Options Glossary

Call option

A contract giving the buyer the right to purchase the underlying at the strike before or at expiry.

Put option

A contract giving the buyer the right to sell the underlying at the strike before or at expiry.

Strike price

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

Implied volatility

The market's forward-looking estimate of how much the underlying will move, backed out of option prices.

What is an options contract?

A standardised agreement giving the buyer a right (not obligation) to trade 100 shares of the underlying at a set strike before expiry.

Calls vs puts

Calls profit when the underlying rises above the strike; puts profit when it falls below the strike. Buyers pay a premium, sellers collect one.

Iron condor strategy

A four-leg, range-bound strategy that sells an OTM call spread and an OTM put spread for net credit with defined risk.

Covered call strategy

Owning 100 shares and selling one OTM call against them to collect premium while capping upside at the strike.

0DTE options explained

Options expiring the same trading day, with extreme gamma, fast theta decay, and little room for the underlying to recover from an adverse move.

0DTE

Zero days to expiration. Options contracts that expire on the same day they are traded, defined by rapid theta decay and peak gamma.

What is IV rank?

IV rank compares current implied volatility to its 52-week high and low, normalised to a 0-100 score so you can tell if options are cheap or expensive relative to recent history.

IV rank

IV rank measures where current implied volatility sits between the past year's low and high, expressed as a 0-100 score.

Theta

The rate at which an option loses value each day from time decay, all else equal.

Delta

The expected change in option price for a one-dollar move in the underlying.

Theta decay over time

Time value bleeds out of an option each day and accelerates as expiry nears, especially for at-the-money contracts in the final two weeks.

Delta and directional risk

Delta tells you how much an option behaves like shares of the underlying, so a 0.40 delta call gains roughly $40 per $1 up-move on 100 shares of exposure.

Volatility skew

The pattern of implied volatility across strikes at the same expiry, typically higher for downside puts.

Bull put spread strategy

Sell a put and buy a lower-strike put in the same expiry for net credit; profits if the underlying stays above the short strike.

Cash-secured put strategy

Sell a put backed by enough cash to buy 100 shares at the strike; keep the premium or get assigned shares at a discount.

Pre-earnings IV crush

Implied volatility ramps up before earnings as the market prices in event uncertainty, then collapses sharply once results print.

IV crush

The sharp drop in implied volatility that often follows a scheduled event like earnings.

Expected move

A market-implied range for the underlying over a chosen period, derived from option prices.

How implied move works

The at-the-money straddle price, divided by spot, approximates the one-standard-deviation move the market is pricing in through expiry.

Premium

The market price paid for an option contract.

Expiration date

The date an option contract expires; after this date it is worth only its intrinsic value or nothing.

Open interest

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

Bid-ask spread

The gap between the highest bid and lowest ask price; tighter spreads mean better liquidity and lower trading cost.

Liquidity

How easily a contract can be traded at a fair price, reflected in tight bid-ask spreads, high volume, and high open interest.

Vega

The change in option price for a one-point move in implied volatility.

Gamma

The rate of change of delta with respect to the underlying price.

Vega and vol sensitivity

Vega is highest for at-the-money, longer-dated options, so vol-sensitive trades like calendars and long straddles live or die on changes in IV.

Gamma, the accelerator

Gamma measures how fast delta itself moves, peaking near the money and near expiry, which is why short-dated ATM options can swing violently.

Bear call spread strategy

Sell a call and buy a higher-strike call in the same expiry for net credit; profits if the underlying stays below the short strike.

Long call strategy

Buy a call for leveraged upside exposure with risk capped at the premium paid.

Long put strategy

Buy a put for leveraged downside exposure or as a hedge, with risk capped at the premium paid.

Short straddle strategy

Sell an ATM call and ATM put in the same expiry to collect maximum premium, profiting if the underlying barely moves and IV contracts.

Straddle vs strangle setup

Straddles use the same ATM strike for the call and put; strangles use OTM strikes on each side, costing less but needing a bigger move to pay off.

OPEX

Monthly options expiration, the third Friday of each month for most listed equity options.

OPEX and pin risk

On expiration Fridays, the underlying often gravitates toward heavy open-interest strikes, creating ambiguity over assignment for shorts near the money.

IV vs HV explained

Historical volatility measures realised moves in the past; implied volatility is the market's forward bet. Wide gaps between the two often flag mispriced options.

ITM ATM OTM explained

In the money has intrinsic value, at the money sits closest to spot, and out of the money is pure time and volatility premium.

OTM

Out of the money, an option with no intrinsic value.

ATM

At the money, an option whose strike is closest to the current underlying price.

ITM

In the money, an option with positive intrinsic value.

Moneyness

How far an option's strike sits from the current underlying price, expressed as ITM, ATM, or OTM.

Intrinsic value

The amount an option is in the money: max(0, spot minus strike) for a call, or max(0, strike minus spot) for a put.

Extrinsic value

The portion of an option's price beyond intrinsic value, made up of time value and volatility premium.

Time value

The part of an option's premium attributable to time remaining until expiration.

Assignment

When a short option holder is required to fulfil the contract terms.

Exercise

When a long option holder invokes their right to buy or sell the underlying at the strike.

What is options premium?

The price paid by the buyer and collected by the seller for an options contract, quoted per share and multiplied by 100 for total dollars per contract.

How assignment works

When a long holder exercises, the OCC randomly assigns a short of the same series, who must deliver or receive 100 shares at the strike.

How options are priced

Premium reflects intrinsic value plus extrinsic value, where extrinsic value comes from time to expiry, implied volatility, interest rates, and dividends.

Strike price explained

The fixed price built into the contract at which the holder can buy (call) or sell (put) 100 shares, regardless of where the underlying trades.

Expiry dates explained

US equity options expire at market close on their listed date, typically Fridays, with daily, weekly, monthly, and LEAPS cycles available.

Diagonal spread strategy

Combine different strikes and expiries (long longer-dated, short shorter-dated) to harvest theta with a directional tilt.

Rolling positions

Close an existing option and open a new one at a different strike or later expiry, typically to extend duration or improve the breakeven.

Rolling

Closing an existing option position and opening a new one with a different strike or expiry to extend or adjust the trade.

Defined risk

A trade structure with a known, capped maximum loss, typically achieved by buying protective wings.

Undefined risk

A trade structure where the maximum loss is uncapped or very large, such as a naked short call.

Credit spread

A spread that pays you a net premium upfront; maximum profit equals the credit received.

Debit spread

A spread that costs you a net premium upfront; maximum loss equals the debit paid.

Historical volatility

The realised standard deviation of the underlying's returns over a past window, usually annualised.

IV percentile

The share of trading days in the past year that current IV sat above, expressed 0-100.

Underlying asset

The security (stock, ETF, index) that an option contract derives its value from.

Put-call parity

A no-arbitrage relationship linking the prices of European calls, puts, and the underlying.

Pin risk

The uncertainty around exercise and assignment when the underlying closes at or very near an option's strike at expiry.

Rho

The sensitivity of option price to a change in the risk-free interest rate.

What is IV percentile?

The percentage of trading days in the past year where IV closed below its current level; a value of 80 means IV is higher than 80% of the year.

Reading the vol heatmap

A vol heatmap colour-codes IV rank and percentile across tickers and sectors so you can spot pockets of cheap or expensive options at a glance.

IV rank timing

Premium-selling strategies prefer high IV rank entries; long-vol trades like debit spreads and long straddles prefer low IV rank entries.

What causes IV spikes?

Earnings, FDA decisions, macro prints, geopolitical shocks, and broad index sell-offs are the main drivers of sudden IV expansion.

Post-earnings drift

The tendency for stocks to continue moving in the direction of an earnings surprise for days or weeks after the report.

Earnings calendar spreads

Sell the front-week option (high event IV) and buy the back-month option (lower IV) to harvest IV crush while staying delta-neutral.

Using Stryke's implied move tool

Stryke surfaces the option-implied move for every upcoming earnings name so you can size, pick strikes, and benchmark conviction against the market.

Weekly vs monthly expiry

Weeklies offer faster theta and tighter event windows but thinner liquidity; monthlies have the deepest open interest and tightest spreads.

Managing positions into expiry

In the final week, gamma and assignment risk dominate; many traders close or roll short options at 21 DTE to side-step pin and exercise risk.

Friday gamma risk

Same-day and Friday-expiry options have massive gamma, so small moves in the underlying can swing P&L by hundreds of percent in minutes.

Volatility skew explained

Downside puts almost always trade at higher IV than equidistant calls because the market pays up for crash protection, producing the classic equity skew.

How much can I lose?

Long options cap loss at the premium paid. Short naked options can lose far more than the premium, while defined-risk spreads cap loss at width minus credit.

What is expiration risk?

The combined risk of pin assignment, after-hours moves, and gamma blow-ups that can turn a winning trade into a loss in the final hours before expiry.

Bull call spread strategy

Buy a call and sell a higher-strike call in the same expiry for net debit; profits if the underlying rises toward the short strike, with risk capped at the debit.

Bear put spread strategy

Buy a put and sell a lower-strike put in the same expiry for net debit; profits if the underlying falls toward the short strike, with risk capped at the debit.

Long straddle strategy

Buy an ATM call and ATM put for the same expiry to profit from a large move in either direction; loses if the underlying drifts and IV contracts.

Long strangle strategy

Buy an OTM call and OTM put for the same expiry as a cheaper bet on a sharp move; requires a larger move than a straddle to break even.

Calendar spread strategy

Sell a near-term option and buy a longer-dated option at the same strike to harvest theta while staying long vega.

LEAPS strategy

Long-dated options (over a year to expiry) used as a capital-efficient stock substitute, with deep ITM calls behaving much like shares at a fraction of the cost.

Iron butterfly strategy

Sell an ATM straddle and buy protective OTM wings for a high-credit, pinning trade with defined risk on both sides.

Short strangle strategy

Sell an OTM call and OTM put for net credit; profits if the underlying stays between the strikes, with undefined risk outside them.

Protective put strategy

Hold 100 shares and buy a put as downside insurance, flooring losses below the strike while keeping unlimited upside.

Rho and interest rates

Higher rates lift call premiums and depress put premiums; rho only matters meaningfully for long-dated options like LEAPS.

Portfolio margin vs Reg-T

Reg-T applies fixed per-position margin rules; portfolio margin uses risk-based stress tests across the book, typically freeing up 3-6x more buying power.

IV rank across a portfolio

Tracking IV rank by position and aggregate book exposure helps balance long-vol and short-vol risk and avoid concentrated vega bets.

IV overstatement

Implied volatility frequently prices in more event risk than the stock realises, which is the structural edge behind systematic premium selling.

What is covered call?

An income strategy where you own 100 shares and sell one call against them, collecting premium in exchange for capping upside at the strike.

What is cash-secured put?

An entry strategy where you sell a put fully backed by cash, either keeping the premium or buying the shares at an effective discount if assigned.