Options Terminology Index
One sentence per term, then a link to the lesson where you can actually move the model and watch the concept behave. Depth lives in the lessons, not here.
A
- Annualised return
- Return on capital scaled to a year. Comparable across durations, and easy to misread. See it in action →
- Ask
- The best price someone will currently sell to you at.
- Assignment
- The obligation coming due: as a put seller you buy the shares, as a call seller you deliver them. See it in action →
- Assignment probability
- The odds of finishing in the money. Related to delta, but not equal to it. See it in action →
- At the money
- The stock is sitting essentially on the strike, where extrinsic value peaks. See it in action →
B
- Bear call spread
- Short call, long higher call.
- Bid
- The best price someone will currently pay you.
- Bid-ask spread
- The gap between bid and ask — a real cost paid on entry and again on exit.
- Breakeven
- The underlying price at which the position returns exactly zero at expiration. See it in action →
- Bull put spread
- Short put, long lower put. A cash-secured put with the tail cut off.
- Buying power
- What your broker will actually let you commit, which is not your account balance.
C
- Call
- The right to buy shares at the strike; its seller may be forced to deliver them. See it in action →
- Called away
- Your shares sold at the strike because the covered call finished in the money. See it in action →
- Cash-secured put
- A short put with the full assignment cost set aside in cash. See it in action →
- Concentration risk
- Too much of one account riding on one underlying or one correlated theme.
- Contract multiplier
- The 100 that turns a quoted price per share into the dollars that leave your account. See it in action →
- Cost basis
- What your shares actually cost you after premium is credited against them. See it in action →
- Covered call
- A short call written against 100 shares you already own. See it in action →
- Credit spread
- A spread opened for net cash received.
D
- Debit spread
- A spread opened for net cash paid.
- Defined risk
- A position whose maximum loss is a known, finite number before you open it.
- Delta
- How much the option price moves per $1 of stock movement — and a rough, flawed proxy for assignment odds. See it in action →
E
- Event risk
- A known date — earnings, a ruling, a print — that the model's smooth assumptions cannot represent.
- Exercise
- The buyer choosing to use their right. Assignment is what that does to the seller. See it in action →
- Expected value
- Every outcome weighted by its probability. The number a high win rate can hide.
- Expiration
- The date the contract stops existing and any remaining time value is gone. See it in action →
- Extrinsic value
- Everything above intrinsic. The only part that decays, and the only part a seller collects. See it in action →
G
- Gamma
- How fast delta itself changes. The reason short options get twitchy near expiration.
- Gamma risk
- The late-cycle danger that a small stock move swings your delta violently.
H
- Hedge ratio
- Delta read as the number of shares the option currently behaves like. See it in action →
I
- Implied volatility
- The volatility number that makes the model agree with the market price. An output, not a forecast.
- In the money
- The contract has intrinsic value: exercising it today would be worth doing. See it in action →
- Intrinsic value
- The part of a premium you would keep if the stock froze forever. See it in action →
- Iron condor
- A bull put spread and a bear call spread on the same underlying and expiration.
- IV crush
- The collapse in implied volatility immediately after a scheduled event resolves.
- IV percentile
- The share of the last year's days that had lower IV than today. Often disagrees with IV rank.
- IV rank
- Where today's IV sits between its 52-week low and high.
L
- Leg
- One contract within a multi-contract position.
- Liquidity
- How easily a contract trades near its mid price.
- Long
- You bought it. Your loss is capped at what you paid. See it in action →
M
- Max loss
- The worst arithmetic outcome at expiration. Infinite for some short positions.
- Moneyness
- Where the stock sits relative to your strike, right now. See it in action →
N
- Net credit
- Cash received minus cash paid on a multi-leg ticket. Negative means it was a debit. See it in action →
O
- Open interest
- Contracts currently outstanding at a strike. A liquidity signal, not a direction signal.
- Option chain
- The grid of every strike and expiration a broker will quote for one underlying.
- Option contract
- An agreement covering 100 shares that gives its buyer a right and its seller an obligation. See it in action →
- Out of the money
- No intrinsic value; the entire premium is time and volatility. See it in action →
P
- Probability of profit
- Modelled odds of finishing above breakeven. Says nothing about the size of the loss.
- Put
- The right to sell shares at the strike; its seller may be forced to buy them. See it in action →
R
- Return if called
- Total return when a covered call finishes in the money and the shares go. See it in action →
- Return on capital
- Premium divided by the capital the trade ties up, before annualising. See it in action →
- Rho
- Sensitivity to interest rates. Negligible on weeklies, real on LEAPS.
- Roll down
- Lower strike, usually later expiration, usually after the stock moved against you. See it in action →
- Roll out
- Same strike, later expiration. See it in action →
- Rolling
- Closing one leg and opening a later one in a single decision. See it in action →
S
- Short
- You sold it. Your gain is capped at what you collected. See it in action →
- Skew
- Downside strikes carrying more implied volatility than upside ones.
- Slippage
- The difference between the price you modelled and the price you filled at.
- Spread (strategy)
- Any position built from more than one option leg on the same underlying.
- Straddle
- A call and a put at the same strike. A pure bet on the size of a move.
- Strangle
- A call and a put at different strikes. Cheaper than a straddle, needs a bigger move.
- Strike price
- The price at which the contract lets shares change hands. See it in action →
- Strike selection
- Choosing where to sell, usually by delta, cushion, or a price you would happily own at. See it in action →
T
- Theta
- Dollars of extrinsic value lost per day. Positive for sellers, negative for buyers. See it in action →
- Time decay
- The non-linear bleed of extrinsic value, fastest in the final weeks. See it in action →
- Time value
- Another name for extrinsic value. See it in action →
U
- Undefined risk
- A position whose worst case has no arithmetic limit, such as a naked short call. See it in action →
V
- Vega
- P&L per one-point change in implied volatility, with the stock standing still.
- Volatility smile
- The curve traced by implied volatility across strikes.
- Volume
- Contracts traded today at a strike.
W
- Wheel strategy
- Cycling cash-secured puts into assignment into covered calls, repeatedly. See it in action →
- Wing
- The long option that caps one side of a spread's risk.