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An option that can be exercised at any time before expiration. Most stock options in the US are American-style. Compare with European options which can only be exercised at expiration.

You hold an AAPL call that expires in 30 days. As an American option, you can exercise it today if AAPL spikes.

The lowest price a seller is willing to accept for an option. When you buy, you typically pay the ask price. The difference between bid and ask is called the spread.

When an option seller is required to fulfill their obligation. Call sellers must sell shares; put sellers must buy shares. Assignment typically happens when options are in-the-money at expiration.

You sold a $150 put on AAPL. If AAPL closes at $145 at expiration, you'll likely be assigned and must buy 100 shares at $150.

An option whose strike price is equal to (or very close to) the current price of the underlying asset. ATM options have the highest time value and typically a delta around 0.50.

AAPL trades at $150. The $150 strike call is at-the-money.

Options that are in-the-money by $0.01 or more at expiration are automatically exercised by the OCC (Options Clearing Corporation) unless the holder instructs otherwise.

A volatility indicator that measures the average range between high and low prices over a period. Used to set stop losses and estimate expected moves.

The highest price a buyer is willing to pay for an option. When you sell, you typically receive the bid price.

The difference between the bid and ask prices. Tighter spreads indicate more liquid options. Wide spreads increase trading costs.

Bid: $2.50, Ask: $2.60. Spread = $0.10 or 4%. This is a reasonably tight spread.

The foundational mathematical model for pricing European-style options. Inputs include stock price, strike, time to expiration, risk-free rate, and volatility.

The underlying price at which an option position results in neither profit nor loss at expiration. For calls: strike + premium paid. For puts: strike - premium paid.

Buy $150 call for $3.00. Breakeven = $153. Stock must be above $153 at expiration to profit.

A bullish strategy where you buy a call and sell a higher strike call with the same expiration. Limits both profit and risk. Also called a call debit spread.

A bullish credit spread where you sell a put and buy a lower strike put. Maximum profit is the credit received; max loss is the spread width minus credit.

A neutral strategy using three strikes: buy 1 low, sell 2 middle, buy 1 high. Max profit at middle strike. Low cost, defined risk, high reward if price pins at center.

Closing an existing short option position by buying it back. Used to exit sold options before expiration, take profits, or cut losses.

Opening a new long option position by buying. You pay the premium and gain the right (not obligation) to exercise.

A strategy using options at the same strike but different expirations. Typically sell near-term, buy longer-term. Profits from time decay differential and IV expansion.

A contract giving the holder the right to buy 100 shares of the underlying at the strike price before expiration. Call buyers are bullish; call sellers are neutral to bearish.

Buy AAPL $150 call for $5. If AAPL rises to $160, your call is worth at least $10 (intrinsic value).

Selling a put while holding enough cash to buy the shares if assigned. A conservative income strategy. Part of the popular "Wheel" strategy.

A second-order Greek measuring how delta changes as time passes. Also called delta decay. Important for understanding how directional exposure shifts over time.

A protective strategy: own shares, buy a put for protection, sell a call to offset the put cost. Limits both upside and downside. Zero-cost collars are possible.

A four-leg neutral strategy using four different strikes. Similar to butterfly but with a wider profit zone and lower max profit. Iron condor uses both puts and calls.

One options contract represents 100 shares of the underlying. When you see an option priced at $2.00, the actual cost is $200 (100 x $2.00).

Selling a call against 100 shares you own. Generates income from premium but caps upside. The most popular options strategy for beginners.

Own 100 AAPL at $150. Sell $160 call for $2. Keep $200 premium. If AAPL stays below $160, keep shares + premium.

Money received when opening a position. Credit spreads and naked option sales generate credits. The credit is your maximum profit potential.

A spread where you receive more premium than you pay. You collect credit upfront and profit if the spread expires worthless or decreases in value.

The number of calendar days until an option expires. Critical for time decay calculations. Options lose value faster as DTE decreases, especially under 30 DTE.

Money paid when opening a position. Debit spreads and long options require paying premium. Your debit is the maximum you can lose.

A spread where you pay more premium than you receive. Requires the underlying to move in your direction to profit. Lower cost than naked options.

Measures 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. Also approximates probability of expiring ITM.

A call with 0.50 delta gains ~$0.50 when the stock rises $1. It has roughly a 50% chance of expiring in-the-money.

Adjusting positions to achieve delta-neutral exposure. Market makers continuously delta hedge. Retail traders may hedge to reduce directional risk.

A position with zero net delta, meaning it doesn't profit or lose from small moves in the underlying. Profits from other factors like theta or vega.

A spread using different strikes AND different expirations. Combines features of vertical and calendar spreads. Popular for income with directional bias.

An option that can only be exercised at expiration, not before. Index options (SPX, NDX) are typically European-style. Avoids early assignment risk.

Using your right as an option holder. Call exercise = buy shares at strike. Put exercise = sell shares at strike. Most traders sell options rather than exercise.

The price range the market expects based on implied volatility. Calculated as stock price x IV x sqrt(DTE/365). Useful for setting strike selection.

Stock at $100, IV 30%, 30 DTE. Expected move = $100 x 0.30 x sqrt(30/365) = ~$8.60

The date when an option contract expires. After this date, the option no longer exists. Standard options expire on the third Friday of the month.

The portion of an option's price above its intrinsic value. Also called time value. Extrinsic value decays to zero at expiration.

AAPL at $155. The $150 call trades at $7. Intrinsic = $5, Extrinsic = $2.

When your order is executed. A "fill" means your trade went through. Partial fills occur when only some contracts execute.

The nearest expiration month. Front-month options have the highest theta decay and are most sensitive to gamma. Also called "near-term."

Measures how fast delta changes for a $1 move in the underlying. High gamma means delta shifts quickly. ATM options near expiration have the highest gamma.

Call has 0.50 delta and 0.05 gamma. After a $1 up move, delta becomes 0.55.

The risk that rapid delta changes will cause large P&L swings. Short gamma positions can lose money quickly on big moves. Highest near expiration.

A strategy where you hold long gamma positions and trade the underlying to capture profits from price swings. Buy low, sell high repeatedly.

The total gamma exposure of market makers across all strikes. Positive GEX suggests dealers will hedge in a stabilizing way. Negative GEX can amplify moves.

Metrics that measure an option's sensitivity to various factors: Delta (price), Gamma (delta change), Theta (time), Vega (volatility), Rho (interest rates).

A position taken to reduce risk in another position. Buying puts to protect stock holdings is a common hedge. Options are excellent hedging tools.

The actual volatility a stock has experienced over a past period, measured using close-to-close returns. Calculated across various windows (5-day to 1000-day). Compare HV to IV to assess if options are cheap or expensive.

AAPL's 20-day HV is 25%. If IV is 30%, options are pricing in more vol than recently occurred — potentially overpriced.

The current state of realized volatility: expanding, contracting, or normal. Determined by comparing short-window HV (e.g. 10-day) to long-window HV (e.g. 60-day). Ratio above 1.3x = expanding, below 0.7x = contracting.

TSLA's 10d HV is 45% and 60d HV is 30% (ratio 1.5x) — an expanding regime signaling elevated recent moves.

HV plotted across different measurement windows (5d through 1000d). A normal upward slope means longer windows show higher vol. An inverted structure (short > long) indicates a recent spike that often mean-reverts.

Splitting realized volatility into close-to-close HV (includes overnight gaps) and open-range HV (intraday moves only). When close-to-close is much higher, overnight events are driving vol. When they converge, intraday trading dominates.

Historical volatility with earnings day moves stripped out, revealing the underlying vol regime without event distortion. The gap between regular and ex-earnings HV shows how much earnings contribute to overall realized vol.

AMZN's 20d HV is 35% but ex-earnings is 22%. The 13-point gap shows earnings moves are a huge vol driver.

The market's expectation of future volatility implied by option prices. Higher IV = more expensive options. IV is forward-looking, unlike historical volatility.

AAPL has 25% IV. The market expects AAPL to move within a ~25% range annualized.

A rapid drop in implied volatility, typically after earnings or events. Even if you're right on direction, IV crush can cause losses on long options.

The percentage of days over the past year that IV was lower than current IV. IV percentile of 80% means current IV is higher than 80% of the past year.

Current IV relative to its 52-week high and low. Formula: (Current IV - 52wk Low) / (52wk High - 52wk Low). Above 50 suggests elevated IV.

IV Range: 20-40%. Current IV: 35%. IV Rank = (35-20)/(40-20) = 75%

A call is ITM when stock price > strike. A put is ITM when stock price < strike. ITM options have intrinsic value and higher deltas.

AAPL at $155. The $150 call is $5 in-the-money.

The amount an option is in-the-money. For calls: stock price - strike (if positive). For puts: strike - stock price (if positive). Can never be negative.

A neutral strategy: sell ATM straddle, buy OTM strangle for protection. Similar to iron condor but with middle strikes at the same price. Higher credit, narrower profit zone.

A neutral credit strategy with four legs: sell OTM put spread + sell OTM call spread. Profits when price stays between short strikes. Defined risk on both sides.

A strategy combining a short put with a short call spread. No upside risk if set up for a credit greater than the call spread width. Profits from neutral to bullish moves.

Long-Term Equity Anticipation Securities. Options with expirations over 1 year. Lower theta decay, higher vega sensitivity. Used for long-term directional bets or stock replacement.

One component of a multi-part options strategy. An iron condor has four legs. "Legging in" means entering legs separately rather than as a spread.

How easily an option can be bought or sold without affecting price. High volume and tight bid-ask spreads indicate good liquidity. Stick to liquid options.

Owning or buying a position. Long call = bought call. Long stock = own shares. Long positions benefit from price increases (for calls/stock).

Borrowed money from your broker. Margin requirements for options vary by strategy. Naked options require significant margin. Defined-risk spreads require less.

The midpoint between bid and ask prices. Used to value positions. Actual execution may be at bid, ask, or somewhere between.

A firm that provides liquidity by continuously quoting bids and asks. Market makers profit from the spread and manage risk through hedging.

The strike price where option holders would lose the most money at expiration. Theory suggests stocks gravitate toward max pain. Useful for strike selection.

Describes an option's strike relative to stock price: In-the-money (ITM), At-the-money (ATM), or Out-of-the-money (OTM). Affects premium, delta, and probability.

Selling an option without owning the underlying (for calls) or cash (for puts). High risk, unlimited loss potential for naked calls. Requires high margin.

When a spread trade results in receiving money. Example: Selling a put spread for $1.00 net credit. This is your max profit.

When a spread trade costs money to enter. Example: Buying a call spread for $2.00 net debit. This is your max loss.

The total number of outstanding option contracts that haven't been closed or exercised. High OI indicates liquidity and interest at that strike.

A display of all available options for an underlying, showing strikes, expirations, bids, asks, volume, OI, and Greeks. Your primary tool for options trading.

The price paid to buy an option or received when selling. Premium = Intrinsic Value + Extrinsic Value. Quoted per share, multiply by 100 for total cost.

A call is OTM when stock price < strike. A put is OTM when stock price > strike. OTM options have no intrinsic value, only extrinsic (time) value.

AAPL at $150. The $160 call is $10 out-of-the-money.

A graph showing profit/loss at various underlying prices at expiration. Essential for visualizing strategy risk/reward. Also called P&L diagram or risk graph.

Risk when the underlying closes very near a short strike at expiration. Creates uncertainty about assignment. Can result in unexpected positions over the weekend.

A diagonal spread that mimics covered calls using a deep ITM LEAPS call instead of stock. Lower capital requirement than owning shares.

The price of an option. Buyers pay premium; sellers collect premium. Premium erodes over time (theta decay) and fluctuates with volatility and price moves.

The likelihood that a trade will be profitable at expiration. Calculated from delta and breakeven prices. Higher POP usually means lower max profit.

Buying a put to protect long stock. Limits downside while keeping unlimited upside. Like insurance for your shares. Also called "married put."

A contract giving the holder the right to sell 100 shares at the strike price before expiration. Put buyers are bearish; put sellers are neutral to bullish.

Buy AAPL $150 put for $4. If AAPL drops to $140, your put is worth at least $10.

The ratio of put volume to call volume. High ratio (>1) suggests bearish sentiment. Low ratio (<0.7) suggests bullish sentiment. Used as a contrarian indicator.

Measures sensitivity to interest rate changes. Minimal impact on short-term options. More relevant for LEAPS. Calls have positive rho; puts have negative.

A strategy combining a long call and short put (or vice versa). Creates a synthetic long or short position. Also refers to the skew between OTM puts and calls.

Closing one option position and opening another, typically moving to a different strike or expiration. Rolling adjusts your position without fully exiting.

Roll a $150 call from June to July expiration, or roll up from $150 to $155 strike.

Closing an existing long option position by selling it. Used to take profits or cut losses on bought options.

Opening a new short option position by selling. You collect premium and take on the obligation (not right) if assigned.

Selling or being negative a position. Short call = sold call. Short put = sold put. Short sellers profit when prices fall (for calls) or stay stable (for puts).

The difference in IV between OTM puts and calls. Typically puts have higher IV (negative skew). Steep skew indicates fear of downside. Affects strategy selection.

Any strategy involving multiple options. Can be vertical (same exp, different strikes), horizontal (same strike, different exp), or diagonal (different both).

Buying (or selling) both a call and put at the same strike and expiration. Long straddles profit from big moves in either direction. Short straddles profit from no movement.

Similar to straddle but with different strikes (OTM call + OTM put). Cheaper than straddle but requires bigger move to profit. Popular for earnings plays.

The price at which an option can be exercised. Strike selection is crucial - it determines moneyness, premium, delta, and probability of profit.

Using options to replicate the payoff of another instrument. Synthetic long stock = long call + short put at same strike. Useful for capital efficiency.

Measures daily time decay - how much an option loses per day from passage of time. Always negative for long options. Theta accelerates as expiration approaches.

A call with -0.05 theta loses $5 per day (per contract) from time decay alone.

The erosion of an option's extrinsic value over time. All else equal, options lose value every day. Sellers benefit from time decay; buyers fight against it.

Same as extrinsic value - the portion of premium above intrinsic value. Represents the possibility of the option becoming more valuable before expiration.

The asset on which an option is based. For stock options, it's the stock (AAPL, TSLA, etc.). For index options, it's the index (SPX, NDX).

Options volume significantly higher than normal, often signaling institutional interest. Can indicate smart money positioning before news or moves.

A second-order Greek measuring how delta changes with volatility, or how vega changes with price. Important for understanding complex hedging dynamics.

Measures sensitivity to implied volatility changes. A 1% IV increase adds vega to the option price. Long options have positive vega; short options have negative vega.

A call with 0.10 vega gains $10 per contract if IV rises by 1 percentage point.

A spread using the same expiration but different strikes. Can be debit (buy lower, sell higher for calls) or credit (sell lower, buy higher for puts). Defined risk.

The CBOE Volatility Index, measuring expected S&P 500 volatility over 30 days. Called the "fear gauge." High VIX indicates market fear; low VIX indicates complacency.

A measure of how much an asset's price fluctuates. Higher volatility = bigger expected moves = more expensive options. The most important factor in options pricing.

The pattern of IV across strikes - typically higher for OTM options, creating a "smile" shape when graphed. Reflects market demand for protection at extreme strikes.

The number of contracts traded during a period. High volume indicates active interest and better liquidity. Compare to open interest for context.

A systematic income strategy: sell cash-secured puts until assigned, then sell covered calls until called away. Repeats like a wheel. Popular for steady income.

Another term for selling options. "Writing a call" means selling a call. Option writers collect premium but take on obligations.

A collar where the premium from the sold call exactly offsets the cost of the bought put. Provides downside protection at no net cost, but caps upside.