Glossary

This glossary provides an overview of key terms and concepts commonly used in options trading. Familiarize yourself with these terms to better navigate the options market and understand the nuances of

Call Option

A call option grants the holder the right, but not the obligation, to buy an underlying asset at a specified price (strike price) within a predetermined period (expiration date).

For example, an ETH call option with a strike price of $3000 and an expiration date of July 31, 2023, gives the holder the right to buy ETH at $3000 until July 31, 2023.

Put Option

A put option gives the holder the right, but not the obligation, to sell an underlying asset at a specified price (strike price) within a predetermined period (expiration date).

For example, an ETH put option with a strike price of $3000 and an expiration date of July 31, 2023, gives the holder the right to sell ETH at $3000 until July 31, 2023.

Strike Price

The strike price, also known as the exercise price, is the predetermined price at which the underlying asset can be bought or sold when exercising an options contract.

Expiration Date

The expiration date is the date on which an options contract ceases to be valid. After this date, the options contract becomes worthless.

Greeks

Greeks are risk measures used to assess factors affecting options' price and behavior. Common Greeks include:

• Delta: Measures the sensitivity of an option's price to changes in the underlying asset's price. For example, a call option with a delta of 0.7 indicates that for every $1 increase in the underlying asset's price, the option's price will increase by $0.70.

• Gamma: Indicates the rate of change in an option's delta in response to changes in the underlying asset's price. It helps assess the potential change in delta as the underlying asset's price fluctuates.

• Theta: Represents the rate of time decay, indicating how an option's value erodes over time as the expiration date approaches. Theta is particularly relevant for options with a shorter time to expiration.

• Vega: Reflects the sensitivity of an option's price to changes in implied volatility. Higher vega indicates a greater impact of volatility changes on the option's price.

• Rho: Measures the impact of changes in interest rates on an option's price. Rho is more significant for options with longer time to expiration.

In-the-Money

An option is considered in-the-money when it has intrinsic value. For call options, this means the underlying asset's price is above the strike price. For put options, it means the underlying asset's price is below the strike price.

For example, if the price of ETH is $3200 and the call option's strike price is $3000, the call option is in-the-money by $200.

Out-of-the-Money

An option is out-of-the-money if it lacks intrinsic value. For call options, this occurs when the underlying asset's price is below the strike price. For put options, it happens when the underlying asset's price is above the strike price.

For example, if the price of ETH is $2800 and the call option's strike price is $3000, the call option is out-of-the-money.

At-the-Money

An option is at-the-money when the underlying asset's price is approximately equal to the strike price. At-the-money options have no intrinsic value and consist solely of time value.

Volatility

Volatility refers to the degree of variation in an asset's price. In options trading, higher volatility generally leads to increased option premiums, while lower volatility can result in reduced premiums.

Maker

A maker refers to a market participant who adds liquidity to the order book by placing a limit order that is not immediately matched with an existing order. Makers contribute to market depth and may be eligible for certain fee incentives.

Taker

A taker, on the other hand, is a market participant who removes liquidity from the order book by placing an order that matches an existing limit order. Takers typically pay fees for executing trades that immediately match with existing orders.

Option Premium

The option premium is the price paid or received for an options contract. It consists of intrinsic value (if any) and time value, which represents the potential for the option to gain value before expiration.

This glossary provides a foundation for understanding options trading terminology. Continuously expanding your knowledge and consulting additional resources will further enhance your understanding of the dynamic world of options trading.

European Style Options:

These are types of options that can only be exercised at the time of expiration. The term does not have any relation to where the options are traded or located. European style options are primarily used with index options, while American style options are used with individual stocks.

American Style Options:

These are types of options that can be exercised at any time up to the expiration date. This provides more flexibility for the option holder, but they are typically more expensive than European style options. American style options are used most commonly with stocks and bonds.