Is a leveraged play on an underlying asset	There’s a chance the calls will expire worthless

Comparing Short Calls vs Long Calls

There are important similarities and differences between a short call vs. long call to consider before you embark on a trading strategy.

Similarities

Traders use options for three primary reasons:

• Speculation — Speculators can involve taking a position in an asset or derivative based on the expectation that its price will move in a favorable direction. Investors can buy a call and hope the underlying asset rises or they can sell a call and hope the asset price drops. Either way, the investor is taking a risk and could lose their investment, or more in the case of naked short calls.

• Hedging — Short sellers of stock may sometimes buy call options with the goal of helping reduce risk associated with an existing investment or position.

• Generate Income — Covered short calls help to generate extra income in a portfolio. The seller sells a call that is out-of-the-money, collects the premium, and hopes the stock doesn’t rise to that strike price. However, the investor can also choose a strike that they would be happy to sell at such that, if the stock rises and the option is exercised, they are happy to sell their shares.

Differences

Long calls are a bullish strategy while short calls are a neutral to bearish play.

Long calls offer theoretically unlimited profit and limited loss. Short calls offer limited profit and potentially unlimited loss. Long calls offer limited downside and high upside, while short calls cap profits and expose traders to potentially Long calls offer limited downside and high upside, while short calls cap profits and expose traders to potentially unlimited loss. A long call has unlimited upside potential and losses are limited to the premium paid. A short call may incur unlimited losses, with a maximum limited to the premium collected at the onset of the trade.

Time decay works to the benefit of an options seller, such as when you enter a short call trade. However, time decay could work to the detriment of those who are long options.

When implied volatility rises, the holder of a call benefits (all else equal) since the option will have more value. When implied volatility drops, options generally become less valuable, which is to the option writer’s benefit.

It’s also important to understand the moneyness of a call option. A call option is considered in-the-money when the underlying asset’s price is above the strike price. When the underlying asset’s price is below the strike, then the call option is considered out-of-the-money.

A call writer prefers when the call is more out-of-the-money while a call holder wants the calls to turn more in-the-money.

Short Calls vs Long Calls

Short Calls	Long Calls
Neutral-to-bearish view	Bullish view
A more advanced options play	A limited-risk trade that may be more approachable for options beginners
Profit capped at premium; losses can be unlimited	Profit potential is high; loss limited to premium paid

The Takeaway

Long calls and short calls are option strategies that have an inverse relationship: one limits risk but requires price movement, while the other caps reward but benefits from time decay. Both are sensitive to market direction, volatility, and timing, making it critical to match the strategy with your outlook and risk tolerance.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

Are long calls better than short calls?

Neither strategy is better by default — it depends on your market outlook and risk tolerance. Long calls may benefit from rising prices, whereas short calls could lead to profits if prices stay flat or decline. Both are sensitive to time, volatility, and direction.

Like long calls, short calls require that your outlook and timing align. If the stock rallies unexpectedly, losses can mount quickly.

How do short calls and covered calls differ?

A short call, when sold without the underlying shares, is known as a naked call (or naked position) — and carries theoretically unlimited risk if the stock rises.

Covered calls involve holding the underlying stock and selling a call option against it. This strategy caps upside but can limit risk compared to a naked call, since the shares can be delivered if the option is exercised. It may be used to generate income when the stock is expected to stay flat or decline slightly. The downside is that your shares can be called away if the stock rises, and you may still incur losses if the stock drops significantly.

Photo credit: iStock/Prostock-Studio

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-021

Jul

2025

What Is a Bear Put Spread?

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Bear Put Spread Definition
How Does a Bear Put Spread Work?
Bear Put Spread Example
Bear Put Spread Graph: Payoff Diagram
Pros and Cons of Bear Put Spreads
Bear Put Spread vs Bear Call Spread
When to Consider a Bear Put Spread Strategy
FAQ

A bear put spread, also known as a debit put spread, involves buying a put at a higher strike price and selling another at a lower strike price, both tied to the same expiration date and underlying asset.

Essentially, a long put is purchased with the goal of profiting from a decline in the underlying asset’s price, while a short put is purchased to reduce the cost of the strategy, and limit potential losses. The level of risk is well-defined, with the maximum loss limited to the net premium paid upfront, but the potential gains are limited as well.

A bear put spread is a type of vertical spread that a trader might typically consider when they’re moderately bearish on an asset.

Key Points

• Bear put spreads involve buying a put at a higher strike price and selling a put on the same asset at a lower strike price, both with the same expiration date.

• Potential profits depend on the underlying asset’s price declining below the lower strike price by expiration.

• Maximum loss is limited to the net premium paid for the spread.

• The break-even point is reached when the stock price is below the higher strike price by the amount of the net premium paid.

• Time decay affects the spread’s value differently depending on the asset price relative to the strike prices.

Bear Put Spread Definition

A bear put spread is an options strategy in which a trader buys a high strike put and sells a low strike put. Like other options strategies, bear put spreads may be traded at different types of moneyness, including out-of-the-money (OTM), at-the-money (ATM), or in-the-money (ITM). This strategy is typically used by traders who are bearish on a stock, have a downside price target, and have a defined time horizon.

The maximum profit occurs when the underlying asset is at or below the lower strike by expiration.

The trader will incur a debit (cost) equal to the price of the purchased put option minus the price of the sold put option when initiating the trade. An investor may lose the entirety of the debit if the underlying stock closes at or above the strike price of the long put (the higher strike price) at expiration.

The closer the strike prices are to the price of the underlying asset, the higher the debit incurred. Paying a larger debit may reduce the maximum potential profit, since the profit ceiling defined by the strike spread remains fixed.

How Does a Bear Put Spread Work?

There are two basic types of options: puts and calls. Options are a type of derivative that allows investors to seek profits from the potential price of movements of assets, without having to own those assets outright. A bear put spread is one of many strategies for options trading.

With a bear put spread, the investor may profit if the underlying stock price declines below the long put’s strike price by expiration. It is not as bearish as buying puts outright because the short put both reduces the upfront cost and caps the maximum gain. It may also come with lower defined risk than selling a put.

In options terminology, maximum gains are reached when the underlying asset trades at or below the lower strike price at expiration. A bear put spread is cheaper to enter since the sale of the lower strike put helps finance the trade.

Losses are limited to the net debit (cost) incurred when the trade is entered. However, early assignment of the short put may occur before expiration, which could result in unexpected exposure. Those losses may be incurred if the underlying asset price closes above the strike price of the long put (higher strike price) at expiration.

Recommended: Bull vs Bear Markets

Maximum Profit

A bear put spread’s maximum profit is:

Difference between strike prices – Net premium (debit) paid

Maximum Loss

A bear put spread’s maximum loss is:

Net premium paid, plus any commissions

Breakeven

The breakeven point for a bear put spread is:

Strike price of the long put (higher strike) – Net premium paid

Bear Put Spread Example

Assume that shares of XYZ stock are currently trading at $100. A trader anticipates that the shares will decrease to $95 by the following month’s option expiration date. To enter into a bear put spread, a trader could purchase a $100 put for $4.00 while simultaneously selling a $95 put for $2.00. The sale of the low strike option helps to make a bearish position less expensive since the trader collects that premium while paying for the high strike put option.

The maximum loss and net debit for this bear put spread is:

Premium paid = Cost of Long Put – Cost for Short Put

Premium paid = $4.00 – $2.00 = $2.00 net debit

Note: The $2.00 net debit is per share. Since an option contract is for 100 shares, the debit will be $200 per option contract.

The maximum profit for this bear put spread is:

Maximum profit = Width of strike prices – Premium paid

Maximum profit = $100 – $95 – $2.00 = $3.00 per share or $300 per option contract

The breakeven point for this trade is when the stock price reaches:

Breakeven = Strike price of long put – Premium paid

Breakeven = $100 – $2.00 = $98.00

Bear Put Spread Graph: Payoff Diagram

This profit and loss diagram helps illustrate the payoff in the above example of a bear put spread. Again, assuming that a $100 strike put is bought at $4 and a $95 strike put is sold at $2, the breakeven in this example is $98 — the $100 strike minus the $2 premium paid. Understanding the Greeks in options trading can also shed light on how this strategy responds to time, price, and volatility.

Bear Put Spread Payoff

Recommended: How Are Options Priced?

Impact of Price Changes

As the price of the underlying asset falls, the bear put spread tends to increase in value. As the asset price rises, the bear put spread’s value falls. The position is said to have a negative Delta since it typically profits when the underlying stock price falls.

Due to the dual-option structure of this trade, the rate of change in delta, known as Gamma, is minimal as the underlying asset price changes.

Impact of Volatility

The impact of volatility is minimized due to the dual option structure of the trade. Vega, in the option Greeks, measures an option’s sensitivity to changes in volatility. Between the short put and long put, the trade has a near-zero Vega.

However, asset price changes can result in volatility affecting the price of one put more than the other.

Impact of Time

The impact of time decay, also known as Theta, varies based on the asset price relative to the strike prices of the two options.

When the asset price is above the long put strike price, the value of the bear put spread decreases as time passes. This is because the long put loses value more rapidly than the short put.

When the asset price is below the short put strike price, the value of the bear put spread increases as time passes as the short put decays faster than the long put.

When the asset price is between the strike prices, the effect of Theta is minimal because both options tend to lose value at a similar rate.

Closing Bear Put Spreads

Traders may choose to close out a bear put spread before it expires, if it is profitable. If it has reached its maximum possible profit, the position may be closed out to capture the realized gain.

Another reason to close a bear put spread position as soon as the maximum profit is reached is due to the risk of early assignment on the short put, which could result in a long stock position. If assigned early, the trader could be left with a long stock position and may be forced to hold the stock, exposing them to further losses beyond the initial premium. To avoid this situation, traders either close the full bear put spread or exit the short leg separately by buying it back, while leaving the long put open.

If the short put is exercised and the long stock position is created, the trader can close out the position by selling the stock in the market to close out the long position, exercising the long put. Each of these options may incur additional transaction fees that could reduce the trade’s net return, hence the potential benefit of closing out a maximum profit position as soon as possible.

Finally, user-friendly options trading is here.^*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

Pros and Cons of Bear Put Spreads

Pros	Cons
Has defined risk compared to shorting a stock	The short put may be assigned, resulting in a long stock position
May be beneficial if the stock experiences a gradual decline in the stock price	Maximum loss is equal to the net debit paid
Maximum loss is limited to the net debit	Profits are capped at or below the short put’s strike price, which is the lower strike price in the spread

Bear Put Spread vs Bear Call Spread

A bear put spread differs from a bear call spread — also known as a short call spread — in that the latter uses call options instead of put options. A bear call spread features a short call at a low strike and a long call at a higher strike. This strategy has a slightly different payoff profile compared to a bear put spread.

A bear call spread opens at a net credit, meaning proceeds from the sale of the low strike call are larger than the payment for the purchase of the long call at a higher strike. The maximum profit is limited to the net credit received when opening the trade.

The maximum loss on a bear call spread is limited to the difference between the low strike option and the high strike option, minus the net credit received. The stock price is usually below the low strike when the trade is established.

The primary difference is that a bear call spread doesn’t require the underlying stock to decline to turn a profit. A flat stock price by expiration allows traders to simply keep their net credit. In contrast, a bear put spread is done at a net debit, so the stock must fall to make money with a bear put spread.

Bear Put Spread	Bear Call Spread
Buying a high strike put and selling a low strike put	Buying a high strike call and selling a low strike call
Done at a net debit	Done at a net credit
Underlying stock price must drop to make a profit	Underlying stock can be neutral and still make a profit
Max loss is the premium paid	Max gain is the premium received

When to Consider a Bear Put Spread Strategy

Traders may want to consider constructing a bear put spread when they are moderately bearish on a stock and have a specific price target.

For example, if a trader expects XYZ stock will dip from $100 to $90, a bear put spread might be suitable. The trader might buy the $105 put and sell the $90 put at a net debit.

If the stock indeed falls to $90 by the expiration date, the shareholder keeps the premium from the low strike short put and profits from a higher value on the high strike long put.

Traders may want to have a timeframe in mind for puts, as they will have to choose their option’s expiration date.

Finally, a bear put spread should be considered when a trader has a bearish near-term outlook on a stock and seeks to keep their capital outlay small.

The Takeaway

Bear put spreads are used to place bearish bets on a stock. They offer limited risk and reduced cost compared to buying puts, and the potential for profit if the stock declines moderately. Bear put spreads allow options traders to express a bearish outlook on a stock while managing costs and defining maximum potential losses. This may be a cost-effective strategy for profiting from moderate price declines, though adverse price movements could result in losses.

Explore SoFi’s user-friendly options trading platform.

While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

FAQ

What is a bearish options strategy?

A bearish options strategy is an option trade used when an investor anticipates that the underlying asset price will decline. If an investor is bullish, they expect the asset’s price to rise.

What is the maximum profit for a bear put spread?

The maximum profit for a bear put spread is the difference between the strike prices minus the net premium paid.

Maximum profit = long put strike price – short put strike price – net premium paid

What does it take for a bear put spread to break even?

A bear put spread strategy breaks even at expiration when the stock price is below the high strike by the amount of the net premium paid at the trade’s initiation.

Breakeven = long put strike price – net premium paid

Photo credit: iStock/MicroStockHub

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-070

Jul

2025

Understanding the Greeks in Options Trading

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Table of Contents

A Quick Look at Options
What Are Option Greeks?
5 Main Options Greeks: Overview
Other Options Terminology to Know
FAQ

The “Greeks” in options trading — including delta, gamma, theta, vega, and rho — are metrics that help traders gauge the pricing and risk of a given options contract.

Because options are derivatives, the value of each contract — the premium — depends on a complex interaction of different factors, including time to expiration, price volatility, and changes in the value of the underlying security. Each of these factors is represented by a Greek letter.

While there are several Greeks, delta, gamma, theta, vega, and rho are among the main Greeks in options trading.

Options Greeks may sound like a foreign language, but they are often essential tools for assessing whether a certain position may be profitable, since it can be difficult to understand the true value of an option.

Key Points

• Options Greeks are tools that help investors estimate how different market forces may affect the value of an options contract.

• Delta measures how much an option’s price might change in response to a $1 move in the underlying asset.

• Gamma tracks how delta itself may change as the stock price shifts, helping investors understand rate-of-change risk.

• Theta reflects time decay, showing how much value an option could lose each day as it nears expiration.

• Vega and rho measure sensitivity to implied volatility and interest rate changes, respectively, both of which can influence an option’s premium.

A Quick Look at Options

Options contracts are a type of investment that can typically be bought and sold much like stocks and bonds. But options are derivatives — that is, they do not represent ownership of the underlying asset. Instead, their value (or lack thereof) derives from another underlying asset, typically a specific stock.

Traders generally conduct different types of options trading when they anticipate that stock prices may go up (a call) or down (a put). They also use options to hedge or offset potential investment risks on other assets in their portfolio.

In a nutshell, options are typically purchased through an investment broker. Those options give purchasers the right, but not the obligation, to buy or sell a security at a later date and specific price. Investors can buy an option for a price, called a premium, and then they may choose to buy or sell that option.

So, while an option itself is a derivative of another investment, it may gain or lose value, too. For example, if an investor were to buy a call option on Stock A and the stock price increases, the value of that call option may rise as well.

But the opposite would be true if an investor purchased a put option on Stock A, anticipating that Stock A’s price would go down. While not identical to shorting a stock, buying a put may result in a loss if the stock price rises instead of falls.

What Are Option Greeks?

Options traders use these letters to evaluate their option positions and better understand how changes in market conditions may affect those positions.

In short, the Greeks look at different factors that may influence the price of an option. Calculating the Greeks isn’t an exact science. Traders use a variety of formulas, typically based on mathematical pricing models. Because of that, these measurements are theoretical in nature.

Here’s a look at the most common Greeks used by traders to estimate how options might respond to market changes.

Recommended: Options Trading Terms You Need to Know

Delta

Delta measures how much an option’s price may change if the underlying stock’s price changes. It’s usually expressed as a decimal, ranging from 0.00 to 1.00 for calls and 0.00 to -1.00 for puts.

So, if an option has a delta of 0.50, in theory, that means that the option’s price may move approximately $0.50 for every $1 move in the stock’s price. Another way to think of delta is that it gives an investor an idea of the probability that the option may expire in-the-money. If delta is 0.50, for example, that can equate to a 50% chance that an option will expire in the money — meaning the strike price would be favorable relative to the market price at expiration.

Gamma

The second Greek, gamma, tracks the sensitivity of an option’s delta to changes in the underlying asset’s price. If delta measures how an option’s price changes in relation to a stock’s price, then gamma measures how delta itself may change in response to changes in the stock’s price.

Think of an option as a car going down the highway. The car’s speed represents delta, and acceleration reflects gamma, as it measures the change in speed. Gamma is also typically expressed as a decimal. If delta increases from 0.50 to 0.60, then gamma would be 0.10.

Theta

Theta measures an option’s sensitivity to time. It gives investors a sense of how much an option’s price may decline as it approaches expiration.

Similar to the “car on a highway” analogy, it may be useful to think of an option as an ice cube on a countertop. The ice cube melts — representing the diminishing time value — and that melting may accelerate as expiration approaches.

Theta is typically expressed as a negative decimal, representing the estimated daily dollar loss per share and represents how much value an option may lose each day as it approaches expiration.

💡 Quick Tip: The best stock trading platform? That’s a personal preference, of course. Generally speaking, though, an effective platform is one with an intuitive interface and powerful features to help make trades quickly and easily.

Vega

Finally, vega in options is a measure of an option’s sensitivity to implied volatility.

Markets are volatile, and securities (and their derivatives) are subject to that volatility. Vega measures how sensitive an option’s price is to changes in implied volatility.

Volatility refers to the magnitude and frequency of price fluctuations in a security’s value. Because future volatility is unknown, options pricing reflects market expectations — known as implied volatility. Changes in stock volatility can affect an option’s value, particularly when implied volatility deviates from expectations. Vega does not measure volatility itself, but an option’s sensitivity to volatility changes.

Vega is expressed as a number, reflecting the estimated dollar change in an option’s price for each 1% change in implied volatility.

Rho

Rho measures an option’s sensitivity to changes in interest rates. Specifically, it estimates how much an option’s price may move in response to a one percentage-point change in the risk free-interest rate.

The value of rho is typically small and more impactful for longer-dated options. For example, a rho of 0.05 suggests the option’s premium may increase by $0.05 if interest rates rise by 1%.

Although rho is less influential than other Greeks in most short-term trading strategies, it becomes more relevant when interest rates are rising or when a trader holds options with longer expirations.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

5 Main Options Greeks: Overview

In summary, here’s how an investor may use this data when analyzing the risk and reward of an options contract.

Name	Symbol	Definition	How investors might think about it
Delta	∆	Measures the sensitivity of an option’s price to a change in the price of the underlying security.	For example, if the delta is 0.50, that suggests the option’s price may move approximately $0.50 for every $1 move in the stock’s price. It can also indicate a 50% chance that an option may be in the money at the moment. This probability may change over time and isn’t a guarantee.
Gamma	γ	Measures the rate of change for delta. It tells you how quickly delta will change as the stock price changes.	Think of an option as a car on the highway: speed reflects delta while acceleration represents gamma, which is typically expressed as a decimal. A stock trading at $10 with a delta of 0.40 and gamma of 0.10 means that a $1.00 increase in the stock’s price may adjust delta by 0.10, increasing it to 0.50. A $1 decrease may lower delta to 0.30, impacting how quickly the option’s value will increase or decrease with further price movements.
Theta	θ	Measures the sensitivity of an option’s price to the passage of time.	An option’s theta is like an ice cube melting on a countertop – its time value diminishes as expiration approaches, and the melting becomes more rapid over time. This is expressed as a negative decimal that reflects dollar loss. For example, a theta of -1 means the option may lose $1 per share, per day, until it reaches the expiration date.
Vega	ν	The change in an option’s value as implied volatility goes up or down by 1 percent.	Vega rises with higher implied volatility, which reflects greater market uncertainty. Lower implied volatility typically corresponds with smaller price movements.
Rho	ρ	Measures the sensitivity of an option’s price to a change in interest rates.	If an option has a rho of 1.0, a 1% increase in interest rates may result in a 1% increase in the option’s value. Options most sensitive to interest rate changes are typically those that are at-the-money or have the longest time to expiration.

Other Options Terminology to Know

The specific option traded (a call versus a put, for example) and the underlying stock’s performance determine whether an investor’s position is profitable. That brings us to a few other key options terms that are important to know:

In the Money

A call option is “in the money” when the strike price is below the market price. A put option is “in the money” when the strike price is above the market price.

Out of the Money

A call option is “out of the money” when the strike price is above the market price. A put option is “out of the money” when the strike price is below the market price.

At the Money

The option’s strike price is the same as the stock’s market price.

The Takeaway

There’s no getting around it: Options and the Greeks can be complex and are generally not appropriate for newer investors. But experienced traders, or those willing to spend time learning how options work, may find them to be a valuable tool when building an investment strategy.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are the Greeks in options trading?

The Greeks are a set of theoretical risk measures used to estimate how an option’s price may change based on variables like time, volatility, and the underlying asset’s price. The most commonly referenced Greeks are delta, gamma, theta, vega, and rho.

What is the Rule of 16 in options?

The Rule of 16 is shorthand for estimating expected daily price movement. It’s based on the idea that implied volatility reflects annualized moves. By dividing implied volatility by 16, traders can estimate the expected one-day standard deviation for a stock.

How do you use gamma in options trading?

Gamma helps traders get a sense of how stable an option’s delta is. A higher gamma suggests delta could change rapidly, especially near expiration or when an option is at the money. Monitoring gamma can help manage risk when holding positions that are sensitive to price swings.

Which Greek is most important in options trading?

The most closely watched Greek is delta, which estimates how much an option’s price may change when the underlying asset moves by $1. Delta also gives a rough idea of an option’s probability of expiring in the money. That said, the “most important” Greek depends on the strategy: traders focused on time decay may prioritize theta, while volatility traders may focus more on vega.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-068

Jul

2025

What Is a Carry Trade in Currency Markets?

What Is A Currency Carry Trade in Forex Markets?

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is a Currency Carry Trade?
How Do You Execute a Carry Trade?
Is a Carry Trade Risky?
FAQ

A currency carry trade is a popular type of forex trade, whereby an investor borrows in a low-interest currency in order to invest in a currency with a higher rate.

Putting on a carry trade is one way to take advantage of discrepancies between the interest rates of different currencies, particularly if the investor uses leverage.

This strategy can be risky, however, owing to the fact that interest rates, and currency values, can fluctuate at any time. The use of leverage adds additional risk, if the trade moves in the wrong direction.

Key Points

• A currency carry trade involves borrowing funds in a low-rate currency and investing in assets in a higher-yielding currency.

• Thus, a currency carry trade is a way to profit from differences in interest rates.

• This is a popular forex strategy, owing to its relative simplicity: An investor just needs to find the appropriate currency pair to execute the carry trade.

• Because interest rate differentials may be small, some investors use leverage to maximize potential gains.

• The risk of loss is high, however, if interest rates suddenly change.

🛈 While SoFi offers exposure to foreign currencies through its alternative investment funds, it does not offer forex trading at this time.

What Is a Currency Carry Trade?

In a carry trade, forex traders borrow money at a low interest rate in order to invest in a currency where they can buy an asset with a higher rate of return. In the forex markets, a carry trade is a bet that one foreign currency will hold or increase its value relative to another currency, and that interest rates will also remain steady.

Of course, this active investing strategy hinges on whether or not interest rates and exchange rates are in the investor’s favor. The wider the interest rate spread between two currencies, the better the potential returns for the investor.

Even in cases with a relatively small rate differential, though, investors who use this strategy often employ leverage to maximize potential profits.

How Do You Execute a Carry Trade?

A carry trade strategy can be a relatively simple way to increase an investor’s returns, assuming they can find a currency with a higher rate and one with a lower rate, and that exchange rates between the two currencies remain relatively stable. In that way, it’s similar to understanding “spread trading” as it relates to stocks.

Currency Carry Trade Basics

Imagine that U.S. interest rates are at 5%, but the interest rate in Japan is 1% — a 4% spread. The yen would be considered the funding currency for the carry trade because the rate is lower, and the dollar is the asset currency (which typically has a higher rate).

A trader could borrow 1 million yen at 1%, and buy an asset such as a U.S. bond that has a 4% yield. When the bond matures, the investor could collect the bond yield, repay the yen they borrowed at 1%, and pocket the difference.

There is a wild card here, though, which is that both interest rates and currency values can change — sometimes suddenly — which can cause the trade to move in the wrong direction.

Here is an example of how the exchange rate and interest rate come into play in a currency carry trade.

Carry Trade Example

In this example the investor will borrow 1 million yen at 1%, and an exchange rate of 145 yen to the dollar.

1 million yen / 145 = $6,896.55

The investor could take the $6,896.55 and invest in a U.S. security that pays 4%, and collect that amount after a year.

$6,896.55 x $0.04 = $275.86

Total = $7,172.41

Now the investor has to repay the 1 million yen they borrowed at 1%, for a total of 1,000,100 yen, or $6,897.24
They subtract the principal from the ending balance in dollars:

$7,172.41 – $6,897.24 = $275.17

The resulting profit of $275.17 is 4% of the original spread between the interest rate spread of the two currencies.

Recommended: What Is Forex Trading?

Is a Carry Trade Risky?

The concept of a carry trade is simple, but in practice, it can involve investment risk.

In the above example, neither the exchange rate nor the interest rates moved — which in real life is highly unlikely.

Most notably, there’s the risk that the currency or asset a trader is investing in (the British pounds in our previous example) could lose value. That could put a damper on a trader’s expected returns, as it would eat away at the gains the difference in interest rates could provide.

Currency prices tend to be very volatile, and something as mundane as a monthly jobs report released by a government can cause big price changes.

Given the risks, carry trades in the currency markets may not be the most appropriate strategy for investors with a low tolerance for risk.

The Takeaway

Using a currency carry trade strategy is a popular one in the forex markets because it’s relatively easy to find currency pairs with an interest rate difference that can be exploited for a potential gain. The risk, though, lies in the potential for currency rates to shift, as well as interest rates.

FAQ

How does a carry trade work?

A currency carry trade works when two currencies are relatively stable, but one offers a much lower rate than the other. This makes it possible to borrow the funding currency to invest in a higher-yield security in the asset currency, and pocket the difference, minus the interest rate owed on the principal borrowed.

What happens when a carry trade moves in the wrong direction?

There are various risk factors when using a carry trade strategy. One is that the lower-rate currency could strengthen against the asset currency, and the investor would effectively repay a larger amount than they borrowed, thus cutting into any profit.

What is the forex market?

The forex market is where financial institutions, as well as individual investors, trade foreign currencies. The forex market is the largest in the world, and it’s possible to trade 24/7 — which is different from most markets, which have open and close hours.

Photo credit: iStock/akinbostanci

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-099

Jul

2025

The Challenges of Modern Day Investing

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Modern Investing?
Key Characteristics of Modern Investing
Shifts in Young Adults’ Investing Strategies
What Are Challenges Facing Investors Today?
Strategies for Adapting to Today’s Changing Landscape
FAQ

Modern investing presents an interesting dichotomy: While it’s easier than ever to access the markets, navigating them has gotten increasingly complex. Thanks to a wide variety of platforms and mobile apps, investors have access to buying and selling assets with a few taps — often at little or no cost. However, technology has also ushered in new risks and challenges, from too much information to misinformation to media-driven market volatility.

Below, we take a closer look at the modern investing climate, emerging trends for young adults, some pressing challenges, and some ways investors can identify strategies that align with their goals.

Key Points

• Modern investing has been simplified by technology but complicated by providing access to excessive information and advice.

• Generally, young adults tend to invest early, use AI, and favor socially-conscious investments like ESG.

• Market volatility, misinformation and scams, and a lack of personalized advice pose significant challenges for investors.

• Diversification and setting clear financial goals may help manage investment risks.

• Continuous financial education and, in some cases, professional advice can help individuals navigate the modern investment landscape.

What Is Modern Investing?

Modern investing refers to the use of current tools, technologies, and data-driven strategies to help manage and achieve financial goals. Unlike past generations, today’s investors have access to mobile devices, online investing, and AI-powered tools, allowing them to research strategies, execute trades, and track portfolios in real time.

But along with this newfound ease comes added complexity. Investors now face a torrent of information coming from both traditional media and newer, less-regulated sources like social media. Many younger investors find themselves scrolling TikTok or YouTube for investing tips — encountering influencers who may or may not be credible.

Investors also have more choices than ever before, both in terms of what they can invest in and how they can invest. This also means a greater need for education, discipline, and critical thinking to navigate the complexities of modern investing.

These conditions can make investing feel overwhelming — even discouraging some from getting started in investing at all.

Key Characteristics of Modern Investing

Let’s take a deeper look at what defines modern investing today.

Technology and Digital Platforms

Access to the markets is increasingly more straightforward. These days, almost anyone with a computer/laptop or smartphone and an internet connection can register with an online broker and start trading.

Investors have a wide range of online platforms to choose from — from traditional brokerages to fintech startups — most of which offer accessible mobile apps and research tools. These digital tools allow investors to explore and trade most securities such as stocks, bonds, mutual funds, and derivatives.

But with so many platforms, dashboards, and features available, the real challenge lies in choosing the right one — and learning how to use it effectively. For many, that means experimenting with various tools before settling on a system that fits their goals and appetite for risk.

Rise of Social Media and Influencers

Another defining feature of modern investing is the sheer volume of information available — much of it coming from nontraditional sources. While earlier generations relied on legacy financial media outlets — like The Wall Street Journal, Fortune, CNBC, Bloomberg, or The Financial Times, to name a few — today’s investors are just as likely to get their information from YouTube, Instagram, TikTok, Reddit, or X (formerly Twitter).

The democratization of financial advice can be empowering, but also potentially dangerous. Not all influencers are experts, and some may promote certain investments for personal gain or sponsorship reasons. This can cause investors to make poor decisions, including risky “FOMO trading” based on hype rather than fundamental research.

Shifts in Young Adults’ Investing Strategies

Young adults have changed their investment behaviors in recent years, largely due to the issues outlined above: They have more access to the markets, and there’s more information that may encourage them to invest.

According to the World Economic Forum’s Global Retail Investor Outlook 2024, 30% of Gen Z investors began investing while attending college or in early adulthood. That’s double the rate of Millennials (15%), and far ahead of Gen X (9%) and Baby Boomers (6%).

Gen Z and Millennials are also more comfortable using AI-based platforms, such as chatbots, to seek financial advice, with 41% saying they would trust an AI assistant to manage their portfolios. Additionally, younger investors are more likely to prioritize values-based strategies like ESG (environmental, social, and governance) investing or impact investing.

What Are Challenges Facing Investors Today?

Despite the advances and opportunities of modern investing, several challenges can derail even the most seasoned investor. Here are some potential pitfalls to keep in mind:

• Information overload: We live in the information age, but more isn’t always better. The sheer volume of financial news, stock tips, social posts, and analysis can paralyze decision-making or lead to poor choices based on partial understanding.

• Market volatility: Geopolitical tensions, economic disruptions, pandemics, and overflow of information can cause market swings that are sharp and unpredictable. Investors today generally need to be prepared for the possibility of higher volatility across different types of assets.

• Misinformation and scams: Investment information found in social media may be inaccurate, incomplete, or misleading. In some cases, scammers use various online platforms to spread false information and promote fraudulent investment schemes. Even sophisticated investors may fall prey to scams disguised as legitimate opportunities.

• Emotional investing: With real-time updates and constant connectivity, modern investors may be more susceptible to emotional decision-making, such as panic selling during dips and chasing “hot” stocks. These pitfalls can be intensified by the rapid flow of information, interactions, and transactions on digital platforms.

• Lack of personalized advice: Robo-advisors can be efficient, but they may lack the nuance of personalized financial planning. For those with unique needs or goals, this could result in less-than optimal investment strategies.

Strategies for Adapting to Today’s Changing Landscape

The following investment strategies provide options that may help a wide range of investors explore potential advantages of modern investing technology, while side-stepping some of the potential pitfalls.

• Set clear financial goals: Whether it’s retirement, buying a home, or achieving financial independence, knowing your goals can help filter out some of the noise. Ideally, you want your risk tolerance and time horizon to shape your investment choices, rather than what’s trending online.

• Diversify intelligently: Diversification remains a timeless strategy. Rather than put all your eggs in one basket, consider spreading investments across asset classes, industries, and regions. While a portfolio may primarily consist of traditional assets like stocks, bonds, and cash equivalents, it may also include a smaller portion of higher-risk assets, such as alternatives like commodities or real estate, depending on an investor’s risk tolerance, time horizon, and financial goals. Some investors seeking a simple way to diversify their portfolios may find investing in exchange traded funds (ETFs) or mutual funds offer exposure to a broad range of assets.

• Consider dollar-cost averaging (DCA): Investing a fixed amount regularly may help reduce the impact of market volatility. Over time, DCA can help build wealth steadily without trying to time the market — a difficult endeavor even for professionals.

• Stay educated and skeptical: It’s important to make a habit of continuous learning. You can do this by subscribing to trusted financial newsletters, reading books by reputable investors, and following credible financial journalists. When evaluating tips or trends online, it’s important to always verify the credentials of the source.

• Seek professional guidance: While modern investors can — and do — go it alone, professional financial advice can be invaluable to help you work towards your financial goals, especially for retirement planning, tax strategies, and estate planning. Consider hybrid investing models that combine robo-advising with human oversight for a balanced approach.

The Takeaway

Modern-day investing offers unprecedented access and convenience, but also presents new challenges. From navigating digital platforms to parsing influencer information, today’s investors need to be more informed and discerning than ever.

Ultimately, effective modern investing often comes down to education, discipline, and having a clear understanding of your goals and the reasons behind them. Starting with a basic strategy, staying consistent, and seeking professional guidance when needed can go a long way toward helping to build confidence — and a stronger financial future.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What are some investment strategies young adults may want to consider in today’s market?

Young adults seeking long-term growth potential may consider investing early and consistently. One possible strategy to consider is index funds or exchange-traded funds (ETFs), which offer diversification and are generally low cost. It’s also important to take advantage of employer-sponsored retirement accounts like 401(k)s, especially with matching contributions. Remember, though, that no investment strategy can guarantee returns or eliminate the possibility of loss.

Is modern investing really more complicated than it used to be?

In some ways, yes, but it’s also more accessible. The sheer volume of investment options, platforms, and financial tools can feel overwhelming. However, technology has simplified investing through user-friendly apps, robo-advisors, and educational resources. Compared to past generations, investors today can start with smaller amounts, trade with ease, and access global markets. The challenge lies in navigating the information overload and avoiding decision fatigue. With proper guidance, though, investing today can actually be more convenient and flexible.

What policies or changes might encourage more Americans to invest? Why?

Policies that boost financial literacy and expand access to retirement plans would likely encourage more Americans to invest. For example, encouraging employer-provided retirement savings plans and expanding access to low-cost investment platforms can make investing easier. Making financial education a core part of public schooling could potentially empower young people to start investing earlier. These changes lower barriers and increase confidence, which could help more people build wealth through consistent, long-term investing.

What can be challenging in modern investing?

The most difficult part of investing will vary from individual to individual, but common challenges in modern investing may include having too much information to parse through, wondering who you can trust, and figuring out which technology or tools to use to execute an investment strategy.

It can also be hard to stay disciplined, especially during market downturns. Emotional decision-making, like panic-selling when markets drop or chasing trends that are being hyped on social media, can hurt long-term returns.

Investors that seek long-term investment goals may want to consider developing and sticking to a plan, ignoring short-term noise, and avoiding the urge to time the market.

What does it mean to be diversified?

Being diversified means spreading your investments across different asset types, sectors, and regions, so that your portfolio isn’t overly dependent on one area’s performance. The idea is to reduce risk: If one investment performs poorly, others may perform more favorably, helping to stabilize your overall returns.

Diversification can be achieved through mutual funds, exchange-traded funds (ETFs), or by owning a mix of assets, such as domestic and international assets. Depending on your goals and tolerance for risk, diversification may provide a way to help reduce risk and build a more stable investment portfolio.

Photo credit: iStock/ArtistGNDphotography

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
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SOIN-Q225-092