Options Market Jargons

Options trading involves many technical terms and jargons that can be confusing for beginners. Here are some options market jargons and their meanings:

Call option: A call option is a type of option that gives the buyer the right, but not the obligation, to buy the underlying asset at a specified price within a specified period.

Put option: A put option is a type of option that gives the buyer the right, but not the obligation, to sell the underlying asset at a specified price within a specified period.

Strike price: The strike price is the price at which the buyer of an option can buy or sell the underlying asset.

Expiration date: The expiration date is the date on which the option contract expires and becomes invalid.

In-the-money: An option is in-the-money if exercising the option would result in a profit.

Out-of-the-money: An option is out-of-the-money if exercising the option would result in a loss.

At-the-money: An option is at-the-money if the underlying asset price is equal to the strike price.

Premium: The premium is the price paid by the buyer to the seller for the option contract.

Time decay: Time decay refers to the decrease in the value of an option as the expiration date approaches.

Implied volatility: Implied volatility is the expected volatility of the underlying asset based on the price of the option.

Option chain: An option chain is a list of all the available options for a particular underlying asset.

Delta: Delta measures the sensitivity of the option price to changes in the underlying asset price.

Gamma: Gamma measures the rate of change in the delta of an option in response to changes in the underlying asset price.

Theta: Theta measures the rate of time decay in the option price as the expiration date approaches.

Vega: Vega measures the sensitivity of the option price to changes in implied volatility.

Intrinsic value: Intrinsic value is the value of an option if it were exercised immediately.

Time value: Time value is the difference between the option price and the intrinsic value.

Liquidity: Liquidity refers to the ease with which an option can be bought or sold in the market.

Assignment: Assignment occurs when the seller of an option is obligated to fulfill the terms of the contract by buying or selling the underlying asset.

Spread: A spread is a combination of buying and selling options with different strike prices or expiration dates to create a trading strategy.

Iron condor: An iron condor is a trading strategy that involves buying and selling four different options with different strike prices to limit potential losses.

Butterfly spread: A butterfly spread is a trading strategy that involves buying and selling three different options with the same expiration date and different strike prices to limit potential losses.

Conclusion

Understanding these options market jargons is essential for anyone looking to participate in options trading. It is important to note that options trading involves significant risk and should only be undertaken by experienced traders who have a thorough understanding of the market and its jargons.