Options Trading Glossary
83terms every options premium seller should know — the same definitions that power StrikeIQ's in-app help. New to the wheel strategy? Start with the FAQ.
Core Concepts
- Wheel
- A strategy cycling between selling puts (collect premium) → getting assigned shares → selling covered calls → shares called away → repeat.
- DTE
- Days to Expiration — the number of calendar days until an option contract expires. Lower DTE = faster theta decay but higher gamma risk.
- DBZ
- Dead-Buy Zone — a price drawdown range where accumulation via put selling is most attractive. Defined per stock based on historical support levels.
- Notional
- The total dollar exposure of a position: strike price × 100 shares × number of contracts. Represents the maximum capital at risk if assigned.
- Assignment
- When a short put expires in-the-money, the seller is obligated to buy shares at the strike price. StrikeIQ tracks this automatically and moves the position from Open Puts to Assigned Shares.
- Covered Call
- Selling a call option against shares you already own. Collects premium in exchange for capping upside if the stock rises above the strike.
- Roll
- Closing an existing option position and opening a new one — typically same ticker, later expiry, sometimes different strike. Used to extend duration or recover from a moved-against position.
- Universe
- Your watchlist — the set of tickers StrikeIQ tracks for IV, price action, and trade opportunities. Categorized into Must-Own and Tactical buckets.
- Must-Own
- Universe category for core holdings you always want exposure to. StrikeIQ favors these for primary ladder deployment.
- Tactical
- Universe category for opportunistic plays — added when IV/price setup is attractive and trimmed when it isn't.
Implied Volatility
- IV
- Implied Volatility — the market's expectation of future price movement, expressed as an annualized percentage. Higher IV = more expensive options = more premium to collect.
- IV Rank
- Where current implied volatility sits relative to its 52-week range (0-100). Above 50 = elevated premium, ideal for selling options.
- ATM IV
- At-The-Money Implied Volatility — the market's expected annualized move for the stock, derived from option prices at the current stock price.
- VIX
- CBOE Volatility Index — measures the market's expectation of 30-day volatility based on S&P 500 options. Often called the 'fear index'. VIX > 20 = elevated fear.
- RV-IV Gap
- The spread between Realized Volatility (what actually happened) and Implied Volatility (what the market expects). A positive gap means options are priced above what realized vol justifies — favorable for premium sellers.
The Greeks
- Delta
- The option's sensitivity to a $1 move in the stock. A -0.20 put delta means the option gains ~$0.20 for every $1 the stock drops.
- Gamma
- Rate of change of delta. High gamma near expiration means delta can shift rapidly — small stock moves cause big option price changes.
- Theta
- Time decay — the dollar amount an option loses per day. As a put seller, theta works in your favor: you earn this amount daily.
- Vega
- Sensitivity to a 1% change in implied volatility. High vega means the option price swings more with IV changes.
- Net Delta
- Your portfolio's aggregate directional exposure, expressed in delta-equivalent shares. Positive = long market bias (profits when prices rise); negative = short market bias (profits on a drop). Practical use: keep this in check vs. your account size — pro premium sellers typically run Δ near zero with mild directional bias. A wildly positive or negative number means a single news event can blow up your day. Signs reflect user-side exposure (a short put with option-Δ of −0.20 contributes +20 here, since you profit if the stock holds).
- Net Gamma
- How fast your Net Δ changes per $1 move in the underlying basket. Premium sellers usually run negative Γ — your Δ accelerates AGAINST you in a fast move (a drop makes a short put's effective Δ go more negative, deepening the loss). Practical use: watch this approaching expiration on short-dated positions; gamma blows up in the final week. If Net Γ is large negative, trim or roll out before the gamma cliff. Magnitude: 0.10 means Δ moves by 10 per $1 underlying move.
- Net Theta
- Your portfolio's daily P&L from time decay alone, assuming nothing else moves. Positive = you earn this many dollars per calendar day from premium decaying; negative = you pay. Practical use: this is the headline 'income' figure for premium sellers — multiply by 30 for a monthly run-rate. If your Net Θ is too small to justify your Capital at Risk, you're not earning enough per dollar of risk; size up or rotate to higher-IV underlyings. Theta accrues 7 days/week so weekends count.
- Net Vega
- Your portfolio's P&L impact per 1-pt change in implied volatility. Premium sellers carry negative Vega — IV spikes hurt, IV crushes help. Practical use: known event-vol catalysts (earnings, FOMC, CPI) move IV by 5-15 pts; if Net 𝜈 is −$1,000/vol-pt, a typical earnings cycle could cost you $5K-$15K from vega alone before any directional move. Trim short-vega positions before announced events, or hedge with calendars/long options.
- Beta-Weighted Delta
- Portfolio directional exposure normalized to a SPY-equivalent benchmark. Each leg's dollar delta is multiplied by its beta vs SPY, then divided by SPY's current price — giving you dollars of P&L per 1-pt SPY move. Practical use: compare exposure across volatile and calm tickers on the same axis. A β-Δ of −$1,000/SPY-pt means a 1-pt rise in SPY costs your portfolio ~$1,000. Use this to decide whether to hedge directional risk (SPY puts, /ES short) or to size up/down based on market regime. Negative = profits when SPY falls; positive = profits when SPY rises.
- Theta Exposure
- Sum of theta across all open positions. Represents the daily premium you earn (positive theta) or pay (negative theta) from time decay across the portfolio.
Options Chain & Execution
- Open Interest
- The total number of outstanding option contracts that have not been settled. High OI indicates active trading and better liquidity.
- Volume
- The number of contracts traded during the current session. High volume near a strike signals institutional interest.
- Bid-Ask Spread
- The difference between the highest price a buyer will pay (bid) and the lowest a seller will accept (ask). Tighter spreads = better liquidity.
- Mid Price
- The average of the current bid and ask. Used as a fair-value reference when filling an order — most marketable limits are placed at or near mid.
- Strike
- The price at which an option can be exercised. A short put is an obligation to BUY the underlying at the strike; a covered call is an obligation to SELL at the strike.
- Mark Price
- The current mid-market price of the option per share — the live quote used to mark the position to market and compute unrealized P&L.
- Option Return
- Profit/loss on the option as a percentage of the premium at risk. For a short option, premium received minus current buy-back cost, over the premium.
Strategies
- Ladder A
- Primary accumulation ladder — highest-conviction weekly/biweekly entries into must-own names. Tighter DTE (7-14d), smaller delta (0.10-0.15).
- Ladder B
- Secondary accumulation ladder — broader entries with more DTE (30-45d) and slightly higher delta (0.20-0.25). Used after Ladder A is deployed.
- Bull Put Spread
- A defined-risk strategy: sell a put at a higher strike and buy a put at a lower strike. Profits if the stock stays above the sold strike.
- Iron Condor
- Sell both a put spread and call spread on the same stock. Profits if the stock stays within a defined range. Limited risk, limited reward.
- Calendar Spread
- Buy and sell options at the same strike but different expirations. Profits from the difference in time decay rates.
- Collar
- Sell a covered call and buy a protective put on stock you own. Limits both upside and downside — a risk-reducing strategy.
- Backtest
- Replay a strategy against historical market data to estimate how it would have performed.
Risk Constraints
- Total Exposure
- Combined dollar value of all open put notional plus assigned shares. Must stay below the portfolio limit to manage total risk.
- Open Notional
- Sum of (strike × 100 × contracts) for all open short puts. Represents the cash you would need if all puts are assigned simultaneously.
- Open Positions
- Number of simultaneously open short put positions. Limited to prevent over-diversification and ensure adequate monitoring.
- High-Vol Names
- Count of high-volatility stocks with open positions. Limited to reduce tail risk from correlated drawdowns.
- Week Clustering
- Maximum notional expiring in a single calendar week. Limits the chance of multiple assignments hitting at once.
- Assignment Clustering
- The risk of several puts being assigned in the same period, creating a sudden need for more capital than budgeted.
- Buffer
- The remaining capacity before hitting portfolio constraint limits. Higher buffer = more room to add new positions.
- Capital at Risk
- The dollar amount that would be required if every open short put were assigned today (sum of strike × 100 × contracts). Distinct from NAV — Capital at Risk measures options-only obligation, NAV measures total book value across all assets.
Market Regimes
- Risk On
- Low-VIX environment (VIX < 16) indicating market complacency. Favorable for aggressive put selling with wider strikes and longer DTE.
- Neutral
- VIX between 16-20, indicating normal market conditions. Standard position sizing and strike selection apply.
- Risk Off
- VIX-based regime indicating elevated market fear (VIX > 20). Reduce position sizes, tighten strike selection, favor shorter DTE.
- Crisis
- Extreme market stress (VIX > 30 or multiple challenged positions). Halt new entries, focus on managing existing positions and reducing exposure.
Technical Analysis
- SMA
- Simple Moving Average — the average closing price over N days. SMA 50 and 200 are key levels: price above both = bullish trend.
- EMA
- Exponential Moving Average — like SMA but weights recent prices more heavily. More responsive to recent price action.
- RSI
- Relative Strength Index (0-100) — measures momentum. RSI > 70 = overbought (potential pullback), RSI < 30 = oversold (potential bounce).
- MACD
- Moving Average Convergence Divergence — a trend-following momentum indicator. Signal line crossovers suggest trend changes.
- Bollinger Bands
- Price bands set 2 standard deviations above/below the 20-day SMA. Price near the upper band = stretched, near lower = compressed.
- Confluence Score
- Composite measure of how many independent setup signals (IV, technicals, DBZ alignment) agree on a candidate trade. Higher confluence = higher conviction.
Performance & Portfolio Metrics
- Time-Weighted Return
- Cumulative investment performance that removes the distorting effect of cash flows. Each day's return is chained, so a large deposit raises NAV without inflating the return line — the industry-standard way to judge how the portfolio itself performed.
- Total Return
- Time-weighted return over the selected window — contribution-net, so deposits and withdrawals don't count as performance. The dollar figure is the actual P&L generated; the percentage is the compounded growth of the invested capital.
- Annualized Return
- The window's time-weighted return scaled to a yearly rate (compounded). Lets you compare a 3-month and a 1-year period on the same footing.
- CAGR
- Compound Annual Growth Rate — the smoothed annual rate of return that would take a starting NAV to today's NAV over the elapsed period. Reported here over a trailing 12 months from the daily NAV snapshot series. A CAGR of 8% means the portfolio grew at an 8%/year compounded clip.
- Sortino Ratio
- Like Sharpe but only penalizes downside volatility. Same units, but typically higher than Sharpe for any portfolio with positive skew. Better single-number summary of risk-adjusted performance for asymmetric strategies.
- Max Drawdown
- Largest peak-to-trough decline in portfolio NAV over the observed window. Reported as a negative percentage. The 'duration' is how long it took to fall from peak to trough; the 'recovery' is how long to claw back to the prior peak.
- Drawdown
- Decline in portfolio NAV from a prior peak. The current drawdown is your distance from your all-time-high NAV expressed as a percentage. Shaded regions on the chart highlight historical drawdown periods.
- Alpha vs SPY
- Your return minus the S&P 500 (SPY) return over the same window, in percentage points. Positive = you beat the index; negative = you trailed it.
- Return Contribution
- How much each holding contributed to the period's total return, expressed in dollars and as a percentage of the gross moves. 'AAPL drove +45%' means AAPL's gain was 45% of the sum of all positive contributions over the window.
- Concentration HHI
- Herfindahl-Hirschman Index over your top holdings. Squares each holding's % weight and sums them. <1,500 = low concentration, 1,500-2,500 = moderate, >2,500 = high. A perfectly diversified 10-stock book scores 1,000; a 1-stock book scores 10,000.
- Top-5 Concentration
- Percentage of portfolio NAV held in your five largest positions. The complement of diversification — a 60% Top-5 means more than half the book moves with those five names.
- Trailing Yield
- Trailing 12-month dividend income divided by current NAV, expressed as a percentage. Matches how brokerages and Empower report yield — based on what you actually received, not the forward indicated yield.
- Today's P&L
- Contribution-net daily P&L in dollars — today's NAV minus yesterday's NAV minus any contributions or withdrawals made today. The 'net' part is what makes a $100k deposit not show up as a green day.
- Green Streak
- Consecutive most-recent days with positive contribution-net P&L. A light gamification cue; resets the first day the book is flat or down.
Tax & Cost Basis
- Tax Lot
- An individual purchase record for a security — quantity, price, and date. Pro+ users get tax-lot tracking so covered-call strikes can be matched to specific share purchases for FIFO/LIFO accounting.
- Cost Basis
- The original price paid for shares (plus or minus any premium adjustments from assigned puts or covered calls). Used to compute realized gain or loss when shares are sold.
- Wash Sale
- IRS rule disallowing a loss for tax purposes if you re-buy the same security within 30 days of selling it for a loss. StrikeIQ flags potential wash-sale conflicts in tax-lot reports.
- Realized ST/LT
- Realized Short-Term / Long-Term capital gains and losses from closed positions, split by holding period. Lots held over 365 days qualify for long-term treatment under IRS rules.
- Unrealized ST/LT
- Unrealized Short-Term / Long-Term gains and losses on positions you still hold, split by holding period. A lot becomes long-term the day it crosses 365 days — that's the date a sale would lock in long-term tax treatment.
- Realized P&L
- Actual locked-in gain/loss from closed trades: proceeds − cost basis, net of any premium. Already banked, unlike unrealized P&L.
- Unrealized P&L
- Paper gain/loss on positions you still hold: (current price − cost basis) × quantity. Becomes 'realized' only when you sell. Cash holdings always show 0 — cash has no cost-basis appreciation.
StrikeIQ Features
- AI Commentary
- Pro+ StrikeIQ Insights commentary that summarizes the data shown on each page. Grounded in the same numbers you can see — not a separate source of truth.
- IQ Mode
- Pro+ guided strike-selection panel inside Options Data. Combines DBZ, IV Rank, regime, and technicals into a recommended strike/expiry pair.