Options Trading Glossary
⚠️ Educational content only. NOT financial advice.
Call Option
A contract giving the buyer the right, but not the obligation, to buy 100 shares of the underlying stock at the strike price before expiration.
Put Option
A contract giving the buyer the right, but not the obligation, to sell 100 shares of the underlying stock at the strike price before expiration.
Strike Price
The predetermined price at which the option can be exercised. For calls, this is the price you can buy at. For puts, the price you can sell at.
Expiration Date
The last day the option contract is valid. After this date, the option expires worthless if not exercised.
Premium
The price you pay to buy an option (or receive when selling). It's quoted per share but you pay for 100 shares per contract.
In-The-Money (ITM)
A call is ITM when stock price > strike price. A put is ITM when stock price < strike price. The option has intrinsic value.
At-The-Money (ATM)
When the stock price equals (or is very close to) the strike price. ATM options have the highest time value and gamma.
Out-Of-The-Money (OTM)
A call is OTM when stock price < strike. A put is OTM when stock price > strike. These have no intrinsic value, only time value.
Moneyness
Describes the relationship between the current stock price and the option's strike price. Determines if an option is ITM, ATM, or OTM.
Intrinsic Value
The real, tangible value of an option. For calls: max(0, stock price - strike). For puts: max(0, strike - stock price).
Time Value (Extrinsic Value)
The portion of the option premium above intrinsic value. Represents the market's expectation of future movement. Decays to zero at expiration.
Implied Volatility (IV)
The market's forecast of likely future price movement, derived from option prices. Higher IV = more expensive options. It's a forward-looking measure, not historical.
Historical Volatility (HV)
The actual realized price fluctuation of the stock over a past period (usually 1 year). Calculated from standard deviation of daily returns, annualized.
IV Rank / Percentile
Where current IV sits relative to its range over the past year. IV Rank = (current IV - low IV) / (high IV - low IV). Low rank = options are cheap relative to history.
Delta (Δ)
Measures how much the option price changes per $1 move in the stock. Call delta: 0 to 1. Put delta: -1 to 0. Also approximates probability of finishing ITM.
Gamma (Γ)
The rate of change of Delta per $1 move in the stock. Highest for ATM options near expiration. Large gamma means delta is changing fast — high risk/reward.
Theta (Θ)
Time decay — how much the option loses per day, all else equal. Always negative for long options. Accelerates as expiration approaches (theta crush).
Vega (ν)
Sensitivity to implied volatility. How much the option price changes per 1% change in IV. Higher vega = option is more sensitive to volatility changes.
Rho (ρ)
Sensitivity to interest rates. How much the option price changes per 1% change in the risk-free rate. Usually the least impactful Greek for short-dated options.
Open Interest (OI)
The total number of outstanding option contracts that have not been closed or exercised. Higher OI = more liquid, easier to enter/exit positions.
Volume
The number of contracts traded during the current session. High volume indicates active interest and better liquidity.
Bid-Ask Spread
The difference between the highest price a buyer will pay (bid) and the lowest a seller will accept (ask). Tight spreads = more liquid, fairer pricing.
Breakeven Point
The stock price at expiration where you neither profit nor lose. For calls: strike + premium paid. For puts: strike - premium paid.
IV Skew / Smile
The pattern of implied volatility across different strike prices for the same expiration. Typically, OTM puts have higher IV than ATM (skew), showing demand for downside protection.
Assignment
When the option seller is required to fulfill the contract — buy shares (put assignment) or sell shares (call assignment) at the strike price.
Exercise
When the option buyer uses their right to buy (call) or sell (put) at the strike price. Usually happens when the option is ITM at expiration.