Options & Derivatives

An option contract that can be exercised at any time before or on the expiration date, providing maximum flexibility to the holder.

An option whose strike price is equal or very close to the current market price of the underlying asset.

A market condition where the futures price of a commodity is lower than the current spot price, often signaling tight supply.

A bearish options strategy that involves buying a higher-strike put and selling a lower-strike put on the same underlying with the same expiration.

An option that can be exercised on specific predetermined dates before expiration, falling between American and European exercise styles.

An options pricing model that uses a discrete-time tree of possible price paths to value options, especially useful for American-style options.

The foundational mathematical model for pricing European options, using stock price, strike, time, volatility, and risk-free rate as inputs.

A combination of a bull call spread and bear put spread at the same strikes, creating a risk-free position that should be worth the present value of the strike difference.

A modified butterfly spread where the wings are at unequal distances from the center strike, creating an asymmetric risk/reward profile.

A bullish options strategy that involves buying a lower-strike call and selling a higher-strike call on the same underlying with the same expiration.

A neutral options strategy combining a bull spread and bear spread with three strike prices, profiting most when the underlying stays near the middle strike.

An options strategy that involves buying and selling options at the same strike price but with different expiration dates, profiting from time decay differences.

A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.

An options strategy where a trader sells a put option while holding enough cash to purchase the underlying stock if assigned.

A protective options strategy combining a covered call and a protective put to limit both downside risk and upside potential on a stock position.

A neutral options strategy using four different strike prices to profit when the underlying stays within a defined range, similar to a wider butterfly.

A market condition where futures prices are higher than the current spot price, typically reflecting storage costs, financing costs, and convenience yield.

An options strategy where an investor sells call options against shares they already own, generating income from the premium while capping upside potential.

A derivative contract where one party pays periodic premiums to another in exchange for protection against a credit event like default on a bond or loan.

A Greek that measures how much an option's price changes for a $1 move in the underlying asset, also approximating the probability of expiring in the money.

A strategy that offsets the directional risk of an options position by trading the underlying asset in proportion to the option's delta.

An options strategy combining different strike prices AND different expiration dates, blending elements of both vertical and calendar spreads.

The act of exercising an American-style option before its expiration date, typically done only when specific conditions make it financially advantageous.

An option contract that can only be exercised at expiration, not before, typically found in index options and OTC markets.

The predetermined price at which an option holder can buy (call) or sell (put) the underlying asset, also known as the strike price.

The last date on which an option contract can be exercised or traded, after which it becomes worthless if not in the money.

A customized private agreement between two parties to buy or sell an asset at a specified price on a future date, traded over-the-counter.

A standardized exchange-traded agreement to buy or sell an asset at a predetermined price on a specific future date, with daily mark-to-market settlement.

A Greek that measures the rate of change of delta for a $1 move in the underlying, indicating how quickly an option's directional exposure shifts.

A rapid price increase caused by market makers buying the underlying stock to delta-hedge their short call positions as prices rise and gamma amplifies.

The market's forecast of the likely magnitude of future price movements, derived from current option prices using pricing models.

An option that has intrinsic value — a call with strike below the stock price or a put with strike above the stock price.

The two components of an option's price: intrinsic value (profit if exercised now) and extrinsic value (time value plus volatility premium).

A neutral options strategy that sells an ATM straddle and buys OTM wings for protection, creating a defined-risk position that profits from low volatility.

A popular neutral options strategy that sells an OTM put spread and OTM call spread simultaneously, profiting when the underlying stays within a defined range.

An options strategy combining a short put with a short call spread, structured so there is no upside risk if the total credit exceeds the call spread width.

Long-term equity anticipation securities — options contracts with expiration dates more than one year in the future.

The practice of valuing positions at current market prices and settling daily gains/losses, standard in futures markets and portfolio accounting.

The relationship between an option's strike price and the current price of the underlying asset, classified as in the money, at the money, or out of the money.

An option sold without holding the underlying asset or an offsetting position, exposing the seller to theoretically unlimited risk.

The total value of a derivatives position based on the underlying asset's price, representing the full exposure rather than the capital invested.

The total number of outstanding derivative contracts that have not been settled, closed, or expired, indicating market participation and liquidity.

The process by which an option seller is obligated to fulfill the terms of the contract when the buyer exercises their right.

A listing of all available option contracts for a security, organized by expiration date and strike price, showing prices, volume, and Greeks.

A set of risk measures (delta, gamma, theta, vega, rho) that quantify how an option's price responds to changes in various market factors.

The price paid by the option buyer to the seller for the rights conveyed by the contract, determined by intrinsic value, time value, and volatility.

An option with no intrinsic value — a call with strike above the stock price or a put with strike below the stock price.

The risk that a stock closes exactly at or very near an option's strike price at expiration, creating uncertainty about whether the option will be exercised.

A diagonal spread strategy that replaces stock ownership with a deep ITM LEAPS call option, then sells short-term calls against it for income.

A hedging strategy combining stock ownership with a protective put and covered call to create a cost-effective downside floor with limited upside.

A hedging strategy where a stockholder buys a put option to establish a price floor, protecting against downside risk while maintaining upside potential.

A contract giving the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specified time period.

A fundamental pricing relationship stating that the price of a call, put, underlying, and risk-free bond must be in equilibrium for European options.

An options strategy that involves buying and selling unequal numbers of options at different strikes, creating an asymmetric risk/reward profile.

A Greek that measures an option's sensitivity to changes in the risk-free interest rate, typically the least impactful Greek for short-term options.

Selling a call option to collect premium, obligating the seller to deliver shares at the strike price if assigned, with theoretically unlimited risk if uncovered.

Selling a put option to collect premium, obligating the seller to buy shares at the strike price if assigned, with risk down to the stock reaching zero.

An options strategy involving the simultaneous purchase (or sale) of a call and put at the same strike price and expiration, betting on volatility magnitude.

An options strategy involving the purchase (or sale) of an OTM call and OTM put at different strikes with the same expiration, a wider alternative to a straddle.

The predetermined price at which the holder of an option can buy (call) or sell (put) the underlying asset upon exercise.

A derivative contract in which two parties exchange cash flows or financial instruments over a specified period.

An options strategy that replicates the payoff profile of another position, such as stock ownership, using a combination of options.

The Greek that measures the rate at which an option loses value as time passes, also known as time decay.

The reduction in an option's value as it approaches its expiration date, reflecting the decreasing probability of a profitable move.

The Greek that measures an option's sensitivity to changes in implied volatility of the underlying asset.

An options strategy involving buying and selling options of the same type and expiration but at different strike prices.

The CBOE Volatility Index, often called the "fear gauge," which measures the market's expectation of 30-day volatility based on S&P 500 options prices.

A rapid decline in implied volatility, typically after a major anticipated event, causing option prices to drop sharply.

The pattern where implied volatility differs across options with the same expiration but different strike prices.

A systematic options income strategy that cycles between selling cash-secured puts and covered calls on the same underlying stock.