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 (illustrative): you buy a Nifty 50 call with a 25,000 strike for a premium of ₹200. If the index settles at 25,400 at expiry, the call is worth ₹400 per unit: a gain of ₹200 per unit, or ₹13,000 on one lot of 65.

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 (illustrative): you buy a Nifty 50 put with a 25,000 strike for ₹180. If the index settles at 24,600, the put is worth ₹400 per unit: a gain of ₹220 per unit, or ₹14,300 on one lot of 65.

The predetermined price at which the underlying asset can be bought or sold when the option is exercised. Example: with a ₹1,500 strike on stock XYZ, the call holder can buy at ₹1,500 and the put holder can sell at ₹1,500, regardless of the market price at expiry.

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). It is quoted per unit, and you pay it for the whole lot. Example: a call on stock XYZ costs ₹30 per share; with a lot of 500 shares you pay ₹15,000 in premium.

A standardised contract on a fixed quantity of the underlying, called the lot size, which the exchange sets for each index and stock. Example: one Nifty 50 lot is 65 units (NSE, as of 2026-11-02); at a premium of ₹200 per unit, one lot costs ₹13,000.

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: stock XYZ trades at ₹1,500. An option with a ₹1,500 strike is ATM.

An option with intrinsic value. For calls: Stock price > Strike. For puts: Stock price < Strike. Has immediate exercise value. Example: stock XYZ is at ₹1,560. A call with a ₹1,500 strike is ₹60 ITM (intrinsic value = ₹1,560 − ₹1,500 = ₹60).

An option without intrinsic value. For calls: Stock price < Strike. For puts: Stock price > Strike. Consists only of time value. Example: stock XYZ is at ₹1,480. A call with a ₹1,500 strike is ₹20 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 ₹1,560, call strike at ₹1,500 → intrinsic value = ₹1,560 − ₹1,500 = ₹60.

The portion of the option premium beyond intrinsic value. Represents the chance of future appreciation. Example: the option costs ₹85 and its intrinsic value is ₹60 → time value = ₹85 − ₹60 = ₹25.

Indicates how much the option price changes when the underlying moves by ₹1 (or one index point). Values between 0 and 1 (calls) or 0 and -1 (puts). Example: delta 0.65 means that if the stock rises ₹1, the call price rises by about ₹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 −8 on a Nifty 50 option means it loses about ₹8 per unit a day, or ₹520 per lot of 65, if nothing else changes.

Sensitivity of the option price to changes in implied volatility. Higher for ATM options and longer expirations. Example: vega 12 means that if IV rises by 1 percentage point, the option price increases by about ₹12 per unit.

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: a high open interest at the 25,000 strike of the Nifty 50 means many open contracts there, which usually goes with tighter spreads 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 ₹42.00 / ask ₹42.50 → spread = ₹0.50. You pay ₹42.50 when buying and receive ₹42.00 when selling.

The difference between bid and ask. Lower spreads mean better liquidity and lower trading costs. Example: bid ₹42.00 / ask ₹42.50 → spread ₹0.50 per unit, which is ₹32.50 on one Nifty 50 lot of 65: your immediate trading cost.

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

A self-reinforcing price move driven by delta hedging: when market makers have sold many calls (they are “short gamma”), a rising price forces them to buy more stock to stay delta-neutral, which pushes the price further. The opposite of the stabilising “long gamma” market.

A Cboe index that derives the market’s expected volatility of the S&P 500 over the next 30 days from S&P 500 option prices, quoted as an annualised percentage. A VIX of 20 implies roughly a ±5.8% move over a month. Often called the “fear index”.

The sharp drop in implied volatility once an expected event (such as earnings) has passed. Options lose extrinsic value as a result, so buyers can lose money even when the stock moves their way, if it moves less than was priced in.

Different implied volatility across the strikes of one expiration. On equity indices, OTM puts usually carry higher IV than OTM calls because protection against declines is in demand. A steep skew signals strong demand for crash protection.

The ratio of traded volume (or open interest) in puts to calls. A high reading points to heavy hedging or pessimism, a low one to optimism. Often read as a contrarian signal at extremes.

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.

The first trading day on which a stock trades without the right to its next dividend. The price usually opens lower by roughly the dividend amount. For options it matters because in-the-money calls are exercised early more often just before it.

You own the shares for one lot and sell a call option on them. Generates income through premium with neutral to slightly bullish market expectations. Example: you hold 500 shares of stock XYZ bought at ₹1,500 and sell a ₹1,600 call for ₹20. You receive ₹10,000 in premium.

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 (illustrative): Nifty 50 at 25,000. Sell the 24,500 put and the 25,500 call, buy the 24,300 put and the 25,700 call. Max profit: the net premium received, e.g. ₹40 per unit or ₹2,600 per lot.

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 (illustrative): Nifty 50 at 25,000. Buy the 25,000 call for ₹200 and the 25,000 put for ₹180 = ₹380 per unit. Profitable at expiry above 25,380 or below 24,620.

Purchase of an OTM call and OTM put option with the same expiration. Cheaper than straddle, requires larger price movement. Example (illustrative): Nifty 50 at 25,000. Buy the 25,300 call for ₹90 and the 24,700 put for ₹80 = ₹170 per unit. Cheaper than a straddle, but the index has to move further.

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 a ₹20 premium and a strike ₹100 above the purchase price → max profit = ₹120 × 500 shares = ₹60,000.

The largest possible loss of a strategy. For some strategies (e.g., naked calls) this can theoretically be unlimited. Example: when you buy a call for a premium of ₹200 on one Nifty 50 lot of 65, the maximum loss is ₹13,000.

The price level of the underlying where the options strategy neither makes profit nor loss. Critical reference point. Example: a long call with a 25,000 strike and a ₹200 premium breaks even at 25,200 at expiry (strike + premium).

The amount of money you must deposit as collateral to trade certain options strategies (especially short positions). In India the exchange sets SPAN and exposure margins, and selling one index option lot typically needs a margin in lakhs of rupees, far more than the premium. Check your broker’s margin calculator.

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

A broker’s demand for more collateral when the equity in an account falls below the required maintenance margin. If it is not met, the broker may close positions, often at the worst possible moment.

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.