Options Glossary

A call option gives the buyer the right (but not the obligation) to buy the underlying asset at the strike price. Buyers profit from rising prices. Example: You buy a call option on AAPL with a $180 strike for $5.20 premium. If AAPL rises to $195, the option is worth $15 — your profit: $9.80 per share.

A put option gives the buyer the right (but not the obligation) to sell the underlying asset at the strike price. Buyers profit from falling prices. Example: You buy a put option on TSLA with a $250 strike for $8.50. If TSLA drops to $230, the option is worth $20 — your profit: $11.50 per share.

The predetermined price at which the underlying asset can be bought or sold when the option is exercised. Example: With a $150 strike, you can buy the stock at $150 (call) or sell at $150 (put), regardless of the current market price.

The date by which the option can be exercised. After this date, the option expires worthless if not exercised.

The price the buyer pays for the option. The premium consists of intrinsic value and extrinsic value (time value). Example: An AAPL call option costs $4.80 per share. At 100 shares per contract, you pay $480 in premium.

A standardized contract typically representing 100 shares of the underlying asset. One contract gives the buyer specific rights. Example: 1 contract = 100 shares. At a premium of $3.00 per share, 1 contract costs $300.

The security that the option refers to. This can be a stock, index, ETF, or other financial instruments.

Long means buying (bullish), Short means selling (bearish). For options: Long = buyer, Short = seller.

An option whose strike price equals or is very close to the current price of the underlying asset. Example: AAPL trades at $180. An option with a $180 strike is ATM.

An option with intrinsic value. For calls: Stock price > Strike. For puts: Stock price < Strike. Has immediate exercise value. Example: AAPL is at $195. A call option with a $180 strike is $15 ITM (intrinsic value = $195 − $180 = $15).

An option without intrinsic value. For calls: Stock price < Strike. For puts: Stock price > Strike. Consists only of time value. Example: AAPL is at $175. A call option with a $180 strike is $5 OTM and has no intrinsic value.

The value the option would have if exercised immediately. For OTM options, this value is zero. Example: Stock at $195, call strike at $180 → Intrinsic value = $195 − $180 = $15.

The portion of the option premium beyond intrinsic value. Represents the chance of future appreciation. Example: Option costs $8.50, intrinsic value is $5 → Time value = $8.50 − $5.00 = $3.50.

Indicates how much the option price changes when the underlying moves by $1. Values between 0 and 1 (calls) or 0 and -1 (puts). Example: Delta 0.65 means if the stock rises $1, the call price rises approximately $0.65.

Rate of change of delta. Shows how quickly delta changes with price movements of the underlying. Important for risk management. Example: With Gamma 0.05 and Delta 0.50, after a $1 move the Delta becomes 0.55.

Metric for the daily value loss of an option due to time passage. Negative for buyers, positive for sellers. Accelerates near expiration. Example: Theta −0.08 means the option loses about $0.08 per day ($8 per contract) in time value.

Sensitivity of the option price to changes in implied volatility. Higher for ATM options and longer expirations. Example: Vega 0.12 means if IV rises by 1 percentage point, the option price increases by $0.12.

Measures the sensitivity of the option price to changes in the risk-free interest rate. Usually less important than other Greeks.

The market's expected future fluctuation of the underlying, derived from the option price. Higher IV = more expensive options. Example: IV of 30% means the market expects the underlying to fluctuate ±30% annually.

The actual fluctuation range of the underlying in the past. Often compared with IV.

The total number of open (not closed) option contracts. Shows liquidity and interest at a strike. Example: OI of 12,500 at the $180 strike shows high interest — good liquidity for entries and exits.

The number of option contracts traded in a day. Higher volume means better liquidity. Example: 3,200 contracts traded in a day shows active trading and tight spreads.

Bid = Highest price a buyer will pay. Ask = Lowest price a seller will accept. The difference is the spread. Example: Bid $4.20 / Ask $4.40 → Spread = $0.20. You pay $4.40 when buying and receive $4.20 when selling.

The difference between bid and ask. Lower spreads mean better liquidity and lower trading costs. Example: Bid $4.20 / Ask $4.40 → Spread $0.20. That's your immediate trading cost per share.

How easily an option can be bought or sold without significantly affecting the price. Important for quick entry and exit.

The process where an option seller is obligated to fulfill their obligation (buy or sell the underlying asset).

The act of the buyer exercising their right from the option to buy (call) or sell (put) the underlying at the strike price.

Closing an option position and simultaneously opening a new one with a different strike or expiration date.

Ending an option position through an offsetting transaction before the option expires or is exercised.

Order to buy an option to open a new long position. You are buying a call or put option.

Order to sell an option to open a new short position. You are writing (selling) an option.

Order to buy an option to close an existing short position. Ends your selling obligation.

Order to sell an option to close an existing long position. Realizes profit or loss.

You own 100 shares and sell a call option on them. Generates income through premium with neutral to slightly bullish market expectations. Example: You own 100 AAPL shares at $180 and sell a $190 call for $3.20. You receive $320 in premium immediately.

You own shares and buy a put option as insurance against falling prices. Limits loss risk.

Combination of bull put spread and bear call spread. Profitable in low volatility and sideways trending markets. Example: AAPL at $180. Sell 170 put and 190 call, buy 165 put and 195 call. Max profit: net premium received, e.g. $280.

Buy a call option with lower strike and sell a call option with higher strike. Limited profit potential with rising prices.

Buy a put option with higher strike and sell a put option with lower strike. Limited profit potential with falling prices.

Simultaneous purchase of a call and put option with the same strike and expiration. Profits from strong price movements in either direction. Example: AAPL at $180. Buy $180 call for $5.00 and $180 put for $4.50 = $9.50 cost. Profit if stock moves more than ±$9.50.

Purchase of an OTM call and OTM put option with the same expiration. Cheaper than straddle, requires larger price movement. Example: AAPL at $180. Buy $190 call for $2.00 and $170 put for $1.80 = $3.80 cost. Cheaper than a straddle.

Combination of bull and bear spread. Three strikes: Buy outside, sell double in the middle. Profits from low movement.

Selling a short-term and buying a long-term option with the same strike. Profits from differential time decay.

The highest possible profit that can be achieved with an options strategy. For many strategies this is limited. Example: Covered call with $3.20 premium and strike $10 above cost basis → Max profit = $13.20 × 100 = $1,320.

The largest possible loss of a strategy. For some strategies (e.g., naked calls) this can theoretically be unlimited. Example: When buying a call for $5 premium, maximum loss is limited to $500 ($5 × 100 shares).

The price level of the underlying where the options strategy neither makes profit nor loss. Critical reference point. Example: Long call with $180 strike and $5 premium → Break-even at $185 (strike + premium).

The amount of money you must deposit as collateral to trade certain options strategies (especially short positions). Example: For a naked put on AAPL with a $170 strike, the broker may require approximately $2,500–$3,500 in margin.

Selling an option without owning the underlying asset. High risk as theoretically unlimited losses are possible.

The Cypriot financial regulatory authority that oversees financial services companies in Cyprus. Counts as EU regulation and allows companies to offer services throughout the EU.

The U.S. securities regulator responsible for overseeing the securities markets in the United States. One of the most important financial regulatory authorities worldwide.

The British financial regulatory authority that oversees financial services companies in the United Kingdom. Known for strict consumer protection standards.

The Dutch financial markets authority, responsible for regulating financial institutions and protecting consumers in the Netherlands.