# Options glossary ## Delta Delta describes how much an option's value moves for a small move in the underlying. A positive delta broadly behaves like a long position, a negative delta like a short one. On multi-leg strategies what matters is net delta, because the individual contributions partly cancel and partly reinforce each other. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Gamma Gamma describes how fast delta itself changes as the underlying rises or falls. Long options typically carry positive gamma, short options negative gamma. That is why short-gamma positions get progressively more sensitive during large moves. The risk shows up most sharply near the strike, or when little time is left and moves stop behaving linearly. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Theta Theta describes the time value an option loses when everything else stays put. For options you have sold that decay broadly works in your favour, and for options you have bought it works against you. Theta is not a guaranteed daily income: price moves, volatility and the actual pricing structure can all swamp the effect. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Vega Vega describes how strongly an option's value reacts to a change in implied volatility. Long-vega positions broadly gain when IV rises, short-vega positions when it falls. Across several legs it is net vega that counts. That is why a position can lose or gain value even when the underlying has not moved at all. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Implied volatility Implied volatility (IV) is the market's expectation of future movement, as priced into the option. It is not a forecast of direction and it is not a fixed measurement. When IV rises options usually get more expensive; when it falls their time value component often shrinks. The effect depends on the individual leg. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## IV rank IV rank places current implied volatility inside its own historical range. A high rank means current IV sits towards the top of the comparison window, a low rank towards the bottom. The rank does not replace a look at the underlying, the expiration, or the absolute price of the option. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Break-even The break-even is the price, or price range, at which a strategy makes neither a profit nor a loss at the point in time you are measuring. Depending on the construction, the premium you paid or received shifts that threshold. Multi-leg strategies can have one, two or more break-evens; fees and fills can move the result further. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Assignment Assignment means the holder of an option exercises their right and the counterparty is assigned. On a short option that can turn into a stock position or a delivery obligation. The risk depends on the option type, the expiration, moneyness and events such as dividends. Any management plan has to account for assignment up front, not after the fact. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Debit and credit A debit is the net amount you pay to open an option strategy. A credit is the net amount you receive. Neither is automatically your profit: on credit strategies the credit often caps the maximum gain, and on debit strategies it is part of the capital at risk and still has to be earned back by the market move. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Bear Call Spread](https://www.mindtrajour.com/en/academy/strategies/bear-call-spread), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Options approval level The approval level describes which option trades a broker will permit on an account. The tiers treat buying options, covered positions, spreads and uncovered short options differently. A higher level does not mean a strategy is better or safer. What matters is still position size, maximum loss, margin, and how you handle assignment. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal) ## Max loss Max loss is the largest loss a strategy can produce under the stated assumptions, usually at expiration and before fees. On defined-risk spreads it follows from the strike width and the debit or credit. On stock-backed or uncovered positions the loss can be larger, or simply not meaningful to express as a single number. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put) ## Payoff diagram A payoff diagram shows a strategy's profit or loss as a function of the underlying price. It makes the profit zone, the break-even and the loss limits visible, but it does not automatically account for time value, implied volatility, fees, or the path price takes. For positions spanning several expirations a simulation says more than a plain expiration payoff. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal) ## Moneyness Moneyness describes where an option's strike sits relative to the current price of the underlying: in the money, at the money, or out of the money. It determines how much of the premium is intrinsic value and how much is time value, and it shifts with every move in the underlying. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Intrinsic value Intrinsic value is what an option would be worth if it were exercised right now. On a call it is the price minus the strike, on a put the strike minus the price, floored at zero and multiplied by the contract size. It never goes negative, because nobody exercises against themselves. Appears in: [Long Call](https://www.mindtrajour.com/en/academy/strategies/long-call), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call) ## Extrinsic value (time value) Extrinsic value, usually called time value, is the part of the option premium that sits above intrinsic value. It pays for the chance that the underlying still moves before expiration, and it is driven mainly by time remaining and implied volatility. At expiration it is zero by definition. Appears in: [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar) ## Time decay Time decay is the erosion of an option’s time value as expiration approaches. It is not linear: on at-the-money options it accelerates into the final weeks, while far out-of-the-money options decay more evenly. Theta is the number that puts a per-day figure on this decay for a single position. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar) ## Volatility skew Volatility skew is the fact that options on the same underlying with the same expiration but different strikes trade at different implied volatilities. On equities and indices, puts below the money are typically priced richer than calls above it. Skew is part of the pricing structure every spread pays or collects. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Jade Lizard](https://www.mindtrajour.com/en/academy/strategies/jade-lizard), [Collar](https://www.mindtrajour.com/en/academy/strategies/collar) ## Term structure Term structure describes how implied volatility differs across expirations on the same underlying. Longer-dated options normally carry higher IV than short-dated ones. Ahead of a scheduled event that often inverts, because the nearest expiration carries the expectation. Calendars and diagonals are trades on exactly that difference. Appears in: [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar), [Long Put Calendar](https://www.mindtrajour.com/en/academy/strategies/long-put-calendar), [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal) ## Expected move The expected move is the price range the options market considers likely through a given expiration, derived from implied volatility. It is a probability statement, not a forecast and not a boundary: price can and does leave the range, and the distribution it assumes remains an assumption. Appears in: [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor) ## The greeks The greeks are the numbers describing how an option price reacts to each input: delta to the underlying, gamma to the change in delta, theta to time, vega to implied volatility, rho to interest rates. They hold for small changes and shift themselves as soon as the market moves. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Rho Rho describes how much an option’s value reacts to a change in the risk-free interest rate. On short-dated contracts the effect is usually small next to delta, theta and vega. Rho becomes noticeable on long-dated options and in periods when rate expectations move sharply. Appears in: [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal), [Synthetic Long Stock](https://www.mindtrajour.com/en/academy/strategies/synthetic-long), [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar) ## Historical volatility Historical volatility measures how much the underlying actually moved over a chosen window, usually as the annualised standard deviation of its returns. It is a measurement of the past, not an expectation — unlike implied volatility, which is derived from current option prices. Comparing the two puts today’s pricing in context. Appears in: [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Volatility crush A volatility crush is the abrupt drop in implied volatility once an anticipated event has passed, most commonly right after an earnings report. Long-vega positions can lose money even when the underlying moved in the expected direction. Buying before the event means paying for the volatility that then disappears. Appears in: [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Jade Lizard](https://www.mindtrajour.com/en/academy/strategies/jade-lizard) ## Call option A call option gives its buyer the right to buy the underlying at the strike, up to expiration. In exchange for the premium, the seller takes on the obligation to deliver if assigned. The buyer risks no more than the premium paid; an uncovered seller carries risk that is open-ended to the upside. Appears in: [Long Call](https://www.mindtrajour.com/en/academy/strategies/long-call), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Bull Call Spread](https://www.mindtrajour.com/en/academy/strategies/bull-call-spread) ## Put option A put option gives its buyer the right to sell the underlying at the strike, up to expiration. In exchange for the premium, the seller takes on the obligation to buy the shares if assigned. Puts are used both to hedge an existing stock position and as a standalone position on falling prices. Appears in: [Long Put](https://www.mindtrajour.com/en/academy/strategies/long-put), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put) ## Underlying The underlying is the instrument an option is written on — a stock, an index, an ETF or a future. Its properties define the option: dividend dates, trading hours, settlement style and exercise style all come from the underlying, not from the strategy you build on top of it. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put) ## Strike The strike is the price at which the underlying changes hands if the option is exercised. It is fixed in the contract and does not move during the option’s life, apart from adjustments for corporate actions. The distance between strike and current price drives premium, probability and the position’s whole risk profile. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly) ## Option premium The option premium is the price of one contract, made up of intrinsic value plus time value. The buyer pays it, the seller collects it. For the seller it is not automatically profit: it is payment for an obligation that stays in place until the position is closed or expires. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Long Call](https://www.mindtrajour.com/en/academy/strategies/long-call) ## Expiration Expiration is the point at which an option loses its right and leaves the account. Until then, the time remaining carries much of the premium. Expiration mechanics vary by product and exchange: the last trading day and the moment of settlement do not coincide for every contract. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar) ## Days to expiration (DTE) Days to expiration, almost always shortened to DTE, is the number of calendar days left until an option expires. It governs how much time value is still in the price and how fast that value comes out. Fewer days mean less premium, faster decay and markedly more gamma risk. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Calendar](https://www.mindtrajour.com/en/academy/strategies/long-call-calendar) ## Exercise Exercise is the holder of an option using their right, buying or selling the underlying at the strike. Only the buyer can exercise; the seller learns about it as an assignment. Whether exercise is possible before the expiration date depends on the contract’s exercise style, not on the strategy. Appears in: [Long Call](https://www.mindtrajour.com/en/academy/strategies/long-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Protective Put](https://www.mindtrajour.com/en/academy/strategies/protective-put) ## Early assignment Early assignment is a short option being exercised before expiration, so the stock position appears immediately. Only American-style contracts can be assigned early. The most common trigger is an in-the-money call the day before a stock trades ex-dividend; deep in-the-money puts are occasionally assigned early too. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Automatic exercise Options that finish in the money at expiration are normally exercised automatically by the clearing house unless the holder files instructions not to. For the other side this produces an assignment with nobody actively doing anything. The threshold and the deadlines are clearing house and broker rules, not a universal market convention. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## American vs European style American-style options can be exercised at any point up to expiration; European-style options only on the expiration date itself. Equity options are usually American, many index options European. The distinction decides whether a short position can be assigned early at all — and how closely it needs watching around dividend dates. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put) ## Pin risk Pin risk is what happens when the underlying finishes almost exactly at the strike and it stays unclear whether a short option gets assigned. Over the weekend you do not know whether Monday brings a stock position. Traders who will not carry that close the position rather than letting it expire. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call) ## Settlement Settlement defines what actually changes hands on exercise: equity options normally settle physically in shares, while many index options settle in cash. Cash settlement produces a credit or debit instead of a stock position. Which applies is written into the exchange’s contract specification and differs from product to product. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put) ## Contract multiplier The contract multiplier states how many units of the underlying one option contract covers — typically 100 for US equity options. Quoted prices are per unit, so the amount actually booked is price times multiplier. Corporate actions can leave an individual contract with a non-standard multiplier and deliverable. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Option chain The option chain is the table of every listed strike and expiration on an underlying, usually with prices, volume, open interest and implied volatility. It is where strike selection starts. The mid prices it displays are calculated figures: what is actually tradeable is what stands on the bid and the ask. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call) ## Open interest Open interest is the number of contracts in a given option that are open and not yet closed out. Unlike volume it measures the standing position, not one day’s activity. High open interest often comes with tighter spreads, but it guarantees neither liquidity nor a good fill on your particular order. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Strangle](https://www.mindtrajour.com/en/academy/strategies/long-strangle), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Bid-ask spread The bid-ask spread is the gap between the highest price a buyer will pay and the lowest a seller will accept. It is a real cost: trading straight into the market pays it on the way in and frequently again on the way out. On multi-leg strategies the spreads of every leg add up. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly), [Broken Wing Butterfly](https://www.mindtrajour.com/en/academy/strategies/broken-wing-butterfly) ## Liquidity Liquidity describes how easily an option can be traded without conceding much on price. The usable signs are tight bid-ask spreads, steady volume and meaningful open interest. Illiquid options often look attractive on paper and then cost exactly the advertised edge on the way in and the way out. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel), [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle) ## Probability of profit (PoP) Probability of profit, shown as PoP in most platforms, estimates how likely a position is to be worth more than it cost at expiration. It comes out of a model with assumptions about how prices are distributed. A high probability says nothing about how large the loss is in the bad case. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put) ## Buying power reduction Buying power reduction is the amount of purchasing power a position ties up for as long as it stays open. It is not the same number as maximum loss, and it can change during the life of the trade. How exactly it is calculated depends on the broker and the account type. Appears in: [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Defined vs undefined risk A defined-risk strategy has a maximum loss that is known when you open it, usually because a long option caps the short one. Undefined risk has no such cap: the loss depends only on how far the underlying travels. The difference is about magnitude, not about how likely a loss is. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread) ## Margin requirement A margin requirement is the collateral a broker demands for positions that can lose more than was paid for them. The amount follows regulation, product and account type, and it can be raised mid-trade when volatility rises. If the account cannot cover it, the broker is entitled to close positions itself. Appears in: [Naked Short Put](https://www.mindtrajour.com/en/academy/strategies/short-put-naked), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call) ## Naked vs covered A short option is covered when the obligation is already backed — by the shares themselves, by cash equal to the strike, or by a long option against it. Without that backing it is naked. The premium can look much the same either way; the risk and the capital requirement do not. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Naked Short Call](https://www.mindtrajour.com/en/academy/strategies/short-call-naked), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put) ## Risk/reward ratio The risk/reward ratio sets a position’s possible gain against its possible loss. On options it almost always runs opposite to the win rate: strategies that win often tend to carry an unfavourable ratio. Only the two numbers together describe a trade — either one on its own is misleading. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor) ## Max profit Max profit is the largest gain a strategy can produce under the stated assumptions, usually at expiration and before fees. On credit strategies it equals the credit received; on debit spreads it is the strike width minus the debit. It is only reached in the best price zone, not on every winning outcome. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Bull Call Spread](https://www.mindtrajour.com/en/academy/strategies/bull-call-spread) ## Position sizing Position sizing is how many contracts you hold in one position. On options the sensible reference points are maximum loss and buying power reduction, not the premium collected. Because losses on multi-leg positions arrive leveraged, size is the single lever with the largest effect on account-level risk. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Notional value Notional value is the value of the underlying that one contract controls: price times contract size. A single contract on a 200 dollar stock represents 20,000 dollars of notional exposure, even though the premium is a small fraction of that. That gap is precisely the leverage options carry. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Event risk Event risk is the risk attached to a scheduled event: an earnings report, a dividend date, a regulatory decision, a central bank meeting. Implied volatility is usually elevated going in and often drops sharply afterwards. Holding a position through the date means trading the event, intentionally or not. Appears in: [Long Straddle](https://www.mindtrajour.com/en/academy/strategies/long-straddle), [Short Strangle](https://www.mindtrajour.com/en/academy/strategies/short-strangle), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call) ## Leg A leg is one individual option inside a multi-part strategy. A spread has two legs, an iron condor four. The greeks and the risk of the whole position are the sum of its legs; closing legs separately changes the profile fundamentally and can turn defined risk back into undefined risk. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal) ## Spread width Spread width is the distance between the strikes of two legs in a spread. On defined-risk strategies it sets the maximum loss directly: width times contract size, less the credit received. A wider spread brings more premium and more risk at once — the ratio between them does not automatically improve. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Bear Call Spread](https://www.mindtrajour.com/en/academy/strategies/bear-call-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor) ## Wing The wings are the outer, long legs of a strategy such as an iron condor or a butterfly. They rarely make money themselves; they cap the loss and with it the capital requirement. How far out they sit decides the maximum loss, the premium collected, and what that protection costs. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly), [Broken Wing Butterfly](https://www.mindtrajour.com/en/academy/strategies/broken-wing-butterfly) ## Credit spread A credit spread is a spread in which the option sold is worth more than the one bought, so opening it produces a net credit. That credit is also the maximum gain; maximum loss is the strike width minus the credit. It profits as long as the underlying does not move against the position. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Bear Call Spread](https://www.mindtrajour.com/en/academy/strategies/bear-call-spread), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor) ## Debit spread A debit spread is a spread in which the option bought is worth more than the one sold, so opening it costs a net debit. That debit is the maximum loss; maximum gain is the strike width minus the debit. Unlike a credit spread it needs an actual move, not just time passing. Appears in: [Bull Call Spread](https://www.mindtrajour.com/en/academy/strategies/bull-call-spread), [Bear Put Spread](https://www.mindtrajour.com/en/academy/strategies/bear-put-spread), [Long Call Diagonal](https://www.mindtrajour.com/en/academy/strategies/long-call-diagonal) ## Rolling Rolling means closing an existing option position and opening a new one at a different strike or a later expiration at the same time. It is a fresh trade with its own cost and its own risk, not a repair. A roll for a credit postpones the decision; it does not undo the original misread. Appears in: [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Cash-Secured Put](https://www.mindtrajour.com/en/academy/strategies/cash-secured-put), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Closing vs letting expire At the end of an option’s life there are two routes: close the position, or let it expire. Letting it expire saves commissions but leaves assignment and pin risk to the closing print. Closing costs the bid-ask spread and in return removes any doubt about what sits in the account on Monday. Appears in: [Bull Put Spread](https://www.mindtrajour.com/en/academy/strategies/bull-put-spread), [Covered Call](https://www.mindtrajour.com/en/academy/strategies/covered-call), [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor) ## Slippage Slippage is the difference between the price you expected and the price you actually got filled at. On options it comes mostly from wide bid-ask spreads, thin order books and multi-leg orders. It is paid twice, opening and closing, and it hits strategies with a small edge per trade hardest. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel) ## Trading costs Trading costs cover commissions, exchange and clearing fees, exercise and assignment charges, and the bid-ask spread. On multi-leg strategies they are incurred per leg and therefore several times over. Payoff diagrams and break-even formulas normally ignore them; on the real statement they move both numbers noticeably. Appears in: [Short Iron Condor](https://www.mindtrajour.com/en/academy/strategies/short-iron-condor), [The Wheel](https://www.mindtrajour.com/en/academy/strategies/wheel), [Long Call Butterfly](https://www.mindtrajour.com/en/academy/strategies/long-call-butterfly)