A
AskThe lowest price a seller is willing to accept for an option. When you buy an option, you typically pay near the ask price.AssignmentWhen an option seller is required to fulfill the contract — selling shares (call) or buying shares (put) at the strike price. Happens when the option is exercised.At the Money (ATM)An option whose strike price equals (or is very close to) the current stock price. ATM options have the highest time value and a delta near 0.50.B
BearishExpecting the price to go down. Think of a bear swiping downward with its paw. Bear = down.BidThe highest price a buyer is willing to pay for an option. When you sell an option, you typically receive near the bid price.Bid-Ask SpreadThe difference between the bid and ask price. A tight spread (a few cents) means the option is liquid. A wide spread ($0.50+) means it's illiquid — you'll overpay to enter and underpay to exit.Black-Scholes ModelThe mathematical model used to calculate theoretical option prices. It takes in the stock price, strike price, time to expiration, interest rate, and implied volatility. Most options calculators (including this one) use Black-Scholes.BreakevenThe stock price at which your trade neither makes nor loses money at expiration. For a long call: strike + premium paid. For a long put: strike - premium paid.BullishExpecting the price to go up. Think of a bull charging forward, horns thrusting upward. Bull = up.C
Calendar SpreadA spread using options at the same strike price but different expiration dates. Profits from differences in time decay between near-term and far-term options.Call OptionA contract giving you the right to buy 100 shares of a stock at the strike price before expiration. Traders buy calls when they expect the stock to rise.Covered CallOwning 100 shares of a stock and selling a call option against them. You collect the premium as income, but your upside is capped at the strike price.CreditCash you receive when entering a trade. Credit strategies (like selling puts or credit spreads) pay you upfront. You profit if the options expire worthless.Credit SpreadA spread where you receive a net credit (cash) when entering. Bull put spreads and bear call spreads are credit spreads. Max profit is the credit received.D
DebitCash you pay when entering a trade. Debit strategies (like buying calls or debit spreads) cost money upfront. You profit if the options gain enough value.Debit SpreadA spread where you pay a net debit (cost) when entering. Bull call spreads and bear put spreads are debit spreads. Max loss is the debit paid.Delta (Δ)How much the option price changes when the stock moves $1. A call with delta 0.50 gains $0.50 when the stock rises $1. Delta also roughly approximates the probability of expiring in the money.E
ExerciseUsing your right as an option holder to buy shares (call) or sell shares (put) at the strike price. Most retail traders sell the option itself instead of exercising.Expiration DateThe last day the option contract is valid. After this date, the option ceases to exist. Standard options expire on the third Friday of the month; weekly options expire every Friday.Extrinsic ValueThe portion of an option's price beyond its intrinsic value. Also called time value. Driven by time remaining and implied volatility. Decays to zero at expiration.G
Gamma (Γ)How fast delta changes when the stock moves $1. High gamma means your position becomes increasingly sensitive to stock moves. Highest for ATM options near expiration.GreeksCollectively, the four measurements that describe how an option's price responds to different factors: delta (stock price), gamma (delta change), theta (time), and vega (volatility).I
Implied Volatility (IV)The market's forecast of how much a stock will move, expressed as an annualized percentage. High IV = expensive options. Low IV = cheap options. Derived from the option's current market price.In the Money (ITM)A call is ITM when the stock is above the strike price. A put is ITM when the stock is below the strike price. ITM options have intrinsic value.Intrinsic ValueThe real, tangible value of an option — how much it would be worth if exercised right now. For a call: stock price minus strike price (if positive). For a put: strike price minus stock price (if positive).Iron CondorA four-leg strategy combining a bull put spread and a bear call spread. Profits when the stock stays within a range. Both risk and reward are defined.IV CrushA sharp drop in implied volatility, typically after an expected event (earnings, FDA ruling). Option prices fall even if the stock moves in your favor. The #1 reason traders lose money on earnings plays.IV RankWhere current IV sits relative to its range over the past year. An IV rank of 80% means current IV is near the top of its 12-month range — options are expensive relative to recent history.L
LEAPSLong-Term Equity Anticipation Securities — options with expiration dates more than one year out. Used as a lower-cost alternative to owning stock.LegOne individual option in a multi-option strategy. A bull call spread has 2 legs. An iron condor has 4 legs.LiquidityHow easily you can enter or exit an option position. Liquid options (high volume, tight bid-ask spread) are easy to trade at fair prices. Illiquid options can cost 5-20% more to enter due to wide spreads.LongA position where you buy (own) an option. 'Going long' a call means buying a call. Your risk is limited to the premium paid.M
MoneynessDescribes where the stock price is relative to the strike: in the money (ITM), at the money (ATM), or out of the money (OTM).N
Naked OptionSelling an option without owning the underlying stock (naked call) or without cash to cover assignment (naked put). Naked calls have unlimited risk.O
Open InterestThe total number of outstanding option contracts at a specific strike and expiration. High open interest = more liquidity. It changes daily as contracts are opened and closed.Out of the Money (OTM)A call is OTM when the stock is below the strike price. A put is OTM when the stock is above the strike price. OTM options have no intrinsic value — only time value.P
PremiumThe price you pay (or receive) for an option contract. It's the total cost of the option — intrinsic value plus extrinsic (time) value.Protective PutBuying a put on a stock you already own. Acts as insurance — if the stock drops below the put's strike, the put gains value to offset your stock losses.Put OptionA contract giving you the right to sell 100 shares of a stock at the strike price before expiration. Traders buy puts when they expect the stock to fall.S
ShortA position where you sell (write) an option you don't own. 'Going short' a call means selling a call. You collect premium but take on obligation.StraddleBuying a call and a put at the same strike price and expiration. Profits from a big move in either direction. Expensive because you're buying two options.StrangleBuying an OTM call and an OTM put with the same expiration. Cheaper than a straddle but requires a bigger move to profit.Strike PriceThe price at which an option contract can be exercised. For a $200 call, the strike is $200 — you have the right to buy shares at $200.T
Theta (Θ)How much value an option loses per day from the passage of time. A theta of -0.05 means the option loses $5 per day per contract. Accelerates near expiration.Time DecayThe gradual loss of an option's extrinsic value as expiration approaches. Measured by theta. Hurts buyers, helps sellers.V
Vega (ν)How much an option's price changes when implied volatility moves 1 percentage point. High vega means the option is very sensitive to volatility changes.Vertical SpreadA spread using options at the same expiration but different strike prices. Bull call spreads, bear put spreads, and credit spreads are all vertical spreads.VolumeThe number of option contracts traded on a given day. High volume indicates active trading and usually better liquidity.Try the calculator →
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