“I placed a market order for a call on $SPY, targeting an ITM strike price, while keeping an eye on the IV and OI, hoping to capitalize on the upcoming earnings report before my stop-loss triggered.”

I’m sorry, your what hurts?

If you walk onto the market floor before you understand the investment community’s language, you’ll not only sound like a total noob, but you’re also setting yourself up for some real dumpster fires. Everyone else is busy; they’re not going to take the time to dumb it down for you. Keep this options trading glossary handy, and refer to it often until you’ve got the jargon down pat.

Introduction to the Options Glossary

Industries have their own lingo, and Wall Street is no exception — it's a secret code that makes communicating easier. Before you start blasting in the dark, get familiar with the terms you'll see on every trade.

Key Terms for Beginners

At-the-Money: Breakeven; when the underlying asset’s price is equal or very close to the strike price

Call: An option that gives the buyer the right to purchase an underlying asset at a predetermined strike price before expiration
Exercise: The act of using the right to buy or sell the underlying asset as specified in the options contract
Expiration Date: The last date on which the option can be exercised or traded
Gains: Profit made from trading or investing
In-the-Money: Profitable; for call options, when the underlying asset’s price is above the strike price; for put options, when the asset’s price is below the strike price
Options: Contracts that give the holder the right, but not the obligation, to buy or sell a certain amount (typically 100 shares) of an underlying asset at a specified price within a certain time period
Out-of-the-Money: Worthless; for call options, when the underlying asset’s price is below the strike price; for put options, when the asset’s price is above the strike price
Premium: The price paid for purchasing an option, typically quoted on a per-share basis
Put: An option that gives the buyer the right to sell an underlying asset at a predetermined strike price before expiration
Strike Price: The price at which the underlying asset can be bought or sold as specified in the options contract
Underlying Asset: The financial instrument (such as stocks, bonds, commodities, or indices) on which an options contract is based, determining the contract's value

Advanced Terminology for Experienced Traders

Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for an option
Implied Volatility: A forecast of a likely movement in an asset's price based on the market's expectations
Limit Order: An order to buy or sell an option at a specified price or better
Liquidity: The ease with which an option can be bought or sold in the market without affecting its price
Liquidity Provider: A market participant, often a financial institution or professional trader, that supplies liquidity to the market by placing buy and sell orders
Margin Call: A broker's demand for additional funds when a margin account falls below the required value
Market Capitalization (Market Cap): The total market value of a company's total shares outstanding, calculated by multiplying the share price by total shares available
Market Order: An order to buy or sell an option immediately at the best available price right now
Open Interest: The total number of outstanding options contracts, indicating market activity
Option Chain: A table displaying all available options and metrics for a specific stock
Rally: Sustained increase in the stock market or an individual stock price
Risk-Free Interest Rate: The theoretical rate of return on an investment with zero risk of financial loss, typically represented by government bonds
Short Selling: Borrowing and selling a stock, betting its price will drop so it can be bought back cheaper
Squeeze: Forcing short sellers to buy back shares at higher prices, driving the price even higher
Stop-Loss Order: An order to sell an option when it reaches a certain price to limit potential losses
Take-Profit Order: An order to sell a stock once it reaches a specified price to lock in profits
Time Decay: The loss of value in options as they approach expiration; also known as theta decay
Volatility: A measure of the price fluctuations of the underlying asset
Volume: The number of shares or contracts traded in a security or market during a given period

The Greeks

Delta: The rate of change of the option's premium with respect to changes in the underlying stock’s price; it indicates the expected move of an option's price for each $1 change in the asset/stock
Gamma: The rate of change of delta concerning changes in the underlying asset’s price, indicating the stability of delta
Theta: Also known as time decay; the rate at which an option’s price decreases daily as it approaches expiration
Vega: The sensitivity of an option's price to changes in the volatility of the underlying asset; it indicates how much the price of an option is expected to change with a 1% change in volatility
Rho: Is a measure of an option's sensitivity to interest rate changes, indicating how much the option's price is expected to change for a 1% change in the risk-free rate

Commonly Used Acronyms in Options Trading

ATM: At-the-Money – See definition above
DTE: Days to Expiration – The number of days remaining until the option expires
ETF: Exchange-Traded Fund – An investment fund traded on stock exchanges that holds a diversified portfolio of assets
FOMO: Fear of Missing Out – The anxiety that one might miss out on a profitable opportunity, often leading to impulsive trading decisions
FUD: Fear, Uncertainty, Doubt – Negative information spread to create fear or uncertainty in the market
IPO: Initial Public Offering – The first time a company offers its stock to the public.
ITM: In-the-Money – See definition above
IV: Implied Volatility – See definition above
LEAPS: Long-Term Equity Anticipation Securities – Options with expiration dates that are longer than one year
OI: Open Interest – See definition above
OTM: Out-of-the-Money – See definition above
ROI: Return on Investment – A measure used to evaluate the efficiency of an investment, calculated as the profit or loss relative to the initial investment amount
SPX: S&P 500 Index – A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States, often used as a benchmark for options trading strategies
VIX: CBOE Volatility Index – A popular measure of market expectations of near-term volatility, often referred to as the fear gauge
WSB: Wall Street Bets – A subreddit community known for high-risk trades, irreverent humor, and collective action against institutional investors
YOLO: You Only Live Once – Taking a high-risk trade with a significant portion of capital, often all-in

Trading Lingo and Slang

Bull Market is one term to know in options trading glossary

Apes: A self-deprecating term, implying simple and instinctual decision-making

Bagholder: An investor holding onto a losing position, hoping for a rebound
Boomers: Refers to traditional, conservative investors (often stereotypically older) who avoid high-risk trades
Bullish: A market characterized by rising prices and investor optimism
Bearish: A market marked by declining prices and pessimism among investors
Choppy Market: A market with frequent price fluctuations and lack of clear direction
Crash: A rapid and severe drop in the stock market or individual stock price
Crayon Eating: A self-deprecating way of saying investors who make decisions without much thought or analysis
Degenerates (Degens): Refers to traders who take reckless, high-risk trades; worn as a badge of honor in the community
Diamond Hands: Investors who hold onto their assets despite significant market volatility or pressure to sell, demonstrating resolve
Dumpster Fire: A company or stock that’s clearly a bad investment
GME: The market symbol for GameStop, a stock famously involved in a massive short squeeze
Hedgies: Hedge funds or institutional investors, often seen as antagonists to retail traders
HODL: An intentional misspelling of hold, meaning to keep an asset rather than sell it, often associated with long-term investment strategies
Lambo: Short for Lamborghini, symbolizing the ultimate success from trading profits.
Meme Stock: A stock that becomes popular not because of fundamentals but because of online hype (e.g., GME, AMC)
Mooning: When a stock’s price skyrockets, metaphorically heading “to the moon”
Paper Hands: Investors who sell their positions at the first sign of trouble or volatility, lacking conviction
Penny Stock: Low-priced stocks, typically trading below $5, often with high volatility
Rip: A sharp upward price movement
Rocket: A stock with explosive upward momentum; frequently represented with 🚀 emojis
Stonk: A humorous misspelling of "stock" used to describe stocks in general or meme stocks in particular
Tank: A sharp downward price movement
Tendies: Profits or financial gains

How To Use the Glossary in Real-Time Trading

Think of this glossary as your secret weapon for navigating the chaos of options trading. Start by getting cozy with basic terms like calls, puts, and strike price. These are your bread and butter for understanding the moves you’re making.

When you’re knee-deep in the trading trenches, and those option chains are staring back at you like an unsolved riddle, pull out this glossary to make sense of the madness.Wondering what the bid-ask spread means or why your portfolio is bleeding from theta decay? This glossary has your back.

Plus, slinging jargon like gamma squeeze or diamond hands will earn you some serious cred when you’re bantering in trading forums or dunking on hedgies in the comments section. Remember this: Trading’s a battlefield, and this glossary is your field map to survive and thrive. Now go forth, ape — tendies await!