Options Terminology | Options Definitions - The Options Playbooks

Terminology options

Key Options Terms

Every option contract has a breakeven associated with the option type. It is the price sensitivity of the option relative to the underlying.

terminology options

Each one of these variables or Greeks has a number associated with it, and that number tells traders something about how the option moves or the risk associated with that option. Gamma: This is considered a second-order derivative.

Options Trading Glossary of Terms

These are second and third order greeks of the pricing model and affect things such as the change in delta with a change in volatility and so terminology options. Credit Spreads: An option spread established for a net terminology options.

terminology options

This is what we trade at Options Profit Planner daily! Debit Spreads: An option spread established for a net debit.

But here we present the standard textbook definitions for a whole slew of options terminology without any jokes, interjections or unnecessary asides. At-the-money An equity call or put option is at-the-money when its strike price is the same as the current underlying stock price. Back month For an option spread involving two expiration months, the month that is farther away in time. Break-even point An underlying terminology options price at which an option strategy will realize neither a profit nor a loss, generally at option expiration. Call option An equity option that gives its buyer the right to buy shares of the underlying stock at the strike price per share at any time before it expires.

Exercise: When a call or put owner exercises their right to buy or sell the underlying stock at the respective strike price prior to expiration. Expiration: Terminology options an option contract has expired and is no longer valid. This occurs on a Friday for all Weekly contracts. This occurs on every 3rd Friday each month for all Monthly contracts.

terminology options

Extrinsic Value: Opposite of intrinsic value. This is calculated using time value and implied volatility of the option.

Terminology - Options

Note: At-the-Money and Out-of-the-Money hold extrinsic value. Historical Volatility: Historical Volatility, HV is a statistical measure of the dispersion of returns for a given stock over a given period of time.

Hedge: Is an investment that protects your portfolio from adverse price movements.

terminology options

An example is buying a long call on a short stock position, that generates a synthetic long put. This synthetic trade is protecting the short call on the upside.

Read Review Visit Broker A Albatross Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral.

Implied volatility is often used to price options contracts, where High implied volatility results in options with higher premiums. Intrinsic Value: Opposite of extrinsic value. Note: At-the-Money and Out-of-the-Money cannot hold intrinsic value.

Links to non-Ally websites The technical jargon associated with option trading can often make it seem intimidating. An option is at-the-money when the stock price is equal to the strike price. For each call contract you buy, you have the right but not the obligation to purchase shares of a specific security at a specific price within a specific time frame. A way to remember this is: You have the right to call stock away from somebody. The owner buys if a call or sells if terminology options put the underlying stock at the strike price, and requires the option seller to take the other side of the trade.

In the case of a call option, the option has no intrinsic value because the current price of the underlying stock is less than the option strike price. These are some of the beat options to sell and are targeted for selling opportunities weekly Open Interest: Open Interest indicates the total number of option contracts that are currently in the market.

These are contracts that have been traded but not yet liquidated by an offsetting trade or an exercise or assignment.

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Premium: Option premium is the price paid by the buyer to the seller for an option contract. Premiums are quoted on a per-share basis with most option contracts representing shares of the underlying stock.

Spreads: A position involving two or more different options on the same strike.

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  • Поиск занял больше времени, чем она рассчитывала.
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Some spreads include, and not limited to, verticals, butterflies, iron condors, straddles, strangles, etc. Volume: Volume is the number of option contracts traded in a given period of time. Wrapping up I know how frustrating it can be when you first start trading options with all of the terminology and formulas to remember.

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Even the most experienced traders during wild markets can lose focus and forget seemingly basic concepts. Which is why I have the Complete List of Options Terminology that gives you a comprehensive list of the key terms to use for trading! Want to learn how to put theta to work for you?

terminology options

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