Options Trading Simulator
Glossary

Options terms, in plain English.

The words you'll meet on an option chain and in every options lesson, each explained in a sentence. The same glossary is built into the app: tap any underlined term in a lesson.

A

American option
Can be exercised any day up to expiry. All US stock and ETF options are American.
Ask
The lowest price a seller will accept. You buy at the ask.
Assignment
When an option seller is required to fulfil the contract: sell shares (short call) or buy shares (short put) at the strike.
At the money (ATM)
Strike at or very near the current stock price.

B

Bid
The highest price a buyer will pay. You sell at the bid.
Break-even
The stock price at expiry where the trade neither makes nor loses money.
Buying power
Cash available for new trades after collateral for open positions is set aside.

C

Call
The right to buy 100 shares at the strike price until expiry.
Cash-secured put
A short put with enough cash set aside to buy the shares if assigned. How the cash-secured put works →
Collateral
Money a broker holds against the worst case of a short option position.
Covered call
Selling a call against 100 shares you own. How the covered call works →
Credit
Money received when opening a trade, e.g. selling an option or a credit spread.

D

Debit
Money paid when opening a trade.
Delta
How much an option's price changes for a $1 move in the stock. Also a rough probability of finishing in the money.

E

European option
Can only be exercised at expiry. Most index options (e.g. SPX) are European and cash-settled.
Ex-dividend date
Buy the stock before this date to receive the next dividend. Deep ITM short calls risk early assignment the day before.
Exercise
Using an option's right: buying (call) or selling (put) 100 shares at the strike.
Expected move
The one-standard-deviation move implied by option prices: price × IV × √(days/365).
Expiry
The date an option stops trading, 4pm New York time for US stock options.
Extrinsic value
The part of an option's price above its intrinsic value. Also called time value.

G

Gamma
How much delta changes for a $1 move in the stock. Highest at the money near expiry.

H

Historical volatility
How much the stock actually moved, annualised, measured from past prices. Also realised volatility.

I

Implied volatility (IV)
The volatility that makes the model price match the market price: the market's estimate of future movement.
In the money (ITM)
Has intrinsic value: calls with strikes below the stock price, puts with strikes above.
Intrinsic value
What an option is worth if exercised right now.
IV crush
The sharp fall in implied volatility after an event like earnings.
IV percentile
Share of days in the past year when IV was lower than today.
IV rank
Where today's IV sits between its 1-year low (0%) and high (100%).

L

LEAPS
Long-term options, usually expiring one to three years out.
Leg
One option (or stock) position within a multi-part strategy.
Long
Owning a position: you bought it.

M

Mid
Halfway between the bid and the ask.

O

Open interest
Number of contracts still open across all previous days.
Out of the money (OTM)
No intrinsic value: calls above the stock price, puts below.

P

Premium
The price of an option.
Probability of profit
Model-estimated chance a strategy makes money at expiry.
Put
The right to sell 100 shares at the strike price until expiry.

R

Roll
Closing an option and opening a similar one at a later date or different strike in one trade.

S

Short
Having sold a position you did not own; you carry the obligation.
Skew
Different implied volatility across strikes. Stock puts usually carry higher IV than calls.
Spread (bid/ask)
Ask minus bid. The cost of a round trip.
Spread (strategy)
Buying one option and selling another on the same stock, e.g. a bull call spread.
Strike
The price at which the option lets you buy (call) or sell (put) the shares.

T

Theta
How much value an option loses per day, all else equal.

V

Vega
How much an option's price changes for a 1-point change in implied volatility.
Volatility risk premium
The tendency of implied volatility to exceed realised volatility, which pays option sellers on average.
Volume
Contracts traded today.

W

Wheel
Selling cash-secured puts until assigned, then covered calls until the shares are called away, and repeating.
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Options Trading Simulator is for education and practice only. Nothing in the app or on this site is investment, financial or tax advice. Options involve risk and are not suitable for every investor. Examples use a simulated $100 stock and are not live quotes.