Options Glossary
Plain-English definitions of the terms used across this site.
Core building blocks
Call Option
A contract giving the buyer the right, not the obligation, to buy the underlying at a fixed strike price before/at expiry. Buyers are bullish.
Put Option
A contract giving the buyer the right, not the obligation, to sell the underlying at a fixed strike price. Buyers are bearish.
Strike Price
The fixed price at which the option can be exercised. Strikes are listed at set intervals (e.g. every 50 or 100 points on Nifty).
Premium
The price paid by the option buyer to the seller. It is made up of intrinsic value plus time value.
Lot Size
The number of units in one derivatives contract. Index and stock F&O in India trade in fixed lots (illustrated here as 75 for Nifty); you cannot trade a single share of an option.
Expiry
The date on which the option contract ceases to exist. Indian index options have weekly and monthly expiries.
Moneyness
In-the-Money (ITM)
An option with intrinsic value — a call whose strike is below spot, or a put whose strike is above spot.
At-the-Money (ATM)
An option whose strike is closest to the current spot price.
Out-of-the-Money (OTM)
An option with no intrinsic value — only time value. Cheaper, lower probability of finishing profitable.
The Greeks
Delta
How much the option price moves for a 1-point move in the underlying. Also a rough proxy for probability of expiring ITM.
Gamma
The rate of change of Delta. High near ATM and near expiry — it makes positions "accelerate."
Theta
Time decay — how much value the option loses per day, all else equal. Negative for buyers, positive for sellers.
Vega
Sensitivity to implied volatility. Long options gain when IV rises; short options gain when IV falls.
Risk & pricing concepts
Implied Volatility (IV)
The market's expectation of future volatility baked into the option price. High IV = expensive options.
IV Crush
A sharp drop in implied volatility, typically after a known event, which can shrink option values even if the underlying moved.
Breakeven
The underlying price at which the strategy makes zero profit/loss at expiry. Above/below it you profit or lose.
Intrinsic Value
The in-the-money portion of an option's price — what it would be worth if exercised now.
Time Value
The part of the premium above intrinsic value, reflecting the chance the option gains before expiry.
Assignment
When a short option holder is required to fulfil the contract. Indian stock options are physically settled; index options are cash-settled.
Margin
Collateral required to hold short (sold) option positions, which can rise during volatile markets.