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Options

Contracts, the Greeks, volatility and common structures.

• AssignmentWhen an option seller is required to fulfill the contract because the buyer exercised it.
• At the money (ATM)An option whose strike price is at or very near the current stock price.
• Call optionA contract giving the right, not the obligation, to buy 100 shares at a set price before it expires.
• Cash-secured putSelling a put while holding enough cash to buy the shares if assigned.
• Covered callOwning 100 shares and selling a call against them to collect premium.
• Credit spreadA two-option position opened by receiving a net premium, with defined risk.
• Debit spreadA two-option position opened by paying a net premium, with defined risk.
• DeltaHow much an option's price is expected to change for a $1 move in the stock.
• Expiration dateThe last day an option contract can be exercised.
• Extrinsic value (time value)The part of an option's price above its intrinsic value.
• GammaHow quickly an option's delta changes as the stock moves.
• Implied volatility (IV)The volatility the market is pricing into an option, backed out from its price.
• In the money (ITM)A call whose strike is below the stock price, or a put whose strike is above it.
• Intrinsic valueThe amount an option is in the money, the value if exercised right now.
• Iron condorA four-option position that profits if the stock stays inside a range.
• IV crushA sharp fall in implied volatility after a known event, such as earnings.
• IV rankWhere current implied volatility sits within its 52-week high-low range, from 0 to 100.
• LEAPSOptions with expirations more than a year away.
• Max painThe strike at which option holders, in total, would lose the most at expiration.
• Open interestThe number of option contracts that are currently open and not yet closed.
• Options chainA table of all available option contracts for a stock, by expiration and strike.
• Out of the money (OTM)A call whose strike is above the stock price, or a put whose strike is below it.
• Premium (option)The price of an option contract.
• Protective putOwning shares and buying a put as insurance against a drop.
• Put optionA contract giving the right, not the obligation, to sell 100 shares at a set price before it expires.
• Put/call ratioPut volume divided by call volume, used as a gauge of market sentiment.
• StraddleBuying a call and a put at the same strike and expiration to bet on a big move in either direction.
• StrangleBuying an out-of-the-money call and put to bet on a big move in either direction.
• Strike priceThe fixed price at which an option can be exercised.
• Theta (time decay)The amount an option loses in value each day as time passes.
• VegaHow much an option's price changes for a 1-point change in implied volatility.
• Vertical spreadBuying one option and selling another of the same type and expiration at a different strike.
• Zero-day options (0DTE)Options that expire the same day they trade.

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