Options Terms to Know

  • Assignment: When the person who is short an option is called upon to fulfill his or her obligation to sell or buy the underlying stock

  • At-the-money call: When the stock price is about the same as the strike price of the call

  • At-the-money put: When the stock price is about the same as the strike price of the put 

  • Book value: The owners' claim on the company Book Value = (Total Assets — Total Liabilities) ÷ Total Outstanding Shares 

  • Call: A contract that gives the holder the right to buy a stock at a specific price on or before a certain date called the expiration date

  • Credit: Money received in an account resulting from selling an option position

  • Current assets: Cash, inventory and other assets a company expects to convert to cash or use within one year or operating cycle

  • Current liabilities: Short-term obligations that will come due within one year or operating cycle

  • Current ratio: A mathematically straightforward way to get a simple measure of assets to liabilities. To calculate this ratio, we simply divide current assets by current liabilities. 

  • Debit: Money paid for an option position

  • Delta: Measures the change in option value with changing underlying stock price

  • Dividends: Payments a company makes to its shareholders, typically from profits, as a way of sharing earnings

  • Dividend yield: How much the investor receives in dividend payments as a percentage of what they paid for the investment (the stock price) Dividend Yield = Annual Dividends ÷ Stock Price

  • Downtrend: When a stock has a series of lower highs and lower lows; i.e., is moving lower 

  • Exercise: When the owner of an option exerts his or her right to buy or sell the underlying stock

  • Exit: To close an option position by selling an existing long option or buying an existing short option

  • Expiration (expiry): The last date an option contract is tradable 

  • Fundamental analysis: The study of the economics that "fundamentally" influence the value of a security 

  • Gamma: Measures the change in delta with changing stock price

  • Historical volatility: Measures how much a stock’s price has actually moved over a specific period in the past

  • Holder: Person long an options contract  

  • Implied volatility: The market’s expectation of how much a stock or asset is likely to move in the future, based on current option prices

  • In-the-money call: When the stock price is above the strike price of the call

  • In-the-money put: When the stock price is below the strike price of the put Leverage: Having greater exposure to both profit and risk

  • Long: Owning an option 

  • Moving average: The average price of a stock over a fixed period of time that changes as each new day is added and old day is removed from the calculation 

  • Neutral market (sideways market): A market that is not trending higher or lower 

  • Operating cash flow yield (OCF): Measures how much cash a company generates from its operations relative to its market value 

  • Out-of-the-money call: When the stock price is below the strike price of the call

  • Out-of-the-money put: When the stock price is above the strike price of the put

  • Premium: The price of an option

  • Put: A contract that gives the holder the right to sell a stock at a specific price on or before a certain date called the expiration date

  • Resistance: On a stock chart, a price point at which the stock has risen up to and then “bounced” lower two or more times

  • Short: Having sold an option without having a previously long position

  • Spread: An option position made up of two or more option contracts

  • Strike price (exercise price): The price at which an option is bought or sold upon exercise

  • Strike width: The difference between two strike prices

  • Support: On a stock chart, a price point at which the stock has fallen down to and then “bounced” higher two or more times

  • Technical set up: A pattern on a stock chart involving the price of the stock or an indicator

  • Time decay: The phenomenon that options lose value as time passes all else held constant

  • Uptrend: When a stock has a series of higher highs and higher lows; i.e., is moving higher

  • Volatile market: A market condition in which bigger than normal price swings are being endured

  • Write: To sell an option

  • Writer: The person who has sold an option

Want a Printable Version?

Get the free PDF sent to your inbox. Just complete the form below.

©Copyright 2026. Build Consistent Wealth with Options. All Rights Reserved.

Options involve risk and are not suitable for all investors. Before trading options, please read Characteristics and Risks of Standardized Option (ODD) which can be obtained from your broker; by emailing [email protected]; or from The Options Clearing Corporation, 125 S. Franklin St., Suite 1200, Chicago, IL 60606. The content posted by our authors is intended to be general education and / or general information in nature. We are NOT providing advice for any individual trader. No statement made by our authors or subscribers is intended to be a recommendation or solicitation to buy or sell any security or to provide trading or investment advice. Traders and investors considering options should consult a professional tax advisor as to how taxes may affect the outcome of contemplated options transactions. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.