This episode explores the intricate world of options trading, focusing on arbitrage boundaries, early exercise considerations, and various hedging strategies. It details how American options differ from European options, particularly concerning dividends and intrinsic value, and how to determine optimal early exercise conditions for both calls and puts, including for futures options. The document then transitions into option hedging, covering protective calls and puts, covered writes, and collars, explaining their risk-reward profiles and synthetic equivalents. Finally, it discusses volatility in depth, differentiating between historical and implied volatility, examining mean reversion and term structure, and presenting methods for volatility forecasting and assessing implied-volatility risk across different expiration months