Glossary: Options Strategy Terms
Glossary: Options Strategy Terms
This glossary provides concise definitions for options strategy concepts, Greeks, and trading terms. Terms are organized alphabetically for quick reference.
Adjustment: Any modification to an existing options position, including rolling, adding legs, or closing parts of the position.
Backspread: A strategy using more long options than short options, typically providing unlimited profit potential in one direction with limited risk.
Bear Call Spread: A bearish vertical spread created by selling a call and buying a higher-strike call, collecting a net credit.
Bear Put Spread: A bearish vertical spread created by buying a put and selling a lower-strike put, paying a net debit.
Bull Call Spread: A bullish vertical spread created by buying a call and selling a higher-strike call, paying a net debit.
Bull Put Spread: A bullish vertical spread created by selling a put and buying a lower-strike put, collecting a net credit.
Butterfly Spread: A strategy using three strikes—buying outer strikes and selling the middle strike—with all options at the same expiration.
Calendar Spread: A strategy selling a near-term option and buying a longer-term option at the same strike price, profiting from time decay differentials.
Cash-Secured Put: A short put backed by cash sufficient to purchase shares if assigned.
Collar: A hedging strategy combining long stock with a long put and short call, limiting both downside and upside.
Convexity: The curvature of an option's payoff profile, measured by gamma, that creates non-linear gains or losses.
Covered Call: A strategy selling a call option while owning the underlying shares, generating income while capping upside.
Credit Spread: Any spread where you receive net premium at entry.
Debit Spread: Any spread where you pay net premium at entry.
Delta: A Greek measuring how much an option's price changes for a $1 move in the underlying.
Delta-Neutral: A position with net delta near zero, not affected by small price changes in the underlying.
Diagonal Spread: A spread using different strikes AND different expirations.
Gamma: A Greek measuring the rate of change of delta for a $1 move in the underlying.
Gamma Scalping: A trading strategy that dynamically hedges delta to capture profits from gamma as the underlying oscillates.
Horizontal Spread: Another term for a calendar spread; uses the same strike but different expirations.
Implied Move: The expected price change priced into options, typically calculated from the ATM straddle price.
Iron Butterfly: A strategy selling both an ATM call and ATM put while buying protective wings, collecting premium for range-bound trading.
Iron Condor: A strategy combining a bull put spread and bear call spread, collecting premium while betting on range-bound movement.
Leg: A single component of a multi-option strategy.
Long Volatility: A position that profits from large price movements or increasing implied volatility.
Position Greeks: The aggregate Greeks of all legs in a multi-option position.
Protective Put: A long put purchased to hedge downside risk in a long stock position.
Ratio Spread: A strategy using more short options than long options, typically creating unlimited risk in one direction.
Rho: A Greek measuring how much an option's price changes for a 1% change in interest rates.
Risk Reversal: A strategy combining a long OTM call with a short OTM put (or vice versa) to create directional exposure at low cost.
Roll: Closing an existing options position and opening a new one, typically at a different strike or expiration.
Roll Down: Moving a short option to a lower strike price.
Roll Out: Moving an option to a later expiration while keeping the same strike.
Roll Up: Moving a short option to a higher strike price.
Short Volatility: A position that profits from small price movements or declining implied volatility.
Straddle: A strategy buying (or selling) both an ATM call and ATM put at the same strike and expiration.
Strangle: A strategy buying (or selling) an OTM call and OTM put at different strikes but the same expiration.
Synthetic Long Stock: A position created by buying a call and selling a put at the same strike, replicating stock ownership.
Synthetic Short Stock: A position created by selling a call and buying a put at the same strike, replicating short stock exposure.
Theta: A Greek measuring how much value an option loses per day due to time decay.
Time Spread: Another term for a calendar spread.
Vega: A Greek measuring how much an option's price changes for a 1% change in implied volatility.
Vertical Spread: A spread using different strikes but the same expiration.
Volatility Crush: A sharp decline in implied volatility, often occurring after earnings or binary events.
This glossary is updated periodically. For detailed explanations, see the linked articles throughout the Options Strategies and Greeks section, including Covered Calls and Cash-Secured Puts and Protective Puts and Collars.