⏱ 1-Minute Summary This is the shared options glossary: the reference for the whole learning series. Every options term you meet across the articles is defined here in one line, grouped into four layers: Basics, Volatility & Greeks, Backtesting & Metrics, and Accounts & Execution. When any article introduces a new term, it links back to this page.
1. Basics
- Call option: A contract giving the buyer the right to buy 100 shares at a fixed price by a set date. Compare: a put gives the right to sell.
- Put option: A contract giving the buyer the right to sell 100 shares at a fixed price. Extension: used for bearish bets or protecting holdings.
- Long: When you bought an option: you are the buyer (holder), you paid the premium and hold a right. Extension: long call = bought a call (the right to buy); long put = bought a put (the right to sell).
- Short: When you sold an option: you are the seller (writer), you collected the premium and take on an obligation. Extension: short call = sold a call (the obligation to sell); short put = sold a put (the obligation to buy).
- Bullish: Expecting the price to rise; a directional view you can express by buying calls or selling puts. Compare: bearish.
- Bearish: Expecting the price to fall; a directional view you can express by buying puts or selling calls.
- Premium: The price of the option contract; one contract = 100 shares, so $2.00 premium = $200. Compare: intrinsic + time value.
- Intrinsic value: How much the option is in the money (Stock − Strike for a call; Strike − Stock for a put, if positive). Compare: zero for OTM options.
- Extrinsic value / Time value: The part of the premium beyond intrinsic value; what you pay for future movement. Extension: decays to zero at expiry.
- Strike price: The fixed price at which the option can buy/sell the stock.
- Expiry (expiration): The last day an option can be used; after it, the option ceases to exist.
- Moneyness: Whether an option is in, at, or out of the money (ITM/ATM/OTM); how much intrinsic value it has relative to the current stock price.
- ITM (In The Money): When the option has intrinsic value: a call with the stock above the strike, a put with the stock below the strike.
- ATM (At The Money): When the strike is roughly equal to the current stock price; no intrinsic value, but the most time value and the most sensitivity to movement.
- OTM (Out of The Money): When the option has no intrinsic value: a call with the stock below the strike, a put with the stock above the strike; cheaper, and may expire worthless.
- DITM (Deep In The Money): An option whose intrinsic value far exceeds its time value; its delta approaches ±1 (call near +1, put near −1), so it behaves almost like owning (or shorting) the stock.
- Bid: The highest price a buyer is willing to pay for an option.
- Ask: The lowest price a seller is willing to accept for an option.
- Mid: The midpoint between the bid and the ask (the usual execution reference).
- DTE (Days To Expiration): The number of calendar days remaining until expiry.
- Volume: How many contracts traded today. Compare: Open Interest: how many remain open.
- Assignment: When a seller is matched with an exercising buyer and must fulfill the obligation. Extension: core seller risk.
- Exercise: When a buyer uses the right to buy/sell at the strike.
- Hedge: A position opened to reduce the risk of another position (e.g., a protective put hedges a stock holding). Extension: hedging costs premium but caps the downside; a collar is a hedged structure.
- Underlying: The asset (usually a stock or index) the option derives its value from.
- Long stock: Holding actual shares of a stock; you profit when it rises and lose when it falls, with no expiry and no cap on losses (down to zero). Compare: an option position has a fixed life and the risk is limited to the premium paid.
- Short stock: Selling shares you do not own (borrowed from the broker) to profit from a decline; you must buy them back later to close, and losses are theoretically unlimited if the stock keeps rising. Extension: why short options (defined risk) are often used instead of short stock.
- Put-call parity: The identity that links a call and a put at the same strike (call − put = stock − strike). It is why a long call plus a short put at the same strike replicates long stock. Extension: the basis of synthetics, conversion/reversal, and box spreads.
- Exposure: How much market risk a position represents; how much you stand to gain or lose from a move. Delta estimates directional exposure (0 to 1); notional exposure is the full contract value.
- Option chain: The table of all strikes and expiries for a symbol with their prices, IV, OI, and volume.
2. Volatility & Greeks
- IV (Implied Volatility): The market's expectation of future volatility, backed out of option prices. Extension: higher IV = more expensive options.
- HV (Historical Volatility): Realized volatility of past returns over a window (HV10/20/30/60). Compare: IV is forward-looking; HV is backward-looking.
- Standard deviation: A statistical measure of how spread out returns are; volatility is typically quoted as the annualized standard deviation of returns.
- IV Percentile: The percentage of days in a lookback window where IV was below today's level; where today's IV sits in its recent history.
- IV Rank: Where today's IV sits between its recent high and low (0 to 1); tells you if options are rich or cheap.
- VRP (Volatility Risk Premium): The gap between IV and subsequent realized volatility (IV − HV), persistently positive on average.
- Delta: How much an option's price changes per $1 move in the underlying; also an estimate of directional exposure (0 to 1).
- Gamma: How much Delta changes as the underlying moves; highest for ATM options near expiry.
- Theta: How much an option's price decays per day as time passes. Extension: sellers benefit, buyers pay.
- Vega: How much an option's price changes per 1% change in IV.
- Rho: How much an option's price changes per 1% change in interest rates (small for most trades).
- Volatility surface: IV across all strikes and expiries; reveals skew and term structure.
- Term structure: How IV differs across expiration dates. Extension: an upward-sloping term structure (longer-dated IV higher) is the normal state; see contango and backwardation.
- Skew: The pattern of IV across strikes (e.g., puts often priced higher; "put skew").
- Slope: How IV changes across expiries (term structure slope); contango/backwardation describe it.
- Contango: When longer-dated IV is higher than near-dated IV (upward-sloping term structure).
- Backwardation: When longer-dated IV is lower than near-dated IV (downward-sloping term structure).
- IV Crush: The sharp collapse in IV after an event (e.g., earnings) resolves uncertainty. Extension: hurts long-volatility buyers.
- Fat tails: Distributions where rare, extreme moves occur more often than a normal curve predicts. Extension: violent crashes happen more often than models assume, which supports the VRP.
- Loss aversion: The tendency to feel losses more strongly than equivalent gains. Extension: it drives investors to overpay for downside protection, which supports the VRP.
- Convex payoff: A payoff where the upside grows faster than the downside hurts (e.g., a call or put). Extension: buyers overpay for this convexity, leaving a systematic premium for sellers.
3. Backtesting & Metrics
- Backtest: Simulating a strategy's historical performance on past data. Extension: a statistical reference, not a prediction.
- Equity curve: The line chart of a strategy's account value (or cumulative return) over time. Extension: a smooth rising curve looks great but can hide drawdowns, a short sample, and luck.
- CAGR: Compound Annual Growth Rate, the annualized growth rate of returns over the period.
- Sharpe ratio: Return per unit of volatility risk (excess return ÷ standard deviation).
- Max Drawdown: The largest peak-to-trough decline in equity over the period.
- Win Rate: The percentage of trades that are profitable. Compare: must be weighed against average loss size.
- Profit Factor: Gross profit ÷ gross loss; above 1 means profitable overall.
- Slippage: The difference between expected and actual execution price. Extension: often under-modeled in backtests.
- Price Weight: How the platform adjusts mid prices (a cost/mark-to-market weighting).
- Overfitting: Optimizing a strategy so tightly to past data that it fits noise, not signal. Extension: fails out-of-sample.
- Path dependency: When the sequence of prices (not just the end point) determines the result; matters for options with stops/rolls.
- CVC (Composite Value Coefficient): The platform's composite holding value metric combining return, risk, and stability (Module 6).
- Notional Return: Return measured against the full notional exposure of the position, instead of account equity.
- Margin Return: Return measured against the margin used to hold the position, instead of account equity.
- Intraday scalping: A trading style that enters and exits within seconds or minutes to profit from tiny price moves. Extension: it relies on real-time tick data, which EOD snapshots cannot support.
4. Accounts & Execution
- Broker: The firm that executes your trades and holds your account. It sets margin requirements, can issue margin calls, and may liquidate positions; some brokers restrict or scrutinize advanced strategies (e.g., box spreads).
- Cash account: A brokerage account where you must pay in full for purchases. Compare: Margin account lets you borrow.
- Margin account: An account with borrowed buying power; required for selling (short) options.
- Equity: The total value of your account: cash plus the current value of positions, minus any debt (margin loan). Your equity vs the maintenance requirement decides whether a margin call is triggered.
- Buying Power: The funds available to open new positions.
- Leverage: Using borrowed funds or derivatives to control a larger position than your capital alone allows. Extension: options are leveraged instruments: a $200 premium can control $20,000 of stock; this magnifies both gains and losses.
- Collateral: The asset (typically cash or stock) you pledge to back an obligation, so the broker knows you can fulfill it if assigned.
- Cash collateral: Cash set aside to back a position; a cash-secured put, for example, requires cash equal to the cost of 100 shares at the strike (strike × 100).
- Stock collateral: Shares you already own used to back a position; a covered call, for example, is backed by the 100 shares you hold.
- Net credit: The net premium you receive when opening a position (typically a multi-leg spread), when the premium collected from the sold legs exceeds the premium paid for the bought legs. Compare: a credit spread is opened for a net credit.
- Net debit: The net premium you pay when opening a position (typically a multi-leg spread), when the premium paid for the bought legs exceeds the premium collected from the sold legs. Compare: a debit spread is opened for a net debit.
- Margin call: When the broker demands more funds (or requires closing positions) because your equity fell below the maintenance requirement. If you do not meet it, the broker can liquidate positions.
- Liquidation: When a broker closes positions to cover margin shortfalls.
- Settlement: The process of transferring cash/securities after a trade (T+1/T+2).
- Paper trading: Trading with simulated money to practice and forward-test a strategy before live funds.
- Real-Time Liquidation: Platforms that mark positions continuously throughout the trading day.
- EOD Liquidation: Platforms that mark positions to the daily closing snapshot, the basis of this platform.
- Roll up: Closing an existing option and simultaneously opening a new one with a higher strike (often with a later expiry), usually to keep a short position alive as the underlying rises.
- Roll down: Closing an existing option and simultaneously opening a new one with a lower strike (same or later expiry), usually to collect more premium or reduce risk as the underlying falls.
- Roll over / out: Closing an existing option and simultaneously opening a new one with a farther expiration date (same or adjusted strike), to collect more premium and give the position more time.
- Combined Rolls: A single adjustment that changes both the strike and the expiration: e.g., rolling down and over to collect more premium and buy more time at once.
- Buy to close: Buying back an option to exit a short position you previously sold.
- Buy to open: Buying an option to open a new long position.
- Sell to close: Selling an option to exit a long position you previously bought.
- Sell to open: Selling an option to open a new short position.
⚠️ Platform Data Boundary: This glossary defines standard terms. This platform provides T-1 EOD closing data for multi-day-to-multi-month options strategy research and backtesting: all terms above are used in that daily-frequency context, not for intraday or 0DTE trading.
⚠️ Research Use Only: This glossary is educational. Definitions are not trading advice. Nothing here is a buy or sell signal. Use this platform's backtests as historical statistical reference only.