Options Trading Glossary

New to options? This glossary covers all the terminology you'll encounter when trading SPX, 0DTE, and income strategies.

0-9

0DTE (Zero Days to Expiration)

Options that expire on the same day they're traded. Popular for day trading SPX options where time decay is maximized.

60/40 Tax Treatment

Under Section 1256, SPX options receive favorable tax treatment: 60% of gains taxed as long-term capital gains, 40% as short-term, regardless of holding period.

A

American-Style Options

Options that can be exercised at any time before expiration. Stock options are typically American-style. Compare with European-style.

Assignment

When an option seller is required to fulfill the contract—buying or selling shares at the strike price. SPX options are cash-settled, so assignment means receiving/paying cash.

At-the-Money (ATM)

An option with a strike price equal to (or very close to) the current price of the underlying.

B

Bear Call Spread

A bearish strategy that sells a call and buys a higher-strike call. Maximum profit if underlying stays below the sold strike.

Bull Put Spread

A bullish strategy that sells a put and buys a lower-strike put. Maximum profit if underlying stays above the sold strike.

Buying Power

The amount of capital available in your account to open new positions, including margin.

C

Call Option

A contract giving the buyer the right to buy the underlying at the strike price by expiration.

Cash Settlement

Settlement method where profits/losses are paid in cash rather than by exchanging shares. SPX uses cash settlement.

Credit Spread

A spread that collects premium upfront. The sold option is more valuable than the bought option.

D

Debit Spread

A spread that costs money to open. The bought option is more valuable than the sold option.

Delta

The expected change in option price for a $1 move in the underlying. Also approximates probability of expiring in-the-money.

E

European-Style Options

Options that can only be exercised at expiration, not before. SPX options are European-style.

Expiration

The date when an option contract expires and must be settled.

G

Gamma

The rate of change of delta. High gamma means delta changes quickly as the underlying moves.

Greeks

Delta, gamma, theta, vega, and rho—the sensitivities that describe how an option's price changes.

I

In-the-Money (ITM)

A call option with strike below current price, or a put with strike above current price. Has intrinsic value.

Iron Condor

A neutral strategy combining a put spread and call spread. Profits if the underlying stays within a range.

Intrinsic Value

The amount an option would be worth if exercised immediately. ITM options have intrinsic value.

L

Liquidity

How easily an option can be bought or sold without affecting its price. SPX has high liquidity.

M

Margin

Collateral required by your broker to hold certain positions, especially short options.

Mark-to-Market

Valuing positions at current market prices. SPX options are marked-to-market for tax purposes.

O

Opening Range

The high and low prices established during a specific period after market open. Common in ORB strategies.

Out-of-the-Money (OTM)

A call option with strike above current price, or put with strike below. No intrinsic value.

P

Premium

The price of an option contract. Buyers pay premium; sellers receive it.

Put Option

A contract giving the buyer the right to sell the underlying at the strike price by expiration.

R

Risk/Reward Ratio

The relationship between potential loss and potential gain on a trade.

Roll

Closing an existing position and opening a new one, typically to extend duration or adjust strikes.

S

Section 1256

IRS code providing 60/40 tax treatment for certain futures and options, including SPX.

Strike Price

The price at which an option can be exercised.

Spread

A position involving multiple options, typically reducing risk compared to naked options.

SPX

The ticker symbol for S&P 500 index options. Cash-settled, European-style options with favorable tax treatment.

T

Theta

Time decay. The amount an option's value decreases each day, all else equal. Critical for income traders.

Time Decay

The erosion of an option's extrinsic value as expiration approaches.

V

Vega

Sensitivity to implied volatility. Higher vega means option price changes more with volatility shifts.

Volatility

The degree of price fluctuation in the underlying. Higher volatility = higher option prices.

X

XSP

Mini-SPX options. 1/10th the size of SPX with the same benefits: cash settlement, European-style, 60/40 taxes.