Options glossary

80 options terms in plain English, from calls and puts to expected value and Kelly sizing.

Basics · Volatility · Results · Greeks · Sizing · Exits

Basics

Back month: How many calendar days after the front expiration the back-month options expire. Calendars and diagonals sell the front month and buy the back month.
Back-month leg: This option expires later than the others. When the front options expire, it still has time value, so the payoff is a curve, not straight lines.
Bid and ask: The bid is the highest price buyers are offering; the ask is the lowest price sellers will take. The gap between them is a hidden cost each time you trade.
Call: An option that gains value when the price rises above its strike.
Contracts: How many of this trade you're placing. One options contract usually covers 100 shares, so prices are multiplied by 100 to get dollars.
Credit or debit: Some strategies can be opened for a credit or a debit depending on the strikes. Options Verdict picks from its estimate; once you type your own price, choose which it is.
Days to expiration: How many calendar days until the options expire. 0 means they expire today, often called 0DTE.
Estimated: Options Verdict filled this in from your volatility numbers. Type over it with the real price from your broker's option chain for the most accurate check.
Expiration: When the options stop trading and settle. After that, each one is worth exactly what it pays at the final price.
In / out of the money: An option is in the money when it would be worth something if it expired right now (a call above its strike, a put below it). Otherwise it's out of the money.
Legs: The individual options that make up a strategy. An iron condor has four legs: two puts and two calls.
Long (buy): You bought the option. You paid for it, and the most you can lose on that leg is what you paid.
Mid price: Halfway between the bid and the ask. It's a fair estimate of an option's price, though you may not always get filled exactly there.
Net credit: The money you collect up front when the options you sell are worth more than the ones you buy. With credit trades, you profit when the options lose value.
Net debit: The money you pay up front when the options you buy cost more than the ones you sell. With debit trades, you profit when the options gain value.
Option: A contract that gives the right, but not the obligation, to buy (a call) or sell (a put) something at a set price, called the strike, before a set date, called expiration.
Premium: The price of an option. Buyers pay it; sellers collect it.
Put: An option that gains value when the price falls below its strike.
Shares: This leg is 100 shares per contract, valued at today's price. Shares gain and lose dollar for dollar with the price. If you already own the shares, what they gained or lost before today isn't part of this trade.
Short (sell): You sold the option and collected money for it, taking on the obligation if it ends up in the money.
Strike: The price an option is tied to. Calls pay off above it, puts pay off below it.
Wing width: The distance between the option you sell and the protective option you buy on the same side. Wider wings collect more but raise the most you can lose.

Volatility

1σ (one standard deviation) move: A typical move size. About two out of three outcomes land within one standard deviation of today's price.
Back-month implied vol: The implied vol of the later expiration, from your option chain. Calendars are priced on the difference between the two months; leave it blank to use the front month's.
Fat tails: Real markets have more extreme days than a bell curve predicts. A fat-tailed model makes big moves more common, giving a more cautious picture.
Implied vol period: Which expiration your implied vol number comes from. The one that matches your trade's expiration gives the truest comparison.
Implied volatility (IV): How much movement the options market is pricing in, read from option prices. Higher IV means options are more expensive.
Intraday range vs. close-to-close: Intraday range (Parkinson) measures movement during market hours using each day's high and low, which suits same-day trades. Close-to-close includes overnight gaps, which suits trades you hold overnight.
IV percentile: The share of days over the past year when implied vol was lower than today. 80% means IV is higher than on 80% of days in the past year.
IV rank: Where today's implied vol sits between its 52-week low (0%) and high (100%). One big spike can distort it, so IV percentile is usually steadier.
Realized lookback: How many past trading days your realized vol covers. Short lookbacks react fast but are noisy; long ones are steady but slow to notice changes.
Realized volatility: How much the price has actually been moving lately, measured from recent price history.
Trading-hours clock: Implied vol is quoted across every calendar hour, nights and weekends included, while realized vol only counts trading sessions. Options Verdict counts the real sessions left (skipping weekends and market holidays) and converts implied vol to that clock so the two compare fairly.
Variance risk premium: The gap between the movement options are priced for and the movement that's actually happening. Positive means options are pricing more movement than is occurring, which favors sellers.
Vol points: The difference between two volatility percentages. 9.1% versus 7.0% is a gap of 2.1 vol points.
Volatility skew: Different strikes trade at different implied vols. On stock indexes, puts below the price usually carry a higher implied vol than calls the same distance above, because traders pay up for crash protection. Options Verdict prices every leg at its own implied vol. Off uses your one number for every strike, Low, Normal and Steep are typical index shapes, and Custom uses the IVs you read off your chain at your short strikes.
Weekly VRP regime: A wider look at the environment: 7-day implied vol against the last 5 days of realized movement. It shows whether selling options has been paying lately.

Results

Average win / loss: The typical size of a winning trade and of a losing trade. Together with the win rate, they determine expected value.
Breakeven: The price at expiration where the trade neither makes nor loses money.
Chance of max profit: The chance the trade keeps its full possible profit at expiration.
Chance to touch: The chance the price reaches a strike at any point before expiration, not just at the close. Roughly how often a stop-if-touched rule would trigger.
Expected value (EV): The average result if you could place this exact trade many times: every possible outcome's profit or loss, weighted by how likely it is, minus fees. An average, not a prediction for one trade.
Likely range: The shaded hill shows where the price is likely to finish, based on how much it has actually been moving. Taller means more likely.
Loss at your stop: What you'd lose if your stop loss fills at its level. Fast moves can jump past a stop, so the full max loss is still possible.
Market's profit chance: The profit chance implied by the options market's own prices, using implied vol instead of realized vol. Comparing it with Options Verdict's estimate shows the edge from another angle.
Max loss: The most the trade can lose, for all your contracts, after fees, if everything goes wrong and you hold to expiration.
Max profit: The most the trade can make, for all your contracts, after fees.
Move to a strike: How far the price has to move, as a percent of today's price, to reach that level.
Profit chance: The chance the trade ends with any profit at expiration, after fees, based on how much the price has actually been moving.
Today vs. What if: The dashed line shows what the position would be worth right now at each price. What if lets you move time forward or change implied vol to see how that line shifts.
Where the edge disappears: The realized vol at which expected value, held to expiration, hits zero. Your verdict rests on the realized vol you entered; this shows how wrong that number could be before the math stops working.
Win rate: How often trades end with a profit. With exits on, it counts trades your exit plan closed early too.
Win rate needed vs. expected: The orange mark is the win rate this trade needs to break even, given its average win and loss. The dark mark is the win rate Options Verdict expects. Expected above needed means the math is in your favor.
With my exits vs. hold to expiry: Hold to expiry assumes you keep the trade until it settles. With my exits applies your exit plan, closing trades early when a rule triggers. Your exits can change the expected value a lot.
Worst 5%: The average of the worst 1-in-20 outcomes. It shows how bad a bad trade typically gets, not just the average.

Greeks

Delta: Dollars gained or lost per contract for each 1-point rise in the price. Near zero means the trade doesn't care much about small moves either way.
Gamma: How fast delta changes as the price moves. Negative gamma means moves against you speed up.
Probabilities and Greeks: Extra detail on the trade: the odds of reaching key levels, typical move sizes, and the Greeks, which measure how the position reacts to price, time and volatility.
Theta: What the position gains or loses from time passing alone. Sellers usually earn theta; buyers usually pay it.
Vega: Dollars gained or lost per contract for each 1-point rise in implied vol. Sellers lose when volatility jumps.

Sizing

Account size: The money in your trading account. Options Verdict uses it to size trades so a single loss stays within your limit.
Fee per contract per leg: What your broker charges for each option contract in each leg, including exchange fees. A four-leg trade pays it four times to open and four more to close.
Kelly fraction: Kelly is a formula for the bet size that grows an account fastest. Full Kelly is very aggressive, so traders use a fraction. 0.125 means one-eighth of Kelly.
Max risk per trade: The most of your account you're willing to lose on one trade. Many traders use 1% to 2%.
Pre-trade checklist: Your own rules to confirm before every trade, like waiting 30 minutes after the open.
Risk check: Your contracts times the most one contract can lose, compared with your max risk per trade.
Stress move: For trades whose loss isn't capped, like short strangles and naked options, there's no max loss to size on. Options Verdict sizes them on the loss from a sharp move instead: the larger of this many standard deviations and the minimum percent below, in either direction. Real markets can move further, so the actual loss can be bigger.
Strike increment: The spacing between available strikes, like 5 points for SPX. Options Verdict adjusts it automatically for lower-priced stocks.
Target cushion: How far Options Verdict places short strikes from the price, in typical moves (standard deviations of realized movement). Higher is safer but collects less.
Trade budget: How much your sizing rules allow at risk on this trade: a cautious fraction of the Kelly formula, capped at your max risk, and halved when the edge is thin.
VRP cutoffs: For premium sellers: below the first number the VRP check fails; between the two, your sizing rules allow half size.

Exits

Delta limit exit: Closes the trade if a short strike's delta climbs past a limit, a sign the trade is being tested.
Exit plan: Your rules for closing a trade before expiration: when to take profit, when to cut a loss, and whether to close early. Decide them before you enter.
Optimized exit plan: Options Verdict tests about a thousand combinations of profit targets, stops, trailing stops and time exits on this trade, and picks the best one for your goal. Balanced (the default) scores each plan by expected value minus a penalty for its worst 5% of outcomes. Max return takes the highest expected value. Max win rate takes the plan that wins most often while keeping at least half the best expected value. It then re-checks that plan on fresh simulated paths so the results aren't cherry-picked.
Profit target: Closes the trade once a set share of the possible profit is captured. Raises the win rate but caps winners.
Stop loss: Closes the trade when a loss reaches a set size. Limits damage, but tight stops get hit by normal noise, and fast moves can jump past them.
Strike touch exit: Closes the trade if the price reaches one of your short strikes, before it can go further in the money.
Time exit: Closes the trade at a set time before expiration, avoiding the sharpest swings near the end.
Trailing stop: Once the trade is up a set amount, it closes if it gives back a set share of the gain. Lets winners run while protecting most of the profit.
Typical best / worst moment: The usual peak profit and deepest drawdown during a trade before it closes. Useful for placing targets and stops.