Glossary

Every term in the course, in plain English. Each one links to the lesson that teaches it.

0DTE: Zero days to expiration. The contract dies today, so extrinsic value has almost no time left. Reading a 0DTE options chain
AM and PM settlement: Standard monthly SPX options settle on Friday’s opening prices after trading stops Thursday; SPXW options settle on expiration day’s close. Cash-settled index options
American-style option: Can be exercised on any business day until expiration, so its short side can be assigned early. US stock options are American. Option exercise and assignment
Assignment: When a short option is exercised against you, you must trade the shares at the strike. Call and put options
Bid and ask: The best price a buyer will pay (bid) and the best a seller will take (ask). You buy at the ask and sell at the bid. Option bid-ask spread
Bid-ask spread: Ask minus bid. A round trip costs it, times 100, times the contracts. Option bid-ask spread
Break-even win rate: How often a trade must win to break even: max loss ÷ (max gain + max loss). Options position sizing and expected value
Breakeven: The stock price at expiration where the trade neither makes nor loses money. For a long call: strike plus premium. Reading a 0DTE options chain
Bull call spread: Long a call, short a higher-strike call. Max loss is the debit. Max profit is the width minus the debit. Option spreads and defined risk
Call option: The right to buy 100 shares at the strike, until expiration. A bet the stock rises, if you are long. Call and put options
Called away: Shares delivered at the strike because the short call was exercised. Covered call options
Cash settlement: Settling an option by paying the difference between the settlement value and the strike, times $100, instead of delivering shares. Cash-settled index options
Cash-secured put: A short put with the full strike × 100 held in cash, so assignment is already paid for. Cash-secured puts and the wheel strategy
Cost basis: What a share really cost you. After a put assignment: the strike minus the premium kept. Cash-secured puts and the wheel strategy
Covered call: Own 100 shares and sell one call against them. Premium now, in exchange for capping the upside at the strike. Covered call options
Credit spread: You collect a net premium. A credit put spread sells a put and buys a lower-strike put, so the loss is capped. Option spreads and defined risk
Defined risk: A position whose worst case is known up front: the debit, or the width minus the credit. Option spreads and defined risk
Delta: How far the option price tends to move when the stock moves $1. Also a rough chance of expiring in the money. Option delta and theta
Drawdown: How far an account has fallen from its high. A 50% drawdown needs a 100% gain to recover. Options position sizing and expected value
Early assignment: Assignment before expiration. Most likely on a deep in-the-money call just before an ex-dividend date. Option exercise and assignment
Exercise: Using the option’s right: a call buys 100 shares at the strike, a put sells them. It gives up any extrinsic value left. Option exercise and assignment
Exercise by exception: The OCC rule that exercises equity options $0.01 or more in the money at expiration, unless the holder says not to. Option exercise and assignment
Expected move: The at-the-money straddle price: roughly how far the market expects the stock to move, either way, by expiration. Options expected move and vega
Expected value: The average result if a trade were repeated many times: P(win) × win − P(loss) × loss. Options position sizing and expected value
Extrinsic value: Premium minus intrinsic value. The part you pay for time and for how large a move might be. Intrinsic and extrinsic option value
Gamma: How much delta changes when the stock moves $1. Largest at the money, close to expiration. Option gamma
Implied volatility: The move assumed by an option’s price. Higher IV means a richer premium for both calls and puts. Implied volatility and IV crush
Intrinsic value: What an option is worth if it expires immediately. Stock minus strike for a call, and never below zero. Intrinsic and extrinsic option value
IV crush: The drop in implied volatility, and in extrinsic value, once an event such as earnings is over. Implied volatility and IV crush
Leverage: A premium that controls a much larger share position. Gains and losses are both magnified. Option delta and theta
Limit order: An order at a named price or better. It can save part of the spread, or not fill at all. Option bid-ask spread
Margin call: A broker’s demand for cash or securities to bring an account up to its margin requirement, or it sells positions to get there. Options expiration and assignment risk
Mid price: Halfway between bid and ask. Where many screens mark your position, not a price anyone has offered. Option bid-ask spread
Moneyness: In, at, or out of the money: whether the strike is already on the right side of the stock. Intrinsic and extrinsic option value
Naked option: A short option with no hedge. A naked short call can lose without limit if the stock rises. Option spreads and defined risk
Open interest: Contracts still open, counted by the OCC once a day. Not today’s volume, and neither bullish nor bearish. Option bid-ask spread
Option premium: The price of the option, quoted per share. One contract multiplies it by 100. Call and put options
Pin risk: Being short an option whose stock closes right at the strike: you do not know until after the close whether you will be assigned. Option gamma
Position sizing: Choosing how much of the account a trade can lose, measured at its max loss. Options position sizing and expected value
Positive and negative gamma: Long options gain delta as the stock moves their way. Short options lose it, so every move works against the seller. Option gamma
Put option: The right to sell 100 shares at the strike, until expiration. A bet the stock falls, or insurance on shares you own. Call and put options
Regulation T: Federal Reserve rule on broker credit: for new stock purchases, the customer generally must put up at least 50% of the cost. Options expiration and assignment risk
Section 1256 contract: US tax category that includes broad-based index options like SPX: 60% long-term, 40% short-term, marked to market at year-end. Cash-settled index options
Sell to close: Ending a long option by selling it. It collects intrinsic and extrinsic value, which is why most holders prefer it to exercise. Option exercise and assignment
Selling into earnings: Shorting options before a report to collect inflated premium. Wins on a small move; the gap is the risk. Selling options into earnings
Straddle: A call and a put at the same strike and expiration. Long it to bet on a big move, short it to bet on a small one. Options expected move and vega
Strike price: The fixed price in the contract. The call buys there; the put sells there. Call and put options
The wheel: Sell a cash-secured put; if assigned, sell covered calls on the shares; if called away, start again. Cash-secured puts and the wheel strategy
Theta: How much premium the option tends to lose in a day if the stock does not move. Buyers pay it; sellers collect it. Option delta and theta
Upside cap: The most a covered call can make: the climb to the strike plus the premium. Covered call options
Vega: How much an option’s price changes when implied volatility moves one point. Owners are long it; sellers short it. Options expected move and vega
Volatility risk premium: The tendency of implied volatility to run above the volatility that follows. What option sellers are paid for, until it isn’t. Selling options into earnings