Options glossary

Being required to fulfil an option you sold.

If you sold a call and it is assigned, you must deliver the shares at the strike. If you sold a put, you must buy them. American-style options can be assigned any time before expiration, and it happens most often to in-the-money short calls the day before an ex-dividend date. This calculator does not model assignment, which is one of its stated limitations.

A strike at or very near the current price of the stock.

At-the-money options carry the most time value and the most gamma, which means they move the fastest in both directions. They are also the most liquid, so the bid-ask spread is usually tightest here.

The gap between the highest price a buyer will pay and the lowest a seller will take.

You buy at the ask and sell at the bid, so the spread is a cost you pay on the way in and again on the way out. On a four-leg strategy you cross it eight times. On illiquid contracts this alone can exceed the maximum profit a calculator shows, which is why the Option Finder filters on it.

The underlying price at which the position makes exactly nothing at expiration.

Not the strike. For a long call it is the strike plus the premium paid, plus commissions. Multi-leg strategies can have several breakevens — an iron condor has two, and some custom positions have four. The calculator solves them exactly rather than approximating.

The right to buy 100 shares at a fixed price until a fixed date.

Buying a call is a bet the stock rises enough, fast enough, to cover what you paid. Selling one obliges you to deliver shares if it is exercised, which is why selling a call you do not own shares against carries unlimited risk.

A short option backed by the position that would satisfy it.

A short call is covered when you own 100 shares per contract. A short put is cash-secured when you hold enough cash to buy the shares. Covered positions have a defined maximum loss; uncovered ones may not.

How much the position gains or loses per $1 move in the stock.

Shown here in share equivalents: a delta of 100 behaves like owning 100 shares, and −50 like being short 50. It is often used as a rough approximation of the probability of finishing in the money, which is convenient and not quite correct.

The part of a premium that is not intrinsic value. Also called time value.

It reflects the possibility that the option becomes more valuable before expiration. It is zero at expiration, by definition. Everything theta takes and everything vega gives happens here.

How much delta changes per $1 move in the stock.

High gamma means your directional exposure changes quickly, which is what makes short near-expiration options dangerous: a small move can turn a comfortable position into a large one before you have time to react.

The volatility that makes the model price equal the market price.

It is the market’s estimate of how much the stock will move, backed out of what people are paying. High implied volatility makes options expensive; it usually rises before earnings and collapses immediately after, which is what causes a correctly-predicted move to lose money anyway.

An option with intrinsic value: a call below the stock price, a put above it.

In-the-money options cost more and behave more like the stock. Being in the money at expiration is not the same as being profitable — you still have to cover what you paid, which is what breakeven measures.

What the option would be worth if it expired right now.

For a call, the stock price minus the strike, floored at zero. For a put, the strike minus the stock price, floored at zero. It can never be negative, and a premium below intrinsic value is an arbitrage rather than a price.

The number of shares one contract represents. Normally 100.

It is why a premium quoted at 4.20 costs $420. Enter premiums per share, the way they are quoted, and the calculator applies the multiplier.

The number of contracts currently outstanding at a strike.

A rough measure of how tradeable a contract is. It is published with a lag of at least a day, so it is never live, and this site labels it with its as-of date rather than presenting it as current.

An option with no intrinsic value: a call above the stock price, a put below it.

Cheaper, and entirely time value. Out-of-the-money options expire worthless more often than beginners expect, which is the mechanism behind both the appeal of buying them and the income from selling them.

The price of the option, quoted per share.

The buyer pays it and the seller receives it. It is yours to keep as a seller regardless of what happens next, which is the entire attraction of selling and the reason the risk sits elsewhere.

The right to sell 100 shares at a fixed price until a fixed date.

Buying a put profits from a fall and is the standard way to hedge shares you own. Selling one obliges you to buy the stock at the strike, which is the basis of the cash-secured put.

Sensitivity to interest rates, per percentage point.

The least important Greek for most positions, and a genuine consideration on long-dated options where the cost of carry has time to matter.

What the position loses or gains to the passage of one day.

Reported here per calendar day, so a weekend costs a long option holder two days. Theta accelerates as expiration approaches, which is why the last few weeks are punishing for buyers and attractive for sellers.

What the position gains or loses per 1 percentage point of implied volatility.

Long options have positive vega and short options negative. The volatility slider on the calculator is vega made visible: move it and watch what a change in the market’s expectations does to a position, independent of price.

A sharp fall in implied volatility, usually right after a scheduled event.

The classic case is earnings. Implied volatility rises beforehand and collapses the moment the uncertainty is resolved. A long option can lose money on the announcement even when the stock moves in the predicted direction, simply because vega gave back more than delta earned.