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.

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.

The predetermined price at which the underlying asset can be bought or sold when the option is exercised.

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).

A standardized contract typically representing 100 shares of the underlying asset. One contract gives the buyer specific rights.

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.

An option with intrinsic value. For calls: Stock price > Strike. For puts: Stock price < Strike. Has immediate exercise value.

An option without intrinsic value. For calls: Stock price < Strike. For puts: Stock price > Strike. Consists only of time value.

The value the option would have if exercised immediately. For OTM options, this value is zero.

The portion of the option premium beyond intrinsic value. Represents the chance of future appreciation.

Indicates how much the option price changes when the underlying moves by $1. Values between 0 and 1 (calls) or 0 and -1 (puts).

Rate of change of delta. Shows how quickly delta changes with price movements of the underlying. Important for risk management.

Metric for the daily value loss of an option due to time passage. Negative for buyers, positive for sellers. Accelerates near expiration.

Sensitivity of the option price to changes in implied volatility. Higher for ATM options and longer expirations.

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.

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.

The number of option contracts traded in a day. Higher volume means better liquidity.

Bid = Highest price a buyer will pay. Ask = Lowest price a seller will accept. The difference is the spread.

The difference between bid and ask. Lower spreads mean better liquidity and lower trading costs.

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.

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.

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.

Purchase of an OTM call and OTM put option with the same expiration. Cheaper than straddle, requires larger price movement.

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.

The largest possible loss of a strategy. For some strategies (e.g., naked calls) this can theoretically be unlimited.

The price level of the underlying where the options strategy neither makes profit nor loss. Critical reference point.

The amount of money you must deposit as collateral to trade certain options strategies (especially short positions).

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.