Definitions

I’ve grouped some of my basic interpretations and definitions of words I use in my lexicon. Some of these are real in the professional world, and some of them I have made up for my own beneft.

Theta (Θ), often called “time decay,” is an options greek that tells you how much an option’s price is expected to decrease each day due to the passage of time.

Strike – This is the target price of a contract. If I have sold a call contract for August 31st at $970, the strike means the $970.

Premium – When an option contract is transacted, the premium is the price that is paid by the buyer or collected by the seller. The makeup of this price comes from several factors including volatility in the market, time remaining before expiry, and the distance the Strike has from the actual stock price.

Straddle – I think of this has having a mid point, and my positions straddle that like my legs would if I was sitting on a horse. As long as I am pretty close to the middle, things stay balanced, but if I end up too much to one side or the other, I might fall off the horse.

Strangle – This is mostly covered by the FieldGoal analogy. In clean terms, it means having options on both puts and calls but with some distance between them. As if you’re trying to “strangle” the price into the middle.

Realized Gain – This is used to describe the gains after contracts have been settled. Even though you get the cash up front, it can be days, or weeks until a contract expires, or is bought to close before it can be counted as “realized” gains. Until then, they are only potential gains. Once banked though, the only way to screw it up is to go about losing money on new contracts.

DTE – Days to Expiry. This is the relentless countdown to zero on the contract. As an option seller, we love for that countdown to come, and the option contract to be almost worthless. 0DTE is the day of expiry, and is always shown with a 0 (zero). 

Roll – Rolling an option is when it’s being closed by paying a price, and then opened again on another date for a new price, and sometimes different strike. 99% of the time, we want to roll for credit. I will explain one day why I sometimes roll for a debit (or loss) for strategic purposes. [Read More]

Pylon – Sometimes I will setup an option that is basically a pylon to go around. Nothing is ever a completely non-zero risk, but sometimes in the setups of the option plays, there can be a position you can take that pays off knowing it’s going to likely expire at 0 so you just take the money the market is willing to pay.

LandMine – This is a position placed counter to what my overall position bias is at the moment. The idea is to capture income while the market continues to move against me. [Read More].