Glossary · 25 terms
Derivatives & Options
All derivatives & options terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Assignment(options assignment)
Assignment is the process by which the seller (writer) of an options contract is obligated to fulfill the terms of the contract — either delivering 100 shares (call assignment) or purchasing 100 shares (put assignment) — when the buyer exercises their option.
At the Money(ATM)
An option is 'at the money' (ATM) when the strike price is equal to or very close to the current market price of the underlying stock, resulting in minimal or zero intrinsic value.
Call Option(call)
A call option is a financial contract that grants the buyer the right, but not the obligation, to purchase 100 shares of an underlying stock at a specified strike price on or before the expiration date.
Covered Call(buy-write)
A covered call is an options strategy in which an investor who already owns 100 shares of a stock sells one call option against those shares to collect premium income while accepting a cap on upside gains.
Delta(options delta)
Delta is an options Greek that measures how much an option's price is expected to change for every $1 move in the underlying stock's price, ranging from 0 to 1 for calls and -1 to 0 for puts.
Expiration Date(expiry)
The expiration date is the last trading day on which an options contract can be exercised or sold, after which the contract becomes void and worthless if not in the money.
Gamma(options gamma)
Gamma measures the rate of change of an option's delta for every $1 move in the underlying stock price — essentially the acceleration of the option's price sensitivity.
Historical Volatility(HV)
Historical volatility (HV) is the annualized standard deviation of a stock's daily price returns over a defined lookback period, measuring how much the stock has actually moved in the past.
Implied Volatility(IV)
Implied volatility (IV) is the market's forward-looking estimate of how much an underlying stock's price will fluctuate over the life of an options contract, derived by reverse-engineering the options pricing model from the current market premium.
In the Money(ITM)
An option is 'in the money' (ITM) when it has positive intrinsic value — meaning a call option's strike price is below the current stock price, or a put option's strike price is above the current stock price.
Intrinsic Value (Options)(exercise value)
Intrinsic value in options is the portion of an option's premium that represents its immediate exercise value — the profit that would be realized if the option were exercised right now.
Iron Condor(condor spread)
An iron condor is a four-leg options strategy that combines a bull put spread and a bear call spread on the same underlying stock or index, profiting when the price stays within a defined range until expiration.
LEAPS(long-term options)
LEAPS (Long-Term Equity AnticiPation Securities) are options contracts with expiration dates more than one year away — typically one to three years — available on many large-cap U.S. stocks and major indexes.
Open Interest(OI)
Open interest is the total number of outstanding (open) options contracts that have been created but not yet closed, exercised, or expired, serving as a measure of market participation and liquidity.
Options Chain(option board)
An options chain is a real-time table listing all available call and put option contracts for a particular stock or index, organized by expiration date and strike price, showing bid/ask prices, volume, open interest, and Greek values.
Out of the Money(OTM)
An option is 'out of the money' (OTM) when it has no intrinsic value — a call whose strike price exceeds the current stock price, or a put whose strike price is below the current stock price.
Premium(option price)
The options premium is the price paid by the buyer to the seller (writer) of an option contract, representing the total market value of one contract covering 100 shares of the underlying stock.
Protective Put(married put)
A protective put is a hedging strategy in which an investor who owns 100 shares of stock buys one put option on those shares to limit downside losses while preserving unlimited upside potential.
Put Option(put)
A put option is a contract that gives the buyer the right, but not the obligation, to sell 100 shares of an underlying stock at a specified strike price on or before the expiration date.
Straddle(long straddle)
A straddle is an options strategy that involves buying (or selling) both a call and a put at the same strike price and expiration date on the same underlying stock, profiting from large price moves in either direction (long) or from sideways movement (short).
Strangle(long strangle)
A strangle is an options strategy involving the purchase (or sale) of an out-of-the-money call and an out-of-the-money put on the same underlying stock and expiration date, at different strike prices.
Strike Price(exercise price)
The strike price (also called the exercise price) is the fixed price at which the holder of an option contract can buy (call) or sell (put) 100 shares of the underlying stock.
Theta(time decay)
Theta is the options Greek that quantifies time decay — the amount by which an option's premium decreases each calendar day as expiration approaches, all other factors remaining constant.
Time Value(extrinsic value)
Time value (or extrinsic value) is the portion of an options premium that exceeds the option's intrinsic value, reflecting the additional worth attributed to the time remaining before expiration and the potential for the option to move further into the money.
Vega(options vega)
Vega measures the sensitivity of an option's price to a one-percentage-point change in implied volatility, quantifying how much the premium rises or falls as volatility expectations shift.