Options basics
Calls, puts, strikes, expiries, premium and implied volatility, explained in plain language with pointers into the terminal.
On this page
An option is a contract that gives its buyer a right, not an obligation, to trade an underlying at a fixed price. This page covers the vocabulary you see on the options chain.
Calls and puts#
- A call gains value when the underlying rises. The buyer has the right to buy at the strike.
- A put gains value when the underlying falls. The buyer has the right to sell at the strike.
In the chain, calls are on the left and puts are on the right.
Strike and expiry#
The strike is the fixed price in the contract. The expiry is the date and time the contract ends. Expiry tabs at the top of the chain list every available date. Expiries are in UTC. At expiry the contract settles and is worth only its intrinsic value, which is how far it is in the money.
Premium#
The premium is the price you pay to buy an option, or receive to sell one. You will see three prices:
- Bid. The highest price someone is willing to pay. If you sell now, this is what you get.
- Ask. The lowest price someone is willing to sell at. If you buy now, this is what you pay.
- Mark. A fair-value reference price, usually between the two.
The gap between bid and ask is the spread. A wide spread means trading costs more to enter and exit.
Moneyness#
Compare the strike with the current index price:
| Term | Call | Put |
|---|---|---|
| In the money | Index is above the strike | Index is below the strike |
| At the money | Index is near the strike | Index is near the strike |
| Out of the money | Index is below the strike | Index is above the strike |
Out-of-the-money options are cheaper, but they need a bigger move to pay off.
Implied volatility#
Implied volatility (IV) is the market's expectation of how much the underlying will move, backed out of option prices. Higher IV means more expensive options. The chain shows Bid IV, Ask IV and Mark IV so you can compare options across strikes and expiries on a common footing, not just by price.
Delta#
Delta estimates how much an option's price changes when the underlying moves $1. Calls have positive delta and puts have negative delta. As a rough rule, an option's delta is also a loose guide to its odds of finishing in the money. Greeks are covered on Payoff and Greeks.