One page per term, each with a direct definition first and the practical context second: volatility measures (implied volatility, IV rank, NVRP, skew, term structure), the Greeks (delta, gamma, theta, vega, rho), structures (credit and debit spreads, iron condors, straddles, the wheel's cash-secured puts and covered calls), and the mechanics of trading them (assignment, the bid-ask spread, limit orders, open interest). The numbers can be worked through in the calculators, and deeper treatments live in the Learn library.
Implied volatility is the annualized volatility number that, plugged into an option pricing model, reproduces the option's current market price. It is the market's forward-looking price of movement, quoted in percent per year.
Historical volatility, also called realized volatility, is the annualized standard deviation of a stock's actual daily returns over a lookback window, commonly 20 trading days (HV20). It measures movement that happened, where implied volatility prices movement expected.
IV rank locates a stock's current implied volatility between its 52-week low and high on a 0-100 scale: (IV - low) / (high - low). IV percentile, often shown beside it, is the share of the year's days with lower IV. Both say whether premium is rich or thin for this particular stock.
NVRP measures the richness of option premium relative to the stock's actual movement: at-the-money IV minus realized volatility, divided by realized volatility. Positive readings mean options price more movement than the stock has delivered.
The expected move is the one-standard-deviation range the options market prices for a stock through a given expiration: stock price times implied volatility times the square root of the time left. Under the model, about two-thirds of outcomes land inside it.
Delta is the option's price change per $1 move in the stock: calls run 0 to +1, puts 0 to -1. It doubles as the position's stock-equivalent exposure, a rough probability of finishing in the money, and the hedge ratio market makers trade against.
Gamma is the change in delta per $1 move in the stock, the curvature of the position. It peaks at the money and grows sharply as expiration approaches. Long option positions own gamma; short positions owe it.
Theta is the change in an option's price from one day passing, with everything else unchanged. It is negative for options owned and positive for options sold, and it grows sharply in the final weeks, most of all for at-the-money strikes.
Vega is the option's price change for a one-percentage-point change in implied volatility. Debit structures and straddles are long vega; credit spreads and condors are short vega, gaining when volatility falls or stays overpriced.
Rho is the option's price change per one-percentage-point change in the risk-free rate. It is negligible for short-dated options and material for long-dated ones, where rate exposure compounds over years.
A credit spread sells an option and buys a further out-of-the-money one at the same expiration, collecting a net credit. Max profit is the credit; max loss is the strike width minus the credit; both are fixed at entry.
A debit spread buys an option and sells a further out-of-the-money one at the same expiration, paying a net debit. Max loss is the debit paid; max profit is the width minus the debit, reached when the stock moves through the short strike.
An iron condor combines an out-of-the-money bull put spread and bear call spread on one expiration, collecting both credits. It profits when the stock finishes between the short strikes; max loss is the wider wing's width minus the total credit.
A cash-secured put is a short put with the full cash reserved to buy 100 shares per contract at the strike if assigned. The premium is kept either way; assignment converts the reserve into stock at the chosen strike.
A covered call sells a call against 100 owned shares, collecting premium in exchange for capping upside at the strike. If the stock finishes above the strike the shares are called away at that price; below it, the premium is kept and the shares remain.
Probability of profit is the model-implied chance that a position finishes profitable at expiration, computed from the chain's own implied volatilities via N(d2) at the breakeven. It states odds under the market's distribution, not a promise, and ignores the size of wins and losses.
DTE counts the calendar days until an option's expiration. Both theta decay and gamma risk are functions of it, which makes DTE the axis most entry and exit conventions are written on: enter credit structures around 30-45 DTE, manage or close by around 21 DTE.
Open interest is the number of option contracts outstanding at a strike and expiration, counted once per long-short pair. Together with daily volume and quote width it forms the liquidity screen that decides whether a theoretical trade is tradeable.
The bid-ask spread is the gap between the highest price buyers bid and the lowest price sellers offer. It is the toll paid on every entry and exit, and on multi-leg structures it compounds per leg, which makes quote width a first-class entry screen.
Gamma exposure estimates the aggregate gamma position of options dealers from open interest across a chain. Its sign describes how dealer hedging interacts with price: positive gamma dampens moves, negative gamma amplifies them.
Skew is the pattern of implied volatility across strikes at a single expiration. In equities, downside puts typically trade at higher IV than upside calls, pricing crash protection at a premium; deviations from the usual shape carry information.
A straddle holds a call and a put at the same strike and expiration. Bought, it profits when the stock moves further in either direction than the combined premium paid; its price is the market's clearest quote of the expected move.
A strangle holds an out-of-the-money call and an out-of-the-money put at the same expiration. It costs less than a straddle and needs a larger move to pay, trading probability for price.
A vertical spread pairs a bought and a sold option of the same type and expiration at different strikes. Every vertical is defined-risk, and the four variants (bull put, bear call, call debit, put debit) are the building blocks most rule-based spread disciplines are built from.
A calendar spread sells a near-dated option and buys a longer-dated one at the same strike for a net debit, profiting when the near leg decays faster than the far leg loses value. It is the direct trade on the volatility term structure.
LEAPS (Long-term Equity AnticiPation Securities) are listed options with expirations roughly a year or more out. They substitute for stock in multi-month directional positions, commonly held deep in the money around 0.70-0.75 delta.
Assignment is the fulfillment of a short option's obligation when a holder exercises: a short put buys 100 shares per contract at the strike, a short call delivers them. American-style options can assign any day, but rational assignment waits until remaining time value is smaller than the value of exercising.
Moneyness locates a strike relative to the stock: in the money (intrinsic value now), at the money (strike near spot), out of the money (all time value). Almost every options property (delta, gamma, decay, assignment odds) organizes along this axis.
The volatility term structure is implied volatility plotted across expirations for one underlying. Upward-sloping (contango) is the calm resting state; inverted (backwardation) means near-term risk is being paid for hardest, which historically marks stress or a nearby event.
A position's breakeven is the stock price at expiration where it neither makes nor loses money: strike plus debit for a long call, short strike minus credit for a bull put spread, and two symmetric points for straddles. Probability math is evaluated at the breakeven, not the strike.
IV crush is the rapid deflation of implied volatility once a scheduled event, most commonly earnings, resolves. The event premium that built up in the spanning expiration vanishes overnight, repricing options lower even when the stock moves.
RSI is a momentum oscillator on a 0-100 scale, built from the ratio of average gains to average losses over a lookback, classically 14 periods. Readings above 70 mark a stretched advance, below 30 a washed-out decline, with the middle band reading as neutral.
MACD measures trend momentum as the difference between a fast and a slow exponential moving average (classically 12 and 26 periods), compared against its own 9-period smoothed signal line. A positive and rising histogram reads as accelerating trend; crossings mark momentum shifts.
Bollinger Bands bracket a moving average (classically 20 periods) with bands two standard deviations wide, computed from the same window. Price at a band marks a statistically stretched move; band width itself measures volatility, and unusually narrow bands mark the compression that precedes expansion.
ADX measures whether a directional trend exists, on a 0-100 scale, without saying which direction: readings below ~20 mark range-bound tape, above ~25 an established trend. It is the regime filter that decides what every directional indicator's reading means.
Beta-weighted delta scales each position's delta by its stock's beta to a reference index and sums the result, expressing the whole book's directional exposure in one currency: equivalent index shares, or dollars per $1 index move.
Spread width is the distance between a vertical spread's strikes. It bounds the structure's outcome span: a credit vertical's worst case is width minus credit, a debit vertical's max gain is width minus debit, and the credit-to-width ratio is the standard measure of whether a premium sale is adequately paid.
The ex-dividend date is the first trading day a buyer of the stock no longer receives the declared dividend; the price is expected to open lower by roughly the dividend. For options, it is the date short in-the-money calls face rational early assignment when the dividend exceeds their remaining time value.
A limit order names the worst price its owner will accept: a maximum for purchases, a minimum for sales. In options markets, where quotes are wide and negotiated, limit orders are the standard instrument; a market order in a thin option accepts whatever the quote happens to be.
The mid price is the midpoint between the best bid and best ask. It serves as the working estimate of fair value, the anchor for limit pricing, and the reference against which fill quality is measured: distance from mid at fill is the concession paid.