# Options glossary The terms this library uses, each with one definition. A term with an article of its own links to it. Canonical page: https://optionsbeacon.pro/learn/glossary ## Adjusted option An option whose terms were changed after an event such as a stock split, a merger or a special dividend. It may cover a number of shares other than 100, or cash and other securities. Also called: adjusted contract, non-standard option See also: Contract multiplier [Read the article: One option contract is 100 shares](https://optionsbeacon.pro/learn/option-contract-size.md) ## American-style option An option that its holder may exercise on any business day up to its expiration. Listed options on US stocks and exchange-traded funds are American-style. Also called: American option See also: European-style option, Early exercise ## Ask The lowest price that sellers are asking for an option at the moment. A buyer who wants to trade at once pays the ask. Also called: offer, ask price See also: Bid, Bid-ask spread [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Assignment The notice to the writer of an option that a holder has exercised it, which obliges the writer to deliver (a call) or to buy (a put) the shares at the strike price. See also: Exercise, Early assignment, Writer [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## At the money An option whose strike price equals the price of the stock or is the listed strike price closest to it. Also called: ATM See also: In the money, Out of the money [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## Automatic exercise The common name of exercise by exception, the procedure by which the Options Clearing Corporation exercises an expiring option that is in the money by $0.01 or more unless instructions not to exercise it are given. A broker may apply a threshold of its own. Also called: exercise by exception, ex-by-ex See also: Exercise, Expiration date, Pin risk [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Bid The highest price that buyers are offering for an option at the moment. A seller who wants to trade at once receives the bid. Also called: bid price See also: Ask, Bid-ask spread [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Bid-ask spread The difference between the ask and the bid. It is a cost of trading, because a position bought at the ask and sold at once at the bid loses the spread. Also called: spread See also: Bid, Ask, Liquidity, Mid price [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Black-Scholes model The option pricing model published by Fischer Black and Myron Scholes in 1973. It gives a theoretical price from the stock price, the strike price, the time left, the interest rate and the volatility. Also called: Black-Scholes-Merton model See also: Implied volatility, Greeks [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## Break-even The price of the underlying at expiration at which a position neither makes nor loses money. For a long call it is the strike price plus the premium paid; for a short put, the strike price less the premium received. Also called: break-even point, break-even price See also: Payoff diagram, Premium [Read the article: How to read a payoff diagram](https://optionsbeacon.pro/learn/how-to-read-a-payoff-diagram.md) ## Call option An option that gives its holder the right to buy the underlying shares at the strike price. The writer of a call must deliver the shares at that price if the call is assigned. Also called: call See also: Put option, Strike price, Assignment [Read the article: Calls and puts](https://optionsbeacon.pro/learn/calls-and-puts.md) ## Called away What happens to shares when a call written against them is assigned. They are delivered to the holder of the call at the strike price. See also: Covered call, Assignment [Read the article: Covered call](https://optionsbeacon.pro/learn/covered-call.md) ## Cash-secured put A put that is sold while the seller keeps enough cash to buy the shares at the strike price if the put is assigned. Also called: cash-covered put See also: Put option, Assignment, Wheel strategy [Read the article: Cash-secured put](https://optionsbeacon.pro/learn/cash-secured-put.md) ## Closing transaction An order that reduces or ends an option position. A holder sells to close and a writer buys to close; afterwards the right or the obligation is gone. Also called: sell to close, buy to close See also: Opening transaction [Read the article: Option buyers and sellers: rights and obligations](https://optionsbeacon.pro/learn/option-buyers-and-sellers.md) ## Collar Shares held together with a put bought below the market price and a call written above it. The put sets a floor under the loss and the call sets a ceiling on the gain. Also called: protective collar See also: Protective put, Covered call [Read the article: Collar](https://optionsbeacon.pro/learn/collar.md) ## Contract multiplier The number by which a quoted premium is multiplied to get the price of one contract. It is 100 for a standard stock option, which covers 100 shares. Also called: multiplier, contract size, unit of trade See also: Premium, Adjusted option [Read the article: One option contract is 100 shares](https://optionsbeacon.pro/learn/option-contract-size.md) ## Cost basis What a position cost, per share. Shares bought through an assigned put are paid for at the strike price, and the premium received for the put lowers their cost - the strike price less the premium. Also called: basis See also: Cash-secured put, Break-even [Read the article: Cash-secured put](https://optionsbeacon.pro/learn/cash-secured-put.md) ## Covered call A call written against 100 shares that the writer owns. The shares are delivered at the strike price if the call is assigned. It is called a buy-write when the shares are bought at the same time, and an overwrite when the call is written on shares already held. Also called: covered write See also: Call option, Called away, Wheel strategy [Read the article: Covered call](https://optionsbeacon.pro/learn/covered-call.md) ## Delta The estimated change in the price of an option for a rise of $1 in the underlying. The delta of a call lies between 0 and 1 and the delta of a put between -1 and 0. See also: Gamma, Greeks [Read the article: Delta](https://optionsbeacon.pro/learn/delta.md) ## Early assignment The assignment of a written option before its expiration date. It can happen on any business day for American-style options, most often when little time value is left or just before an ex-dividend date. See also: Assignment, Early exercise, Ex-dividend date [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Early exercise The exercise of an American-style option before its expiration date. It gives up the time value the option still has. See also: American-style option, Early assignment, Ex-dividend date [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## European-style option An option that its holder may exercise only at its expiration. Many index options are European-style; the name describes the right and has nothing to do with where the option trades. Also called: European option See also: American-style option ## Ex-dividend date The first day on which a stock trades without the right to its next dividend. The holder of a call receives that dividend only by exercising before this date and owning the shares. Also called: ex-date See also: Early exercise, Early assignment [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Exercise The holder's use of the right in an option, which is buying the shares at the strike price with a call or selling them at the strike price with a put. See also: Assignment, Automatic exercise, Early exercise [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Expected move The range of one standard deviation that option prices imply for a period. It is about the stock price times the implied volatility times the square root of the number of days divided by 365. Also called: implied move See also: Implied volatility [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## Expiration date The last day on which an option exists. An option that was not exercised by then is worth nothing afterwards, and its rights and obligations end. Also called: expiration, expiry See also: Strike price, LEAPS, Weekly options [Read the article: Strike price, expiration date and premium](https://optionsbeacon.pro/learn/strike-expiration-premium.md) ## Gamma The estimated change in the delta of an option for a rise of $1 in the underlying. It is highest for options at the money that are close to expiration. See also: Delta, Greeks [Read the article: Delta](https://optionsbeacon.pro/learn/delta.md) ## Greeks The measures of how the theoretical price of an option changes when one of its inputs changes. They are delta, gamma, theta, vega and rho, and each is an estimate of a pricing model. Also called: option Greeks See also: Delta, Gamma, Theta, Vega, Rho [Read the article: Delta](https://optionsbeacon.pro/learn/delta.md) ## Historical volatility How much the price of the underlying did move over a past period, measured as the yearly standard deviation of its daily price changes. It is no forecast of the volatility to come. Also called: realized volatility, statistical volatility See also: Implied volatility [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## Holder The person who bought an option and owns its right. A holder can exercise the option, sell it or let it expire, and can lose no more than the premium paid. Also called: buyer, owner See also: Writer, Long, Exercise [Read the article: Option buyers and sellers: rights and obligations](https://optionsbeacon.pro/learn/option-buyers-and-sellers.md) ## Implied volatility The volatility that, put into a pricing model, gives the market price of an option. It is quoted as a yearly percentage and says how much movement the price of the option pays for. Also called: IV, implied vol See also: Historical volatility, Vega, Expected move [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## In the money A call whose strike price is below the price of the stock, or a put whose strike price is above it. An option that is in the money has intrinsic value. Also called: ITM See also: Intrinsic value, At the money, Out of the money [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## Intrinsic value The amount by which an option is in the money, per share. It is the stock price less the strike price for a call and the strike price less the stock price for a put, and never less than zero. See also: Time value, In the money [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## LEAPS Long-term listed options, which expire up to two years and eight months in the future. Options of the usual kind expire within one year. Also called: long-term options See also: Expiration date, Weekly options ## Leverage Controlling a position worth more than the money paid for it. A premium is a fraction of the price of 100 shares, so a small move of the stock is a large move of the option, in both directions. See also: Premium, Contract multiplier [Read the article: The main risks of options](https://optionsbeacon.pro/learn/risks-of-options.md) ## Liquidity How easily a position can be entered or left at a fair price. A liquid market shows a narrow spread between the bid and the ask and a large number of contracts on both. High volume or open interest is not the same thing. See also: Bid-ask spread, Volume, Open interest ## Long Owning a position. Long an option means having bought it, with the rights of a holder; long shares means owning them. See also: Short, Holder ## Margin The cash or securities that a broker requires from the writer of an option as collateral for the obligation. The amount required changes with the price of the underlying. Also called: margin requirement, collateral See also: Writer, Uncovered option [Read the article: Option buyers and sellers: rights and obligations](https://optionsbeacon.pro/learn/option-buyers-and-sellers.md) ## Mid price The price halfway between the bid and the ask. It is an estimate of what an option is worth, not a price at which an order is sure to be filled. Also called: midpoint, mark See also: Bid, Ask, Bid-ask spread [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Moneyness Where the price of the underlying stands against the strike price of an option. An option is in the money, at the money or out of the money. See also: In the money, At the money, Out of the money [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## Open interest The number of contracts of an option that are open, which means not yet closed, exercised or expired. The Options Clearing Corporation computes it once a day after the close, so the figure does not move during the trading day. Also called: OI See also: Volume, Liquidity [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Opening transaction An order that creates an option position or adds to one. Buy to open makes the buyer a holder; sell to open makes the seller a writer. Also called: buy to open, sell to open See also: Closing transaction [Read the article: Option buyers and sellers: rights and obligations](https://optionsbeacon.pro/learn/option-buyers-and-sellers.md) ## Option A contract that gives its holder the right, and not the obligation, to buy or to sell a fixed amount of an underlying asset at a fixed price until a fixed date. A standard stock option covers 100 shares. Also called: option contract, stock option, equity option See also: Call option, Put option, Premium [Read the article: What is an option?](https://optionsbeacon.pro/learn/what-is-an-option.md) ## Option chain The table of every listed option on one underlying, arranged by expiration date and strike price, with the calls on one side and the puts on the other. Also called: options chain, option matrix See also: Bid, Ask, Open interest, Volume [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Option symbol The code that names one listed option. It is made of the root symbol, the expiration date as year, month and day, the letter C or P, and the strike price. Also called: OCC symbol, option ticker See also: Option chain [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Options Clearing Corporation The clearing house of US listed options. It issues every listed option and acts as the central counterparty, so the holder of an option looks to the clearing system, and not to a particular writer, for performance. Also called: OCC See also: Options Disclosure Document, Assignment ## Options Disclosure Document The booklet "Characteristics and Risks of Standardized Options", published by the Options Clearing Corporation. A person must receive a copy before buying or selling an option, and brokers provide it. Also called: ODD, Characteristics and Risks of Standardized Options See also: Options Clearing Corporation ## Out of the money A call whose strike price is above the price of the stock, or a put whose strike price is below it. Its premium is made of time value only. Also called: OTM See also: Time value, In the money, At the money [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## Payoff diagram A chart of the profit or loss of a position at expiration for each price of the underlying, with the price on the horizontal axis and the result on the vertical one. Also called: profit and loss diagram, risk graph, risk profile See also: Break-even [Read the article: How to read a payoff diagram](https://optionsbeacon.pro/learn/how-to-read-a-payoff-diagram.md) ## Physical settlement The settlement of an exercised option by delivery of the underlying shares against payment of the strike price. Stock options settle this way; most index options settle in cash. Also called: physical delivery See also: Exercise, Assignment [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Pin risk The risk to the writer of an option that the stock closes at or very near the strike price at expiration. The writer then does not know until after the market has closed whether the option was assigned. See also: Assignment, Automatic exercise [Read the article: Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md) ## Premium The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract. Also called: option price, option premium See also: Intrinsic value, Time value, Contract multiplier [Read the article: Strike price, expiration date and premium](https://optionsbeacon.pro/learn/strike-expiration-premium.md) ## Protective put A put bought on shares that are owned. Below its strike price the gain of the put offsets the loss of the shares, at the cost of the premium paid. Also called: married put See also: Put option, Collar [Read the article: Collar](https://optionsbeacon.pro/learn/collar.md) ## Put option An option that gives its holder the right to sell the underlying shares at the strike price. The writer of a put must buy the shares at that price if the put is assigned. Also called: put See also: Call option, Strike price, Assignment [Read the article: Calls and puts](https://optionsbeacon.pro/learn/calls-and-puts.md) ## Rho The estimated change in the price of an option for a change of one percentage point in the interest rate. See also: Greeks ## Rolling Closing an option position and opening another on the same underlying with a later expiration date, another strike price, or both. A roll is two trades, each with its own cost. Also called: roll, rolling out See also: Closing transaction, Opening transaction [Read the article: Cash-secured put](https://optionsbeacon.pro/learn/cash-secured-put.md) ## Short Having sold something that was not owned before. Short an option means having written it, with the obligations of a writer until the position is closed, is assigned or expires. See also: Long, Writer ## Strike price The price per share at which the holder of an option may buy (a call) or sell (a put) the underlying shares. It is fixed for the life of the option. Also called: strike, exercise price See also: Expiration date, Premium, Moneyness [Read the article: Strike price, expiration date and premium](https://optionsbeacon.pro/learn/strike-expiration-premium.md) ## Theta The estimated change in the price of an option as one day passes and everything else stays the same. A bought option has a negative theta and a written option a positive one. See also: Time decay, Time value, Greeks [Read the article: Theta and time decay](https://optionsbeacon.pro/learn/theta-time-decay.md) ## Time decay The loss of an option's time value as its expiration comes closer. It is measured by theta, and for options at the money it speeds up in the last weeks. See also: Theta, Time value [Read the article: Theta and time decay](https://optionsbeacon.pro/learn/theta-time-decay.md) ## Time value The part of an option's premium above its intrinsic value. It pays for the time left and for the movement expected until expiration, and it is zero at expiration. Also called: extrinsic value See also: Intrinsic value, Time decay, Implied volatility [Read the article: Moneyness, intrinsic value and time value](https://optionsbeacon.pro/learn/moneyness-intrinsic-and-time-value.md) ## Uncovered option A written option with no offsetting position, such as a call written without owning the shares. The loss of an uncovered call has no upper limit, because the price of a stock has none. Also called: naked option, naked call, naked put See also: Covered call, Cash-secured put, Margin [Read the article: The main risks of options](https://optionsbeacon.pro/learn/risks-of-options.md) ## Underlying The stock, fund or index an option is written on. The value of the option follows the price of its underlying. Also called: underlying stock, underlying security, underlying asset See also: Option ## Vega The estimated change in the price of an option for a change of one percentage point in implied volatility. See also: Implied volatility, Greeks [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## VIX The Cboe Volatility Index, a measure of the volatility that the market expects over the next 30 days, computed from the prices of options on the S&P 500 index. Also called: Cboe Volatility Index See also: Implied volatility [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## Volatility skew The pattern of different implied volatilities across the strike prices of one expiration. On stocks, puts below the market price usually carry a higher implied volatility than calls above it. Also called: skew, volatility smile See also: Implied volatility [Read the article: Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md) ## Volume The number of contracts of an option traded during the current trading day. It starts again from zero every day. Also called: trading volume See also: Open interest, Liquidity [Read the article: How to read an option chain](https://optionsbeacon.pro/learn/how-to-read-an-option-chain.md) ## Weekly options Listed options with a short life. A weekly series is listed on a Thursday and in most cases expires on the Friday of the following week, and the exchanges may list several weeks ahead for selected stocks and funds. Also called: Weeklys, weeklies See also: Expiration date, LEAPS ## Wheel strategy A rotation between two positions on one stock. Cash-secured puts are written until one is assigned, then covered calls are written on the shares until they are called away, and the rotation starts again. Also called: the wheel See also: Cash-secured put, Covered call [Read the article: The wheel strategy](https://optionsbeacon.pro/learn/wheel-strategy.md) ## Writer The person who sold an option to open a position. A writer received the premium and carries the obligation to deliver or to buy the shares if the option is assigned. Also called: seller, option seller See also: Holder, Short, Assignment [Read the article: Option buyers and sellers: rights and obligations](https://optionsbeacon.pro/learn/option-buyers-and-sellers.md) --- Educational content from Options Beacon. It is not investment, tax or legal advice, and not a recommendation to buy or sell any security or to use any strategy. Options involve risk and are not suitable for all investors; an option seller can lose far more than the premium received. Before trading options, read [Characteristics and Risks of Standardized Options](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document). Articles are drafted with AI assistance and checked against the sources listed on each page.