Glossary
A dictionary of all trading and market terms.
Ask
The price at which a seller is willing to sell an option. Also known as the offer price.
At-the-Money (ATM)
An option whose strike price is equal to or very close to the current market price of the underlying asset.
Bid
The price at which a buyer is willing to purchase an option.
Breakeven
The price at which an option position neither makes nor loses money at expiration.
Call Option
A contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price before a certain date.
Cash-Secured Put
A strategy where you sell a put option while holding enough cash to buy the underlying stock if assigned.
Covered Call
A strategy where you own the underlying stock and sell call options against it to generate income.
Credit Spread
An options strategy that results in receiving a net credit (premium) when opened.
Days to Expiration (DTE)
The number of days remaining until an option contract expires.
Debit Spread
An options strategy that requires a net payment (debit) when opened.
Delta
A Greek that measures how much an option's price is expected to change for every $1 move in the underlying asset.
Expiration Date
The date on which an options contract becomes void and the right to exercise no longer exists.
Gamma
A Greek that measures the rate of change of delta for every $1 move in the underlying asset.
Greeks
A set of risk measures named after Greek letters (delta, gamma, theta, vega, rho) that describe how option prices change.
Implied Volatility (IV)
The market's forecast of a likely movement in an asset's price, derived from option prices.
In-the-Money (ITM)
A call option with a strike price below the current stock price, or a put option with a strike price above it.
Iron Condor
A strategy combining a bull put spread and bear call spread to profit from low volatility.
LEAPS
Long-Term Equity Anticipation Securities. Options with expiration dates more than one year in the future.
Long
Owning or buying an option or stock position.
Mark
The midpoint between the bid and ask prices, often used to estimate fair value.
Max Loss
The maximum amount that can be lost on an options trade if the position moves entirely against you.
Max Profit
The maximum amount that can be gained on an options trade if conditions are optimal.
Open Interest
The total number of outstanding option contracts that have not been settled.
Out-of-the-Money (OTM)
A call option with a strike price above the current stock price, or a put option with a strike below it.
Premium
The price paid by the buyer to the seller for an options contract.
Probability of Profit (POP)
The statistical likelihood that a trade will be profitable at expiration.
Put Option
A contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price before a certain date.
Rho
A Greek that measures the sensitivity of an option's price to changes in interest rates.
Short
Selling or writing an option or stock position.
Spread
An options strategy involving multiple positions (e.g., buying one option and selling another).
Straddle
A strategy involving buying both a call and put at the same strike price and expiration.
Strangle
A strategy involving buying both a call and put at different strike prices but same expiration.
Strike Price
The price at which the underlying asset can be bought (call) or sold (put) if the option is exercised.
The Wheel
A popular options income strategy that cycles between selling cash-secured puts and covered calls.
Theta
A Greek that measures how much an option's price decreases each day due to time decay.
Time Decay
The erosion of an option's extrinsic value as expiration approaches.
Underlying
The stock, index, or other asset on which an option contract is based.
Vega
A Greek that measures how much an option's price changes for every 1% change in implied volatility.
Volume
The number of option contracts traded during a specific period.