26 terms
Options — 26 terms defined
Every options term in the StockTools glossary, in plain language with a worked example — and connected to the free calculator that puts it to work.
0DTE (Zero Days to Expiration)A 0DTE option expires the same day it trades. Once reserved for the occasional Friday, the category exploded after SPX and the major index ETFs listed expirations for every trading day; by 2023-2024, 0DTE contracts made up roughly 40-50% of all SPX option volume.OptionsAssignmentAssignment is when an option seller is required to fulfill the contract: deliver 100 shares at the strike on a short call, or buy 100 shares at the strike on a short put. Exercise is the buyer's action; assignment is what lands on the seller, allocated by the OCC among the short holders.OptionsAt the Money (ATM)At the money means the option's strike sits at or nearest to the current stock price. With a stock at $100.20, the 100 strike is the ATM line for both calls and puts.OptionsCall OptionA call option gives the buyer the right, but not the obligation, to buy 100 shares of the underlying stock at a fixed strike price any time before expiration. The seller of the call takes the other side: if the buyer exercises, the seller must deliver the shares at the strike.OptionsCash-Secured PutSelling a cash-secured put means writing a put while holding enough cash to buy 100 shares at the strike if assigned. The seller collects the premium up front and takes on the obligation to purchase the stock at the strike price should it fall there.OptionsCovered CallA covered call is 100 shares of stock plus a call sold against them. The shares cover the short call's obligation: if the stock gets called away, they are delivered at the strike, so the position has no naked upside risk — just a cap on gains.OptionsDeltaDelta measures how much an option's price changes for a $1 move in the underlying stock. A 0.40-delta call gains about $0.40 when the stock rises $1; puts carry negative deltas, so a -0.40 put gains about $0.40 when the stock falls $1.OptionsExpiration DateThe expiration date is the last day an option contract exists; after it, the option is either exercised or gone. Standard monthly equity options expire on the third Friday of the month, and liquid names also list weeklies expiring every Friday. Major indexes like SPX now expire every trading day.OptionsExtrinsic ValueExtrinsic value is everything in an option's price that is not intrinsic value — the premium paid for time remaining and for implied volatility. It is also called time value, and it is the part of the option that melts.OptionsGammaGamma is the rate at which delta changes per $1 move in the stock — the acceleration behind delta's speed. An option with a 0.50 delta and 0.08 gamma has a 0.58 delta after the stock rises $1, and 0.42 after it falls $1.OptionsImplied MoveThe implied move is the size of the swing the options market expects from an upcoming event, estimated as the at-the-money straddle price divided by the stock price, using the first expiration after the event. It is quoted as a percentage and read as plus-or-minus: direction unspecified, magnitude priced.OptionsImplied Volatility (IV)Implied volatility is the amount of future movement the options market is pricing into a stock, expressed as an annualized percentage and backed out from option prices themselves. IV of 40% on a $100 stock implies roughly a one-standard-deviation range of +/- $40 over a year, or about +/- 2.5% on a typical day (40% divided by the square root of 252 trading days).OptionsIn the Money (ITM)An option is in the money when it has intrinsic value: a call with the stock above its strike, a put with the stock below it. The deeper in the money, the more the option trades like the stock itself.OptionsIntrinsic ValueIntrinsic value is what an option would be worth if exercised this instant: max(0, stock price - strike) for a call, max(0, strike - stock price) for a put. It can never be negative — an option that is unfavorable to exercise simply has zero intrinsic value.OptionsIron CondorAn iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same expiration, collecting two credits for a bet that the stock stays inside a range. The long wings cap the risk on both sides, making the max loss known at entry.OptionsIV CrushIV crush is the sharp drop in implied volatility the moment a known event passes, deflating option prices even when the stock moves in the buyer's favor. The uncertainty premium built up ahead of earnings or a binary catalyst vanishes overnight because the question it was pricing has been answered.OptionsOpen InterestOpen interest counts the option contracts that currently exist and remain open at a given strike and expiration — positions created but not yet closed, exercised, or expired. It is not volume: volume counts today's trades, while open interest is the standing tally, updated overnight.OptionsOption PremiumThe premium is the price of an option — what the buyer pays and the seller collects, quoted per share. Multiply by 100 to get the actual cash: a $2.35 premium means $235 per contract.OptionsOut of the Money (OTM)An out-of-the-money option has zero intrinsic value: a call with its strike above the stock price, or a put with its strike below it. Its entire premium is extrinsic value, and it expires worthless unless the stock crosses the strike.OptionsPut OptionA put option is the right to sell 100 shares of the underlying at the strike price before expiration. Puts gain value as the stock falls, which makes them the standard instrument for betting against a stock with defined risk or for insuring a long position.OptionsStraddleA straddle is a long call and a long put at the same strike and expiration, almost always at the money. It is a pure bet on movement: the position profits if the stock travels far enough in either direction to cover both premiums.OptionsStrangleA strangle pairs an out-of-the-money call with an out-of-the-money put on the same expiration — same wager as a straddle, movement over direction, but built with cheaper strikes set apart from the stock price.OptionsStrike PriceThe strike price is the fixed price at which an option contract converts into stock: the price a call holder pays to buy shares, or a put holder receives to sell them. It is set when the contract is listed and never changes, no matter where the stock trades.OptionsThetaTheta is the dollar amount an option loses to time decay each day, all else equal. A theta of -0.05 means the option sheds $0.05 per share overnight — $5 per contract — even if the stock does not move.OptionsVegaVega measures how much an option's price changes when implied volatility moves one percentage point. An option with a vega of 0.12 gains $0.12 per share ($12 per contract) if IV rises from 40% to 41%, and loses the same if IV drops a point.OptionsVertical SpreadA vertical spread buys one option and sells another of the same type and expiration at a different strike, capping both the cost and the payoff. The four flavors — bull call, bear call, bull put, bear put — all reduce to the same geometry: risk and reward are both limited to slices of the distance between the strikes.Options