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Options Glossary

Every options term you will meet on OptionProfit, defined in plain language. The terms stay in their usual English trader jargon; the explanations are written for learners.

0DTE (zero days to expiration): An option on its expiration day — extremely sensitive to price and time, and a fast way to win or lose the whole premium.
American-style option: An option that can be exercised any time up to expiration — the standard for single-stock and ETF options.
Assignment: When an option seller is required to fulfil the contract — deliver or buy the shares — because the buyer exercised.
Assignment risk / early assignment: The chance a short option is assigned before expiration — most likely on in-the-money calls around a dividend.
At the money (ATM): An option whose strike is at (or very near) the current stock price.
Bear put spread: Buying a put and selling a lower-strike put — a defined-risk, moderately bearish debit trade.
Bid-ask spread: The gap between the highest price buyers offer and the lowest sellers ask — a narrow spread means a liquid, cheaper-to-trade option.
Black-Scholes model: The classic formula for pricing an option from the stock price, strike, time, interest rate and volatility — the basis for the Greeks.
Box spread: A four-leg combination of a bull call spread and a bear put spread that locks in a fixed value — used mainly as a cash-like financing trade.
Break-even: The stock price at which a trade neither makes nor loses money at expiration.
Bull call spread: Buying a call and selling a higher-strike call — a defined-risk, moderately bullish debit trade.
Butterfly spread: A three-strike, defined-risk strategy that pays most if the stock lands right at the middle strike at expiration.
Buying power reduction: The amount of your account a trade ties up as collateral — how much a broker sets aside while a position is open.
Calendar spread: Selling a short-dated option and buying a longer-dated one at the same strike — a bet on time decay and stable prices.
Call: An option that gives the buyer the right to buy 100 shares at the strike price before expiration — it gains value when the stock rises.
Cash settlement: Settling an option in cash rather than delivering shares — standard for index options like SPX.
Cash-secured put: Selling a put while holding enough cash to buy the shares if assigned — a way to get paid to wait to buy a stock.
Collar: Holding shares while buying a protective put and selling a covered call — the call pays for the put, capping both downside and upside.
Contract multiplier: One equity option contract controls 100 shares, so a $2.00 premium costs $200 — always multiply the quoted price by 100.
Covered call: Selling a call against 100 shares you already own to collect premium — income in exchange for capping your upside.
Credit spread: A spread you open for a net credit — you receive premium up front and want the options to expire worthless.
Debit spread: A spread you open for a net debit — you pay premium up front and profit if the stock moves your way.
Debit vs credit: A debit trade costs money to open (you pay net premium); a credit trade pays you upfront (you receive net premium).
Deep in the money: An option whose strike is far in the money, so it is mostly intrinsic value and behaves almost like the stock itself.
Delta: How much an option’s price moves for a $1 move in the stock; also a rough proxy for the probability of finishing in the money.
Diagonal spread: A calendar spread with different strikes as well as different expirations — part directional, part time-decay bet.
European-style option: An option that can only be exercised at expiration — common for index options, which are also usually cash-settled.
Ex-dividend date: The cutoff for owning a stock to receive its next dividend — a key date for early-assignment risk on in-the-money short calls.
Exercise: Using an option’s right — buying (call) or selling (put) the 100 shares at the strike.
Expected move: The size of the move the options market implies before an event, from implied volatility — roughly the at-the-money straddle price.
Expiration: The date on which the option ends; after it, the contract either settles in the money or expires worthless.
Gamma: The rate at which delta itself changes as the stock moves — high gamma means delta shifts quickly.
Hedge: A position taken to offset the risk of another — for example buying a put to protect shares you own.
Historical volatility (HV): How much the stock has actually moved in the past, measured from its price history — the counterpart to implied volatility.
Implied volatility (IV): The volatility the market is pricing into an option — how big a move it expects; high IV makes options expensive.
In the money (ITM): An option with intrinsic value: a call whose strike is below the stock price, or a put whose strike is above it.
Intrinsic value: The part of an option’s price that is already "real" — how far it is in the money right now.
Iron butterfly: A short straddle wrapped in protective wings — a four-leg, defined-risk bet on the stock staying near one strike.
Iron condor: A four-leg, defined-risk strategy that profits when the stock stays inside a range — a bet on low movement.
IV crush: The sharp drop in implied volatility right after an event like earnings — it can sink an option’s price even if the stock moves your way.
IV rank / IV percentile: How high today’s implied volatility is versus its own past year — a way to judge whether options are currently cheap or expensive.
LEAPS: Long-dated options — those with more than roughly a year to expiration, often used as a lower-cost stock substitute.
Leverage: Controlling a large amount of stock for a small premium — options magnify both gains and losses.
Margin: Borrowed buying power from your broker; required for uncovered options, where losses can exceed the premium.
Market maker: A firm that continuously quotes bid and ask prices, providing the liquidity that lets you trade options at any time.
Max pain: The strike at which the most option premium expires worthless, causing the greatest total loss for option buyers.
Mid price: The midpoint between the bid and the ask — a fair estimate of an option’s value and a good starting point for a limit order.
Moneyness: Where the strike sits relative to the stock price — in, at or out of the money.
Naked (uncovered) option: A short option with no offsetting stock or option behind it — large or unlimited risk, needing the highest approval level.
Notional value: The total value of the stock an option controls — the strike times 100, not the premium you pay.
Open interest: The number of option contracts currently open at a given strike — a measure of how much a contract is used.
Order types (to open / to close): Options orders state intent: buy-to-open and sell-to-open start a position; buy-to-close and sell-to-close end one.
Out of the money (OTM): An option with no intrinsic value — it is all time value, and expires worthless if the stock does not move enough.
Pin risk: The uncertainty when a stock closes right at your short strike on expiration — you may or may not be assigned, leaving an unexpected position.
Poor man’s covered call (PMCC): Using a deep in-the-money LEAPS call as a stock substitute and selling short-dated calls against it — a covered call for less capital.
Premium: The price of the option itself — what the buyer pays and the seller receives, quoted per share (so × 100 per contract).
Probability of profit (POP): The estimated chance a trade finishes profitable, derived from implied volatility and the breakevens.
Protective put: Buying a put against shares you own to set a floor under their price — insurance for a paid premium.
Put: An option that gives the buyer the right to sell 100 shares at the strike price before expiration — it gains value when the stock falls.
Put-call parity: The fixed relationship between a call, a put, the stock and the strike that keeps prices consistent — break it and there is an arbitrage.
Ratio spread: A spread with more options sold than bought — it collects extra premium but leaves some uncovered risk.
Rho: How much an option’s price changes when interest rates move by one percentage point — usually the smallest of the Greeks.
Rolling: Closing an option and reopening a similar one at a later date or different strike — used to extend a trade or manage risk.
Slippage: The difference between the price you expected and the price you actually got — worse on wide, illiquid option spreads.
Spread: A position made of two or more options combined, usually to cap both the cost and the risk.
Straddle: Buying (or selling) a call and a put at the same strike — a pure bet on how much the stock moves, in either direction.
Strangle: Like a straddle but with the call and put at different out-of-the-money strikes — cheaper, but needs a bigger move to pay off.
Strike price: The fixed price at which an option can be exercised — the reference point around which a call or put pays off.
Synthetic position: Combining options (and sometimes stock) to replicate another instrument’s payoff — e.g. a call plus a short put behaves like long stock.
The Greeks: The set of measures — delta, gamma, theta, vega, rho — that describe how an option’s price reacts to price, time, volatility and rates.
The wheel strategy: A cycle of selling cash-secured puts, taking assignment, then selling covered calls — a mechanical income routine on stocks you want to own.
Theta: How much value an option loses each day from time decay; it works against buyers and for sellers.
Time value (extrinsic): The rest of an option’s price beyond intrinsic value — what you pay for the time and volatility remaining; it decays to zero by expiration.
Underlying: The stock, ETF or index an option is based on — its price is what the option ultimately tracks.
Vega: How much an option’s price changes when implied volatility rises or falls by one point.
Vertical spread: Buying and selling two options of the same type and expiration but different strikes — a defined-risk directional bet.
Volatility skew: The pattern where options at different strikes carry different implied volatilities — usually puts are pricier, reflecting crash fear.
Volume: The number of option contracts traded during the day — a gauge of how active a strike is right now.
Weeklys: Options that expire every week rather than monthly — popular for short-term trades and precise timing around events.

Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss. Guides · Strategies.