Let’s face it—one of the most intimidating parts of options trading is the jargon. You’re out here trying to learn, and people are throwing words like “straddle,” “delta,” and “in-the-money” at you like it’s a secret code.
But don’t worry—I’ve got you. This glossary is your go-to resource for understanding the key terms in options trading. Whether you’re just starting out or need a quick refresher, bookmark this page and come back whenever you need a little clarity.
Options Trading Basics
- Option: A contract that gives you the right (but not the obligation) to buy or sell an asset at a specific price by a certain date.
- Call Option: Gives you the right to buy an asset.
- Put Option: Gives you the right to sell an asset.
- Underlying Asset: The stock or asset the option is based on.
Key Terms You’ll Hear All the Time
- Strike Price: The price at which you can buy or sell the asset.
- Expiration Date: The date the option contract ends. After this, the option is worthless.
- Premium: The price you pay to buy the option contract.
- In-the-Money (ITM): When your option has value. Example: A call option is ITM if the stock price is above the strike price.
- Out-of-the-Money (OTM): When your option doesn’t have value yet. Example: A call option is OTM if the stock price is below the strike price.
The Greeks (Your New Besties)
The Greeks help you understand how options prices change. Don’t worry—this isn’t a math class. Just know these basics:
- Delta: Measures how much the option price will move if the stock price moves $1.
- Gamma: Tells you how fast Delta will change.
- Theta: Measures how much the option loses value each day (time decay).
- Vega: Shows how sensitive the option is to volatility (market ups and downs).
Types of Options Strategies
- Long Call: Buying a call option because you think the stock price will go up.
- Long Put: Buying a put option because you think the stock price will go down.
- Covered Call: Selling a call option while owning the stock—it’s a way to make extra income.
- Straddle: Buying a call and a put at the same strike price because you expect a big move, but you’re not sure which direction.
Risk Management Terms
- Stop-Loss Order: A tool that automatically closes your position if the price hits a certain level.
- Position Sizing: Deciding how much of your account to risk on a single trade.
- Risk-to-Reward Ratio: The amount you’re risking compared to the potential reward. Aim for at least 1:3.
Final Thoughts
You don’t need to be intimidated by the language of options trading. The more you learn, the more empowered you’ll feel to make smart moves and build your financial future.
Remember, every pro trader started right where you are—with curiosity, determination, and a whole lot of questions. Keep this glossary handy, and know that I’m here to support you every step of the way.
Let’s build that legacy,. 💼✨
