Options Terms

Long Call

A bullish options strategy where the trader buys a call option, gaining the right (but not the obligation) to buy the underlying asset at a set strike price before expiration. Profit if price rises above strike + premium.

Long Put

A bearish strategy where the trader buys a put option, gaining the right to sell the underlying asset at a set strike price before expiration. Profit if price falls below strike – premium.

Short Call

A bearish or neutral strategy where the trader sells a call option, obligating them to sell the asset if exercised. Limited profit (premium received), unlimited loss if price rises sharply.

Short Put

A bullish or neutral strategy where the trader sells a put option, obligating them to buy the asset if exercised. Limited profit (premium received), large downside risk if price collapses.

Bull Call Spread

Constructed by buying a call at a lower strike and selling a call at a higher strike. Used when expecting moderate upside. Limited profit and limited loss.

Bear Put Spread

Constructed by buying a put at a higher strike and selling a put at a lower strike. Used when expecting moderate downside. Limited profit and limited loss.

Long Straddle

Buy one call and one put at the same strike and expiration. Profits from large price movement either direction; loses if price stays near strike.

Short Straddle

Sell one call and one put at the same strike and expiration. Profits if price stays near strike (low volatility); large loss if price moves strongly either direction.

Long Strangle

Buy one out-of-the-money call and one out-of-the-money put. Cheaper than a straddle, profits from big move up or down.

Short Strangle

Sell one out-of-the-money call and one out-of-the-money put. Profits if price stays within a range; risk of large losses on big move.

Long Call Butterfly

Buy 1 lower-strike call, sell 2 at-the-money calls, buy 1 higher-strike call. Profits if price stays near middle strike. Limited risk, limited reward.

Long Put Butterfly

Buy 1 higher-strike put, sell 2 at-the-money puts, buy 1 lower-strike put. Profits if price stays near middle strike. Limited risk, limited reward.

Iron Butterfly

Combination of short straddle (sell call + sell put at same strike) and long strangle (buy further OTM call + put). Profits if price stays near middle strike. Limited risk.

Long Call Condor

Buy 1 low-strike call, sell 1 lower-middle, sell 1 upper-middle, buy 1 high-strike call. Wider profit zone than butterfly but lower max gain. Limited risk.

Long Put Condor

Buy 1 high-strike put, sell 1 upper-middle, sell 1 lower-middle, buy 1 low-strike put. Profits if price stays within middle range. Limited risk.

Iron Condor

Sell one out-of-the-money call spread and one out-of-the-money put spread. Profits if price remains within range; limited loss if price breaks range. Common for low-volatility outlooks.

Protective Put

Buy a put while holding the underlying stock long. Acts as insurance against downside risk; limits losses while keeping upside potential.

Covered Call

Sell a call against a long stock position. Generates income from premium but caps upside beyond strike price.

Collar

Own stock, buy a protective put, and sell a covered call. Limits both downside and upside; used for hedging.

Delta

Measures how much an option’s price changes for a $1 change in the underlying asset. Calls have positive delta (0 to 1), puts have negative delta (0 to –1). Represents directional exposure.

Gamma

Measures how much Delta changes for a $1 move in the underlying. High Gamma = Delta changes rapidly = higher risk for small price moves.

Theta

Measures how much an option’s price decreases per day as time passes, all else equal. Always negative for long options because time decay erodes value.

Vega

Measures sensitivity to changes in implied volatility. A Vega of 0.10 means the option price changes $0.10 for each 1 vol point change. Long options = positive Vega.

Rho

Measures sensitivity to interest-rate changes. Call options have positive Rho (benefit from higher rates); puts have negative Rho.

Implied Volatility

The market’s forecast of future volatility derived from option prices. High IV = expensive options; low IV = cheap options. Often rises in market stress.

Historical Volatility

Measures how much the underlying’s price has fluctuated in the past. Calculated from standard deviation of returns over time.

Vega Exposure (Volga)

Measures how Vega itself changes when volatility changes. Important for long-dated or high-vol options.

Charm

Rate of change of Delta over time, holding price constant. Reflects how time decay affects directional exposure.

Vanna

Measures how Delta changes with both volatility and underlying price. Key for volatility trading and hedging.

Vomma

Also called Volga; measures how Vega changes as volatility changes. Important for traders managing volatility convexity.

Elasticity

Percentage change in option price for a 1% change in underlying price. Indicates leverage of the option.

Skew

Refers to the pattern of implied volatilities across strikes; often lower strikes (puts) have higher IV due to demand for protection.