Below is a glossary of options lingo we have covered that you can refer to as a quick cheat sheet.
Call Options – financial contracts that give the option buyer the right, but not the obligation, to buy an underlying security at a specified price within a specific time period.
Put Options –financial contracts that give the option buyer the right, but not the obligation, to buy an underlying security at a specified price within a specific time period.
Implied Volatility (IV) – (commonly referred to as volatility or IV) is one of the most important metrics to understand and be aware of when trading options. In simple terms, IV is determined by the current price of option contracts on a particular stock or future. It is represented as a percentage that indicates the annualized expected one standard deviation range for the stock based on the option prices. For example, an IV of 10% on a $100 stock would represent a one standard deviation range of $10 over the next year.
IV Rank (IVR) – A metric which tells us whether implied volatility is high or low in a specific underlying based on a given time frame of IV data. The lower the number means IV is at a historically low point for that underlying stock and vice versa.
Moneyness – Describes the intrinsic value of an option in its current state. ITM (in the money), OTM (out of the money), and ATM (at the money).
Expiration Date – The date at which an option contract expires.
Strike Price – The strike price of an option is the price at which a put or call option can be exercised. Also known as the exercise price.
Defined Risk – The amount of max loss is known at the entry of the option strategy. You can’t lose more
Bearish – An outlook that feels like the price of an asset or market will go down in value
Bullish – An outlook that feels like the price of an asset or market will up down in value
Unlimited Risk – The amount of max loss is unknown at the entry of the option strategy. Such as selling a naked call where the potential loss is theoretically unlimited.
Debit – Means that you are a net buyer of the option trade.
Credit – Means that you are a net seller of the option trade.
Assignment – When the options seller must fulfil the obligation of an options contract by either selling or buying the underlying security at the exercise price.
Pin Risk – The risk an option seller has that the option they sold would expire in the money just before market close, thus pinning them in the position until the market opens again.