Trading Glossary
Master options trading terminology with our comprehensive glossary. From basic concepts to advanced strategies.
Showing 8 of 8 terms
Call Option
A financial contract that gives the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specific time period.
Examples:
- Buying AAPL $150 call expiring in 30 days
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Put Option
A financial contract that gives the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specific time period.
Examples:
- Buying TSLA $200 put for downside protection
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Delta
A Greek that measures how much an option's price changes for every $1 change in the underlying stock price. Delta ranges from 0 to 1 for calls and 0 to -1 for puts.
Examples:
- A call with 0.5 delta moves $0.50 for every $1 stock move
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Theta
A Greek that measures how much an option's price decreases with each passing day, representing time decay.
Examples:
- An option with -0.05 theta loses $5 in value per day
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Iron Condor
A neutral options strategy involving four options: selling an out-of-the-money call spread and an out-of-the-money put spread with the same expiration date.
Examples:
- Sell 145/150 call spread and 135/130 put spread on XYZ
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Implied Volatility
The market's forecast of how much a stock's price will move, expressed as an annual percentage and derived from option prices.
Examples:
- 20% IV means the market expects 20% annual price movement
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Strike Price
The predetermined price at which an option can be exercised. Also called the exercise price.
Examples:
- A $100 strike call gives the right to buy at $100
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Position Sizing
The process of determining how much capital to allocate to each trade based on risk tolerance and account size.
Examples:
- Never risk more than 2% of account on a single trade