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.

Course catalogue99 lessons

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. See it in action →
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. See it in action →
Bid: The best price someone will currently pay you. See it in action →
Bid-ask spread: The gap between bid and ask, a real cost paid on entry and again on exit. See it in action →
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. See it in action →
Buying power: What your broker will actually let you commit, which is not your account balance. See it in action →

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. See it in action →
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. See it in action →

D

Debit spread: A spread opened for net cash paid. See it in action →
Defined risk: A position whose maximum loss is a known, finite number before you open it. See it in action →
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. See it in action →
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. See it in action →
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. See it in action →
Gamma risk: The late-cycle danger that a small stock move swings your delta violently. See it in action →

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. See it in action →
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. See it in action →
IV crush: The collapse in implied volatility immediately after a scheduled event resolves. See it in action →
IV percentile: The share of the last year's days that had lower IV than today. Often disagrees with IV rank. See it in action →
IV rank: Where today's IV sits between its 52-week low and high. See it in action →

L

Leg: One contract within a multi-contract position. See it in action →
Liquidity: How easily a contract trades near its mid price. See it in action →
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. See it in action →
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. See it in action →
Option chain: The grid of every strike and expiration a broker will quote for one underlying. See it in action →
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

Premium: The price of the contract, quoted per share and paid per hundred. See it in action →
Probability of profit: Modelled odds of finishing above breakeven. Says nothing about the size of the loss. See it in action →
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. See it in action →
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. See it in action →
Slippage: The difference between the price you modelled and the price you filled at. See it in action →
Spread (strategy): Any position built from more than one option leg on the same underlying. See it in action →
Straddle: A call and a put at the same strike. A pure bet on the size of a move. See it in action →
Strangle: A call and a put at different strikes. Cheaper than a straddle, needs a bigger move. See it in action →
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. See it in action →
Volatility smile: The curve traced by implied volatility across strikes. See it in action →
Volume: Contracts traded today at a strike. See it in action →

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. See it in action →