Options glossary
Plain-English definitions of the options terms you'll meet across the strategies and academy — each with a worked example and authoritative sources.
- American vs. European Options
American-style options can be exercised any time before expiration; European-style options can be exercised only at expiration.
- Assignment
Assignment is when an option seller is required to fulfill the contract — delivering shares on a short call, or buying shares on a short put.
- At the Money (ATM)
An option is at-the-money when its strike price is approximately equal to the current price of the underlying.
- Bid-Ask Spread
The bid-ask spread is the gap between the highest price a buyer will pay (bid) and the lowest a seller will accept (ask) for an option.
- Break-Even
The break-even is the underlying price at which an options position makes neither a profit nor a loss at expiration.
- Call Option
A call option is a contract giving the buyer the right, but not the obligation, to buy 100 shares of the underlying at a fixed strike price before expiration.
- Delta
Delta measures how much an option’s price changes for a $1 change in the underlying, ranging 0 to 1 for calls and 0 to −1 for puts.
- Exercise
Exercise is the act of invoking an option’s right — buying the underlying with a call or selling it with a put at the strike price.
- Expiration
Expiration is the date and time after which an option contract is no longer valid and any remaining time value is gone.
- Extrinsic Value
Extrinsic value (time value) is the part of an option’s premium beyond its intrinsic value, reflecting time to expiration and implied volatility.
- Gamma
Gamma measures how fast an option’s delta changes for a $1 move in the underlying — the curvature of the position.
- Historical Volatility
Historical (realized) volatility measures how much an underlying actually moved in the past, computed from its price returns and annualized as a percentage.
- Implied Volatility
Implied volatility (IV) is the market’s forecast of how much an underlying will move, expressed as an annualized percentage and backed out of an option’s price.
- In the Money (ITM)
An option is in-the-money when exercising it would produce a positive payoff: a call with the strike below spot, or a put with the strike above spot.
- Intrinsic Value
Intrinsic value is the portion of an option’s premium that would be realized if it were exercised right now — how far in-the-money it is.
- IV Rank
IV Rank tells you where current implied volatility sits within its own range over the past year, on a 0–100 scale.
- Moneyness
Moneyness describes the relationship between an option’s strike and the underlying’s price — in-the-money, at-the-money, or out-of-the-money.
- Open Interest
Open interest is the total number of option contracts that are currently outstanding and not yet closed or exercised.
- Out of the Money (OTM)
An option is out-of-the-money when exercising it would not pay off: a call with the strike above spot, or a put with the strike below spot.
- Premium
The premium is the price a buyer pays the seller for an option, quoted per share and multiplied by 100 for one standard contract.
- Put Option
A put option is a contract giving the buyer the right, but not the obligation, to sell 100 shares of the underlying at a fixed strike price before expiration.
- Put-Call Parity
Put-call parity is the no-arbitrage relationship linking the prices of a European call and put with the same strike and expiration to the underlying and a bond.
- Rho
Rho measures how much an option’s price changes for a 1-percentage-point change in the risk-free interest rate.
- Strike Price
The strike price is the fixed price at which an option lets its holder buy (call) or sell (put) the underlying.
- The Greeks
The Greeks are risk measures that quantify how an option’s price responds to changes in the underlying, time, volatility, and interest rates.
- Theta
Theta is the option Greek that measures how much an option’s price falls for each day that passes, holding all else equal.
- Vega
Vega measures how much an option’s price changes for a 1-percentage-point change in implied volatility.
- Volume
Volume is the number of option contracts traded during a given period, usually one trading day.
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