Trading
Glossary
Definitive reference for options mechanics, Greeks, and volatility concepts.
A
[3 Entries]B
[4 Entries]C
[7 Entries]Calendar Spread
Buying and selling options of the same strike but different expirations.
Call
An option contract giving the right to buy the underlying asset.
Cash-Secured Put
Selling a put option backed by cash to buy the stock.
Charm
Measures the rate of change of Delta over time (Delta decay).
Color
Measures the rate of change of Gamma over time.
Contract Multiplier
The standard size of an option contract (usually 100 shares).
Covered Call
Selling a call option while owning the underlying stock.
D
[5 Entries]Delta
Measures sensitivity of option price to changes in the underlying price.
Delta Hedging
Reducing directional risk by establishing a Delta-neutral position.
Diagonal Spread
Entering options with different strikes and different expirations.
Dividend Yield
The ratio of a company's annual dividend compared to its share price.
DTE (Days to Expiration)
The number of days remaining until an option contract expires.
E
[6 Entries]Earnings Move
The expected price move implied by options pricing around earnings.
Event Volatility
Volatility associated with a specific scheduled event.
Exercise
When an option buyer chooses to use their right to buy/sell the underlying.
Expected Value
The average P&L of a trade if repeated many times.
Expiration
The date and time when an option contract becomes void.
Extrinsic Value
The portion of option price attributable to time and volatility (Time Value).
G
[3 Entries]I
[4 Entries]Implied Volatility (IV)
The market's forecast of a likely movement in a security's price.
Intrinsic Value
The value of an option if it were exercised immediately (ITM amount).
Iron Condor
A neutral strategy combining a bull put spread and bear call spread.
IV Crush
A rapid drop in Implied Volatility, often after an earnings event.
L
[2 Entries]M
[5 Entries]Max Loss
The maximum possible loss from a strategy.
Max Profit
The maximum possible gain from a strategy.
Mid
The average of the bid and ask prices.
Moneyness (ITM/ATM/OTM)
The relationship between the strike price and the current underlying price.
Monte Carlo Simulation
Using random sampling to model probability of different outcomes.
O
[2 Entries]P
[7 Entries]P&L Curve
A graph showing profit/loss against underlying price.
P&L Surface
A 3D visualization of P&L against price and time.
Payoff Diagram
A chart showing the P&L of a strategy at expiration.
Premium
The market price of an option contract.
Probability of Profit (POP)
The probability that a trade will be profitable at expiration.
Probability of Touch (POT)
The probability that the underlying price will touch a strike price.
Put
An option contract giving the right to sell the underlying asset.
R
[6 Entries]Ratio Spread
Buying and selling an unequal number of options.
Realized Volatility
The actual volatility that occurred over a specific period.
Rho
Measures sensitivity to changes in interest rates.
Risk Profile
A comprehensive view of a strategy's potential risk and reward.
Risk Reversal
Buying a call and selling a put (or vice versa) to simulate stock exposure.
Risk-Free Rate
The theoretical return of an investment with zero risk (often treasury yields).
S
[10 Entries]Scenario Analysis
Testing how a portfolio performs under specific market conditions.
Skew Trading
Trading the difference in IV between options at different strikes.
Slippage
The difference between expected price and executed price.
Speed
Measures the rate of change of Gamma with respect to underlying price.
Spread
The difference between the bid and ask prices.
Stock
Understand what stocks are, how they work, and their fundamental role in options trading as the 'underlying asset'.
Straddle
Buying/selling both a call and put at the same strike and expiration.
Strangle
Buying/selling OTM call and OTM put at different strikes.
Stress Test
Evaluating portfolio resilience against extreme market moves.
Strike
The set price at which an option contract can be exercised.
T
[2 Entries]V
[11 Entries]Vanna
Measures sensitivity of Delta to changes in IV.
Vega
Measures sensitivity to changes in implied volatility.
Vertical Spread
Buying and selling options of the same type and expiration but different strikes.
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
Volatility Arbitrage
Exploiting the difference between implied and realized volatility.
Volatility Skew
The difference in IV between options at different strikes.
Volatility Smile
A pattern where ATM options have lower IV than OTM options.
Volatility Surface
A 3D plot showing implied volatility across all strikes and expirations.
Volga
Measures sensitivity of Vega to changes in IV.
Volume
The number of contracts traded during a specific period.
Vomma
Measures sensitivity of Vega to changes in IV (same as Volga).