- ATM (At-the-money)
- An option whose strike price is approximately equal to the underlying spot price.
- Assignment
- When the seller of an option is required to fulfill the contract obligation (deliver stock for a call; buy stock for a put).
- Bear put spread
- A defined-risk bearish strategy: buy a higher-strike put, sell a lower-strike put.
- Bid-Ask spread
- The gap between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask). A hidden trading cost.
- Break-even
- The underlying price at expiry where a position neither makes nor loses money.
- Bull call spread
- A defined-risk bullish strategy: buy a lower-strike call, sell a higher-strike call.
- Butterfly spread
- A three-strike, four-contract position that profits if the underlying lands near the middle strike at expiry.
- Calendar spread
- Sell a near-expiry option, buy a same-strike far-expiry option. Profits from time decay differential.
- Call option
- A contract giving the buyer the right to purchase the underlying at the strike price on or before expiry.
- Cash-secured put
- Selling a put while holding enough cash to buy the underlying if assigned.
- Covered call
- Selling a call against 1 lot of stock you already own.
- Delta
- How much the option price changes per ₹1 move in the underlying. Range 0 to ±1.
- Expiry
- The date after which the option becomes worthless if not exercised. NSE: weekly (Thursday for Nifty) and monthly.
- Gamma
- How much delta changes per ₹1 move in the underlying. Highest for ATM options near expiry.
- Implied volatility (IV)
- The market's expectation of future volatility, embedded in the option's premium.
- Intrinsic value
- The amount an option is ITM. Call: max(0, spot − strike). Put: max(0, strike − spot).
- Iron condor
- Short strangle with wings — four legs: sell OTM call + put, buy further-OTM call + put. Bounded max loss.
- ITM (In-the-money)
- An option with positive intrinsic value. Call: strike < spot. Put: strike > spot.
- Lot size
- The number of shares per one options contract. Nifty=25, BankNifty=15, Reliance=250.
- Naked option
- A short option position without owning the underlying or offsetting hedge. Highest risk profile.
- OTM (Out-of-the-money)
- An option with zero intrinsic value. Call: strike > spot. Put: strike < spot.
- Payoff diagram
- A chart showing profit/loss on the y-axis vs underlying price at expiry on the x-axis.
- Physical delivery
- Settlement in actual shares, not cash. Applies to Indian stock options (not indices) at expiry.
- Premium
- The price paid by the buyer to the seller for the option contract.
- Put option
- A contract giving the buyer the right to sell the underlying at the strike price on or before expiry.
- Rho
- How much the option price changes per 1% change in interest rates. Small effect for short-dated options.
- Rolling
- Closing an existing position and simultaneously opening a similar one with a different strike or expiry.
- Short strangle
- Sell OTM call + sell OTM put. Collects premium, wins if underlying stays between strikes. Unlimited loss risk.
- SPAN margin
- The Indian exchange framework for calculating options selling margin based on maximum potential loss scenarios.
- Straddle
- Same-strike call + put position. Long straddle bets on big moves; short straddle bets on stability.
- Strike price
- The pre-agreed price at which the option can be exercised.
- Theta
- How much the option loses per day due to time passing. Sellers gain theta; buyers pay theta.
- Time value
- Premium minus intrinsic value. Decays to zero at expiry.
- Underlying
- The asset the option is written on (Nifty, Reliance, gold, etc.).
- Vega
- How much the option price changes per 1% change in implied volatility.
- Writer
- The seller of an option; the party obligated to fulfill the contract if exercised.