Knowledge Base
Options Trading Glossary
Clear, straight-talk definitions for the most important terms in derivatives trading.
Optioneer is an options trading tracker. Start with the tracking guide or see pricing.
- AssignmentMechanics
- The notice that an option seller receives requiring them to fulfill their obligation to buy (short put) or sell (short call) the underlying stock at the strike price.
- Covered CallStrategies
- An income strategy where an investor holds a long position in an asset and writes (sells) call options on that same asset to generate an income stream.
- DeltaGreeks
- The measure of an option's price sensitivity to changes in the underlying asset's price. A delta of 0.50 means the option price will theoretically move $0.50 for every $1.00 move in the stock. Why it matters: Delta tells you how directional your position really is and helps size hedges.
- GammaGreeks
- The rate of change of an option's Delta. Gamma is highest for at-the-money options near expiration and represents the acceleration of directional risk. Why it matters: High Gamma positions can shift quickly, requiring closer monitoring.
- Implied Volatility (IV)Mechanics
- A metric that captures the market's view of the likelihood of changes in a given security's price. Higher IV results in more expensive option premiums. Why it matters: IV tells you whether options are relatively cheap or expensive compared to typical conditions.
- Iron CondorStrategies
- A neutral, multi-leg strategy defined by two vertical spreads (one put, one call) that profits when the underlying asset stays within a specific range.
- IV CrushMechanics
- The rapid decrease in Implied Volatility that typically occurs after a known event (like earnings) passes. This crushes the value of long options and benefits short options.
- Probability of Profit (POP)Mechanics
- An estimate of the likelihood that a trade will end profitably at expiration, based on current market conditions and option pricing. It is a planning and comparison tool, not a guarantee — actual outcomes depend on how the underlying moves.
- The Wheel StrategyStrategies
- A systematic income strategy involving selling cash-secured puts to acquire stock, and then selling covered calls against that stock.
- ThetaGreeks
- The measurement of an option's time decay. It represents the dollar amount an option's value will decrease each day, assuming all other factors remain constant. Why it matters: Theta shows whether time is working for you (sellers) or against you (buyers).
- VegaGreeks
- The measure of an option's sensitivity to changes in Implied Volatility (IV). High Vega options are more sensitive to volatility shifts. Why it matters: Vega helps you understand how earnings, news, or market uncertainty will affect your position.
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Short, practical guides that build on the terms above.