Derivatives

Options, futures, and other derivative instruments.

28 terms in this category

A

At The Money (ATM)

An option is at the money when the strike price equals or is very close to the current stock price, having zero intrinsic value.

C

Call Option

A call option gives the buyer the right, but not obligation, to buy an asset at a specific price before expiration.

Covered Call

A covered call involves owning stock and selling call options against it, collecting premium income while capping upside potential.

Credit Spread

A credit spread involves selling one option and buying another at a different strike for a net credit, with defined risk and profit.

D

Debit Spread

A debit spread involves buying one option and selling another at a different strike for a net debit, with defined risk and profit.

Delta

Delta measures how much an option's price changes for every $1 move in the underlying stock, ranging from 0 to 1 for calls and 0 to -1 for puts.

E

Expiration

Expiration is the date when an option contract ends and must be exercised, sold, or allowed to expire worthless.

F

Futures Contract

A futures contract is an agreement to buy or sell an asset at a predetermined price on a specific future date, with both parties obligated.

G

Gamma

Gamma measures how much delta changes for every $1 move in the underlying stock, showing the rate of change of directional exposure.

Greeks

The Greeks are risk measures showing how option prices change with underlying price (delta), time (theta), volatility (vega), and rate of change (gamma).

I

Implied Volatility

Implied volatility is the market's expectation of future price movement, reflected in option prices. Higher IV means more expensive options.

In The Money (ITM)

An option is in the money when exercising it would be profitable—calls when stock exceeds strike, puts when stock is below strike.

Intrinsic Value

Intrinsic value is the amount by which an option is in the money—the difference between stock price and strike price if profitable.

Iron Condor

An iron condor is a neutral options strategy using four options to profit from low volatility within a defined price range.

IV Crush

IV crush is the sharp decline in implied volatility after an event like earnings, causing option prices to drop even if the stock moves your way.

L

Lot Size

Lot size is the standardized number of units of the underlying asset in one derivatives contract, determining minimum trade size.

O

Open Interest

Open interest is the total number of outstanding option contracts that have not been closed, exercised, or expired.

Out of The Money (OTM)

An option is out of the money when exercising it would not be profitable—calls when stock is below strike, puts when stock exceeds strike.

P

Premium (Options)

Premium is the price paid to buy an option, consisting of intrinsic value plus time value. It's what option buyers pay and sellers receive.

Protective Put

A protective put involves owning stock and buying put options as insurance, limiting downside risk while keeping upside potential.

Put Option

A put option gives the buyer the right, but not obligation, to sell an asset at a specific price before expiration.

R

Rollover

Rollover is closing a position in an expiring contract and opening the same position in a later-dated contract to maintain exposure.

S

Straddle

A straddle involves buying a call and put at the same strike and expiration, profiting from big moves in either direction.

Strangle

A strangle involves buying OTM call and put options at different strikes, profiting from very large moves in either direction.

Strike Price

Strike price is the predetermined price at which an option holder can buy (call) or sell (put) the underlying asset.

T

Theta

Theta measures how much an option loses in value each day due to time decay, expressed as dollars lost per day.

Time Value

Time value is the portion of an option's premium above its intrinsic value, reflecting the probability of favorable movement before expiration.

V

Vega

Vega measures how much an option's price changes for every 1% change in implied volatility of the underlying asset.