Leverage

Controlling a large amount of stock for a small premium — options magnify both gains and losses.

Leverage is the reason a single option contract can move your account far more than the same money spent on shares. Because a contract controls 100 shares for a fraction of their price, a small move in the underlying can produce a large percentage swing in the premium. Traders measure part of this with delta, which tells you roughly how much the option gains or loses per dollar the stock moves.

Say a stock trades at 50 and a call costs 2 (200 dollars for the contract). If the stock climbs to 53, that call might be worth around 4. The stock rose 6 percent, but your position nearly doubled. Buying 100 shares outright would have cost 5,000 and returned that same 6 percent.

The mistake is treating leverage as free upside. It cuts both ways, and options add theta decay on top, so the underlying can drift sideways and you still lose. Size positions by the dollars you can afford to lose, not by how cheap the premium looks.

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All options terms

Call Put Strike price Premium Expiration In the money (ITM)At the money (ATM)Out of the money (OTM)Intrinsic value Time value (extrinsic)Delta Gamma Theta Vega Implied volatility (IV)Open interest Assignment Exercise Spread Break-even Probability of profit (POP)Assignment risk / early assignment LEAPS Naked (uncovered) option Rho Historical volatility (HV)Volume Bid-ask spread Moneyness Covered call Cash-secured put Vertical spread Iron condor Straddle Strangle Rolling Margin Max pain American-style option European-style option Contract multiplier Debit vs credit Volatility skew The Greeks Underlying Hedge Expected move Notional value Protective put Collar Butterfly spread Iron butterfly Calendar spread Diagonal spread Credit spread Debit spread Bull call spread Bear put spread Ratio spread Synthetic position The wheel strategy Poor man’s covered call (PMCC)Box spread Put-call parity Pin risk IV crush IV rank / IV percentile Ex-dividend date Deep in the money Weeklys 0DTE (zero days to expiration)Order types (to open / to close)Buying power reduction Cash settlement Market maker Slippage Mid price Black-Scholes model

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