A comprehensive glossary of terms used in options trading. Use this as a quick reference when you encounter unfamiliar terminology.

Ask

The price at which a seller is willing to sell an option. Also called the offer price.

Assignment

When an option seller is obligated to fulfill the terms of the contract. Call sellers must sell shares; put sellers must buy shares.

At-the-Money (ATM)

An option with a strike price equal to or very close to the current market price of the underlying.

Bid

The price at which a buyer is willing to buy an option.

Bid-Ask Spread

The difference between the bid and ask price. Wider spreads indicate less liquidity.

Call Option

A contract giving the holder the right to buy the underlying asset at the strike price.

Covered Call

A strategy where you sell call options against shares you already own.

Delta

A Greek measuring how much an option's price changes for a $1 move in the underlying. Ranges from 0 to 1 for calls, -1 to 0 for puts.

Exercise

When an option holder uses their right to buy (call) or sell (put) the underlying at the strike price.

Expiration Date

The date on which an option contract expires and becomes worthless if not exercised.

Gamma

A Greek measuring the rate of change of delta for a $1 move in the underlying.

Implied Volatility (IV)

The market's expectation of future volatility, derived from option prices. Higher IV means higher option premiums.

In-the-Money (ITM)

A call option where stock price > strike price, or a put option where stock price < strike price.

Intrinsic Value

The amount by which an option is in-the-money. For ITM calls: Stock Price - Strike Price.

Iron Condor

A neutral strategy combining a bull put spread and bear call spread to profit from range-bound movement.

Leg

One component of a multi-part options strategy.

Long

Being the buyer of an option. A long call profits when the underlying rises; a long put profits when it falls.

Margin

Collateral required by brokers for certain options positions, especially short options.

Naked Option

A short option position without owning the underlying (naked call) or having cash to buy it (naked put).

Open Interest

The total number of outstanding option contracts that have not been closed or exercised.

Out-of-the-Money (OTM)

A call option where stock price < strike price, or a put option where stock price > strike price.

Premium

The price paid to purchase an option, or received when selling an option.

Put Option

A contract giving the holder the right to sell the underlying asset at the strike price.

Rho

A Greek measuring sensitivity to changes in interest rates. Generally minor for short-term options.

Short

Being the seller of an option. Short sellers collect premium but have obligations if assigned.

Spread

A strategy involving multiple options of the same type (calls or puts) with different strikes or expirations.

Straddle

Buying a call and put at the same strike and expiration to profit from large moves in either direction.

Strangle

Buying an OTM call and OTM put to profit from large moves at lower cost than a straddle.

Strike Price

The price at which the option holder can buy (call) or sell (put) the underlying asset.

Theta

A Greek measuring time decay—how much value an option loses each day. Usually negative for long options.

Time Value

The portion of an option's premium above its intrinsic value, representing potential for future profit.

Underlying

The asset (stock, ETF, index) that the option contract is based on.

Vega

A Greek measuring sensitivity to changes in implied volatility. Higher for longer-dated options.

Volume

The number of option contracts traded during a specific period.

Writer

The seller of an option. Option writers collect premium but have obligations.