0DTE / 1DTE

Zero or one day to expiration. The modern fast-moving end of the options market. ~40-50% of SPX volume by 2024. Highest gamma, near-total theta decay. Defer until experienced.

American-Style

An option exercisable any business day up to expiration. US equity options are American; if you sell one, the buyer can hand it to you any morning.

ATM (At-the-Money)

Strike ≈ underlying price. Where the Greeks are at their most mischievous.

Assignment

The exercise of a short option, requiring the seller to deliver. Saturday morning surprise email from the broker.

Bid-Ask Spread

Difference between highest buyer’s bid and lowest seller’s ask. The invisible tax; paid twice on every round trip.

Black-Scholes-Merton

The 1973 option pricing framework (Black & Scholes, 1973; Merton, 1973). Not a prediction; a translation tool. Speak its language, do not worship it.

Break-Even

Stock price at which P&L is zero at expiration. Where profit begins — but "profit" and "good decision" are not synonyms.

Call

Right to buy the underlying at the strike. Call it to you. Bet up.

Cash-Secured Put (CSP)

Selling a put while holding cash to cover assignment. A way to buy a stock you want, paid to wait. Do not sell on stocks you do not want.

Collar

Long stock + protective put + covered call. Cheap insurance funded by capping upside. Institutional standard for concentrated equity.

Covered Call (CC)

Selling a call against owned stock. The pack’s monthly tip. Yield comes at the cost of upside surrendered.

Credit Spread

A spread opened for net credit. IV-elevated environment, theta-aligned, high PoP, modest payoff.

Debit Spread

A spread opened for net debit. IV-compressed environment, directional, lower PoP, larger payoff.

Dealer Gamma / GEX (Gamma Exposure)

The net gamma position of options dealers in aggregate, often estimated for SPX. When dealers are short gamma, they amplify market moves through their hedging; when long, they dampen them.

Delta

Sensitivity of option price to $1 change in underlying. The quiet navigator. ~0.50 ATM, ~0.30 OTM.

Diagonal Spread

Different strikes + different expirations. The calendar’s directional cousin. Foundation of the PMCC.

European-Style

Exercise only on expiration date. SPX is European. No early-exercise nightmare.

Ex-Dividend

First trading day after a dividend declaration. The morning when ITM calls get assigned and CC sellers lose the dividend.

Expiration / Expiry

The contract’s last valid date. Not a date. A second. The last second of the second-to-last Friday.

Extrinsic Value

Premium above intrinsic — time + volatility + interest. The melting part. By expiration, it is zero.

Fill

Execution of an order. Market orders fill at the worst price. Limit orders fill only when they help the market maker.

Gamma

Rate of change of Delta. The speedy twin. Largest ATM, near expiry. The 0DTE wrecker.

Greeks

Sensitivities to pricing inputs. Five characters: Delta, Gamma, Theta, Vega, Rho.

Hedging vs Speculation

Two motivations for using options. ~70-80% of institutional flow is hedging; ~60-70% of retail flow is speculation. The asymmetry shapes who is on the other side of your trade.

Historical Volatility (HV)

Annualized standard deviation of past returns. Looking backward.

Implied Volatility (IV)

Volatility inferred from market premium. Looking forward, through the lens of market emotion.

Intrinsic Value

Profit if exercised right now. Zero unless ITM. The "real" part of premium.

Iron Butterfly

Short straddle + protective wings. Tight, rich, narrow profit zone.

Iron Condor

Short strangle + protective wings. The plateau strategy. Looks passive; demands active management.

ITM (In-the-Money)

Would profit if exercised now. Thick premium, but does not require a move to retain value.

Kelly Criterion

Optimal bet sizing formula (Kelly, 1956). Intuition: most retail traders overestimate their edge; size at 1/4 Kelly.

LEAPS

Long-term equity options, > 9 months to expiry. Stock replacement with vega bonus risk.

Long

Buyer side. Right-holder. Worst case: premium loss.

Margin Call

Broker demand for additional collateral. Modern version: forced liquidation. The call IS the liquidation.

Market Maker

The professional liquidity provider who quotes both bid and ask. Earns the spread; hedges delta within seconds. Not your enemy but also not your friend — the price of liquidity.

OPEX (Options Expiration)

The third Friday of each month — the standard monthly equity-options expiration. Volume concentrates here. Pin-to-strike tendency. Treat as event days.

OTM (Out-of-the-Money)

Would lose if exercised now. 100% extrinsic. 100% hope. Most expire worthless.

Open Interest (OI)

Number of contracts still outstanding. Liquidity indicator. < 500 is worrying.

Pin Risk

Expiry-day risk when underlying closes very near strike. Sunday surprise: are you assigned or not?

PMCC (Poor Man’s Covered Call)

Long LEAPS call + short shorter-dated call. Capital-efficient covered call. Cousin, not twin.

PoP (Probability of Profit)

Estimated chance a trade is profitable. For credit spreads, target 65-75%.

Premium

The option’s price. Quoted per-share; multiply by 100 for contract cost.

Put/Call Ratio

Daily volume of puts divided by volume of calls. A popular sentiment indicator that is often misleading because the directional intent of each side is unknown. Use as context, not signal.

Prospect Theory

Kahneman & Tversky’s (1979) finding that losses hurt ~2× more than gains feel good. Your loss-aversion is bigger than you think. Plan accordingly.

Put

Right to sell the underlying at the strike. Put it to someone. Bet down.

Quad-Witching

The third Friday of March, June, September, and December — when stock index futures, stock index options, single-stock futures, and single-stock options all expire same day. Volume 2-3× a normal Friday. Treat as event days.

Regular Trading Hours (RTH)

US equity-market session, 9:30 AM to 4:00 PM Eastern Time. Most equity options trade only during RTH. After-hours news creates gap risk you cannot hedge.

Extended Session (ETF options)

~15-minute post-close window (typically 4:00-4:15 PM ET) during which options on major ETFs (SPY, QQQ, IWM, DIA) trade on certain exchanges. Thinner liquidity, wider spreads.

Global Trading Hours (SPX)

Cboe’s near-24h trading session for SPX index options, expanded in 2024. Not all retail brokers support it; verify with yours.

Rho

Sensitivity to interest rates. The forgotten uncle. Wakes up in LEAPS land.

Roll

Close existing position, open similar one with different expiry/strike. A fix, sometimes a deception. Decide which before rolling.

Short

Seller side. Obligation-holder. Worst case can be unbounded.

Slippage

Difference between expected and actual fill price. Spread’s cousin. Adverse selection’s child.

Spread (vs Spread)

(1) Bid-ask spread = liquidity tax. (2) Position spread = two-legged structure. Watch context.

Stop-Loss

An order to exit at a predetermined loss level. For options, stops do not work the way stock stops do. Gaps and gamma render them unreliable.

Straddle

Long call + long put, same strike. Volatility bet, direction-agnostic.

Strangle

Long call + long put, different strikes. Cheaper straddle, needs larger move.

Strike Price

The contracted transaction price. The $150 in the apricot story.

Theta

Daily time decay. The cruel watchmaker. Accelerates in the last 21 days.

Underlying

The asset the option references. The real thing. The option is its shadow.

Vega

Sensitivity to 1-point IV change. The moody painter. Highest ATM, largest in LEAPS.

VIX

30-day implied volatility on S&P 500 (Whaley, 1993). The market’s fear barometer. Below 15 = calm, 15-25 = normal, 25-35 = stressed, 35+ = crisis. Mean-reverting.

VIX Term Structure

The curve of VIX futures across maturities. Contango (normal): later months higher. Backwardation (stress): near months higher. The shape is a regime indicator.

Backwardation (VIX)

State where near-term VIX futures price above longer-term. Signals market stress; usually short-lived.

Contango (VIX)

State where near-term VIX futures price below longer-term. Normal regime; causes VIX ETPs (VXX, UVXY) to bleed value over time.

Beta-Weighted Delta

Portfolio delta translated into SPY-equivalent exposure using each holding’s beta. The single number that tells you how your portfolio moves when SPY moves 1%.

Portfolio Hedge

A hedge sized to cover aggregate portfolio risk, not single-position risk. Typically SPY puts, SPY put spreads, or VIX calls. Budget: 1-3% / year.

Tail Hedge

Far-OTM puts (or VIX calls) bought as insurance against rare-but-large losses. Bleeds in calm markets; pays multiples in crises (Taleb, 2007). Convex positioning.

Volatility Crush

Sharp IV drop after a known event (esp. earnings). Right direction, wrong vega. Premium evaporates.

Wheel

CSP → assigned → CC → called → CSP cycle. Not risk-free. Just a structured way to own stock you want.