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Options glossary

Greeks, volatility, position basics, moneyness, and P&L — every term used in options trading explained plainly.

The Greeks

Delta (Δ): The rate of change of an option's price with respect to a $1 move in the underlying. A delta of 0.40 means the option gains roughly $0.40 for every $1 the stock rises. Calls have positive delta (0 to 1); puts have negative delta (−1 to 0). Delta also approximates the probability that the option will expire in the money.
Gamma (Γ): The rate of change of delta for a $1 move in the underlying. High gamma means delta changes quickly — the position becomes more sensitive to price moves. Gamma is highest for at-the-money options close to expiry, which is why short gamma positions are riskiest near expiry.
Theta (Θ): The rate at which an option loses value due to the passage of time, all else equal. Also called time decay. Expressed as dollars lost per day. Buyers of options pay theta; sellers collect it. Theta accelerates as expiry approaches.
Vega (ν): The sensitivity of an option's price to a 1% change in implied volatility. A vega of 0.15 means the option gains $0.15 if IV rises by 1 percentage point. Long options have positive vega (benefit from rising IV); short options have negative vega. This is also what Vega Lab is named after — we thought 'Theta Lab' had a certain depressing energy to it.
Rho (ρ): The sensitivity of an option's price to a 1% change in the risk-free interest rate. Rho has a small effect on most short-dated options and is typically the least significant of the Greeks.

Implied Volatility (IV): The market's forward-looking estimate of how much the underlying will move, derived by working backwards from current option prices using a pricing model (such as Black-Scholes). IV is expressed as an annualised percentage. High IV means options are expensive; low IV means they are cheap.
Historical Volatility (HV): The actual realised volatility of the underlying over a past period, calculated from price returns. Comparing IV to HV gives a sense of whether options are overpriced or underpriced relative to how the stock has actually moved.
IV Rank (IVR): A normalised measure of where current IV sits relative to its range over the past 52 weeks. An IVR of 80 means current IV is at the 80th percentile of its one-year range. High IVR suggests premium is elevated — potentially attractive for selling strategies.
IV Crush: The sharp drop in implied volatility that typically follows a binary event such as an earnings announcement or FDA decision. Because the uncertainty is resolved, options rapidly lose extrinsic value. Traders who bought straddles or other long-vega positions before the event can suffer losses even if the stock moves.

Premium: The price of an option contract. When you buy an option, you pay the premium. When you sell, you collect it. Premium has two components: intrinsic value (how far in the money the option is) and extrinsic value (time value + implied volatility).
Strike Price: The price at which the option holder has the right to buy (call) or sell (put) the underlying. Strikes are fixed at the time of the contract and listed on the option chain.
Expiry: The date on which the option contract expires. For equity options this is typically the third Friday of the expiry month. After expiry, the option either settles (if in the money) or expires worthless.
DTE (Days to Expiry): The number of calendar days remaining until the option expires. DTE is a key input to the pricing model — the more time remaining, the more time value the option has. Vega Lab's heatmap uses DTE as its horizontal axis.
Open Interest (OI): The total number of outstanding option contracts at a given strike and expiry that have not been settled or closed. High open interest indicates an actively traded contract with generally tighter bid-ask spreads.
Volume: The number of contracts traded on a given day. Volume resets each day; open interest is a running total. Unusual volume can signal institutional positioning or anticipation of a move.

In the Money (ITM): A call is in the money when the underlying is above the strike price. A put is in the money when the underlying is below the strike price. ITM options have intrinsic value — they would have value if exercised immediately.
At the Money (ATM): An option whose strike price is equal to (or very close to) the current price of the underlying. ATM options have the highest time value and gamma. Most strategy guides refer to ATM when constructing straddles and short-premium positions.
Out of the Money (OTM): A call is out of the money when the underlying is below the strike. A put is OTM when the underlying is above the strike. OTM options have no intrinsic value — they are entirely extrinsic (time value + IV). Most options expire OTM.

Breakeven: The underlying price at which a strategy produces exactly zero profit or loss at expiry. Below this price a long call loses money; above it, it profits. Multi-leg strategies may have two breakevens — one on each side.
Max Profit: The maximum gain possible from a strategy, assuming it is held to expiry. For credit spreads and iron condors, max profit is the net credit received. For long options or debit spreads, max profit is bounded by the spread width or the stock going to zero (for long puts).
Max Loss: The maximum loss possible from a strategy, assuming it is held to expiry. Defined-risk strategies (spreads, iron condors, long options) have a fixed max loss. Undefined-risk strategies (naked puts, naked calls) have theoretically unlimited or very large maximum losses.
Probability of Profit (PoP): An estimate of the likelihood that a strategy will be profitable at expiry, derived from the Black-Scholes model using the implied volatility of the position. It is not a guarantee — it is a model-based estimate under the assumption that the underlying follows a log-normal distribution. Vega Lab computes PoP from the payoff curve and the theoretical price distribution.
P&L (Profit and Loss): The gain or loss on a position, expressed in currency terms. Vega Lab shows P&L at any combination of underlying price and days to expiry on the heatmap, and at expiry on the payoff chart.