0-DTE Options Glossary

These are options-industry terms you will find throughout the website; they are aggregated here so you can easily find the definition you want to know more about. Some terms and definitions are specific to those used in the course of the 0-DTE strategy, process, and methods.

American- Style Option

An option contract that may be exercised at any time between the date of purchase and the expiration date.

Ask Price

The price at which a seller offers to sell an option or a stock. See also Assignment.

Assigned

The price at which a seller offers to sell an option or a stock. See also Assignment.

Assignment

The receipt of an exercise notice by an equity option seller (writer) that obligates them to sell (in the case of a short call) or buy (in the case of a short put) 100 shares of the underlying stock at the strike price per share.

At-the-Money

An option is at the money if the option’s strike price is equal to the market price of the underlying index.

Averaging Down

The price at which a seller offers to sell an option or a stock. See also Assignment.

Back Month

For an option spread involving two expiration months, the month that is farther away in time.

Back Spread

A Delta-neutral spread is composed of more long options than short options on the same underlying instrument. This position generally profits from a significant movement in the underlying instrument.

Batman

A 0-DTE delta-neutral strategy that is comprised of two out-of-the-money butterfly spreads. The name is derived from the risk graph, which looks like Batman’s ears.

Bear (bearish) Spread

A Delta-neutral spread is composed of more long options than short options on the same underlying instrument. This position generally profits from a significant movement in the underlying instrument.

Bearish

A Delta-neutral spread is composed of more long options than short options on the same underlying instrument. This position generally profits from a significant movement in the underlying instrument.

Bid Price

The price at which a buyer is willing to buy an option or a stock.

Box Spread

A Delta-neutral spread is composed of more long options than short options on the same underlying instrument. This position generally profits from a significant movement in the underlying instrument.

Break Even

The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy’s break-even point(s) are generally stated as the option’s expiration date, a theoretical option pricing model can be used to determine the strategy’s break-even point(s) for other dates.

Bull (bullish) Spread

The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy’s break-even point(s) are generally stated as the option’s expiration date, a theoretical option pricing model can be used to determine the strategy’s break-even point(s) for other dates.

Butterfly spread

A strategy involving three strike prices with both limited risk and limited profit potential. Establish a long call butterfly by buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. Establish a long put butterfly by purchasing one at the highest strike price, writing two at the middle strike price, and buying one at the lowest strike price.

Buy-write

A covered call position includes a stock purchase and an equivalent number of calls written simultaneously. This position may be a combined order with both sides (buying stock and writing calls) executed simultaneously.

Calendar spread

An option strategy that generally involves the purchase of a longer-termed option(s) (call or put) and the writing of an equal number of nearer-termed option(s) of the same type and strike price.

Call Option

An option contract that gives the owner the right but not the obligation to buy the underlying security at a specified price (its strike price) for a specific, fixed period (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying product if the option is assigned.

Cash Settled

A settlement style that is generally characteristic of index options. Instead of stock changing hands after a call or put is exercised (physical settlement), cash changes hands. When an in-the-money contract is exercised, a cash equivalent of the option’s intrinsic value is paid to the option holder by the option seller (writer), who is assigned.

Classic Fly

A 0-DTE directional strategy comprised of a single out-of-the-money butterfly.

Class of Options

Option contracts of the same type (call or put) and style (American or European) cover the same underlying index.

Closing Transaction

A transaction that eliminates (or reduces) an open option position. A closing sell transaction eliminates or reduces a long position. A closing buy transaction eliminates or reduces a short position.

Commission

The fee charged by a brokerage firm for its services in the execution of a stock or option order on a securities exchange.

Condor spread

A strategy involving four strike prices with both limited risk and limited profit potential. Establish a long call condor spread by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a flat-top butterfly.

Cost to Carry

The total costs involved with establishing and maintaining an option and stock position, such as interest paid on a margined long stock position or dividends owed for a short stock position.

Cover

To close out an open position. This term often describes purchasing an option or stock to close out an existing short position for either a profit or loss.

Covered Call Option Writing

A corresponding stock or option position completely offsets an open short option position. A covered call could be offset by long stock or a long call, while a long put or a short stock position could offset a covered put. This ensures that if the owner of the option exercises, the writer will not have a problem fulfilling the delivery requirements.

Covered Put Option Writing

The cash-secured put is an options strategy in which a put option is written against a sufficient amount of cash (or Treasury bills) to pay for the stock purchase if the short option is assigned.

Credit

Any cash received in an account from selling an option or stock position. With a complex strategy involving multiple parts (legs), a net credit transaction is one in which the total cash amount received is greater than the total cash amount paid.

Day Trade

A position (stock or option) that is opened and closed on the same day.

Debit

Any cash paid out of an account for purchasing an option or stock position. With a complex strategy involving multiple parts (legs), a net debit transaction is one in which the total cash amount paid is more significant than the actual cash received.

Debit spread

A spread strategy that decreases the account’s cash balance when established. A bull spread with calls and a bear spread with puts are examples of debit spreads.

Decay

A term used to describe how the theoretical value of an option erodes or declines with time, and time decay is quantified explicitly by Theta.

Delivery

The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and receive cash for the stock sold. In the case of a short equity put, the writer pays cash and, in return, gets the stock.

Delta

The amount of a theoretical option’s price will change for a corresponding one-unit (point) change in the underlying security price.

Discretionary

An investor gives the freedom to their account executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order that gives the floor broker price flexibility beyond the stated limit price to use their judgment in executing the order.

Early Assignment

The exercise or assignment of an option contract before its expiration. This feature of American-style options may be exercised or assigned at any time before they expire.

European-Style Option

An option contract may be exercised only during a specified period just before its expiration.

Exchange-Traded Fund (ETF)

A security that tracks an index, a commodity, or a basket of assets like an index fund but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. One of the most widely known ETFs is the Spider (SPDR), which tracks the S&P 500 index and trades under the SPY symbol.

Ex-Dividend Date

When a corporation declares a dividend, it will simultaneously declare a “record date” on which an investor must be recorded into the company’s books as a shareholder to receive that dividend. Also included in the declaration is the “payable date,” which comes after the record date and is the actual date dividend payments are made. Once these dates are established, the exchanges will then set the “ex-dividend” date (“ex-date”) for two business days before the record date. If you buy the stock before the ex-dividend date, you will be eligible to receive the upcoming dividend payment. You will not receive the dividend if you buy stock on the ex-date or afterward.

Exercise

To implement the right under which the holder of an option is entitled to buy (in the case of a call) or sell (in the case of a put) the underlying index.

Exercise Price (Strike Price)

The price per unit of which the underlying index may be purchased ( in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

Exercise Settlement Amount

The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

Expiration Cycle

An Expiration cycle relates to the dates on which options expire. An option other than the LEAPS® will be assigned to one of three cycles: January, February, or March. At any point in time, PHLX sector index options have contracts with five expiration dates outstanding (three months from the March, June, September, and December cycles plus two additional near-term months).

Expiration Date

The day on which an option contract expires and ceases to exist. This is the Saturday following the third Friday of the expiration month for equity options. The last day on which expiring equity options trade and may be exercised is the business day before the expiration date, or generally the third Friday of the month.

Expiration Month

The calendar month during which a specific expiration date occurs.

Extrinsic Value

The portion of an option’s premium (price) exceeds its intrinsic value if it is in the money. If the option is out-of-the-money, the extrinsic value equals the entire premium. Also known as “time value.”

Fill-or-kill order (FOK)

A type of option order requires that the order be executed entirely or not. A fill-or-kill order is similar to an all-or-none (AON) order. The difference is that if the order cannot be executed entirely (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is killed (canceled) immediately. Unlike AON, a FOK order cannot be used as part of a good-’til-canceled order.

FINRA (Financial Industry Regulatory Authority)

The largest independent regulator for all securities firms in the United States.

FLEX® Options

Allow traders to specify option contract terms such as expiration date, strike price, exercise style (American or European), and the settlement value with a choice of either a.m. settlement (reported at the opening of trading) or p.m. settlement (reported at the close of trading).

Front Month

The month is nearer in time for an option spread involving two expiration months.

Gamma

A measure of the rate of change in an option’s Delta for a one-unit change in the underlying asset’s price.

Good-’til-canceled (GTC) order

A type of limit order that remains in effect until it is either executed (filled) or canceled. This differs from a day order, which expires unless executed by the end of the trading day. If not executed, a GTC option order is automatically canceled at the option’s expiration.

The Greeks

A set of metrics that are used to measure various risks and rewards associated with options positions. The four main Greeks are delta, gamma, theta, and Vega.

Hedge

A conservative strategy limits investment loss but affects a transaction that offsets an existing position.

Historic Volatility

A measurement of the actual observed volatility of a specific stock over a given period in the past, such as a month, quarter, or year.

Holder

The purchaser of an option.

Horizontal spread

An option strategy generally involves purchasing a farther-term option (call or put) and writing an equal number of nearer-term options of the same type and strike price.

Implied Volatility

An estimate of an underlying stock’s future volatility as predicted or implied by an option’s current market price. Implied volatility for any option can only be determined via an option pricing model.

Index Option

An option contract whose underlying security is an index (like the NASDAQ), not shares of any particular stock.

In-the-Money

A call option is in-the-money if the strike price is less than the market price of the underlying index. A put option is in-the-money if the strike price exceeds the underlying index’s market price.

Intrinsic Value

The amount by which an option is in the money (see preceding definition).

Iron Butterfly

An options strategy with limited risk and limited profit potential that involves both a long (or short) straddle and a short (or long) strangle. An iron butterfly contains four options, equivalent to a regular butterfly spread with only three options.

Last trading day (0DTE)

The last business day before the option’s expiration date, during which purchases and sales of options can be made. This is generally the third Friday of the expiration month for equity options. If the third Friday of the month is an exchange holiday, the last trading day is the Thursday preceding the third Friday.

LEAPS

Long-term Equity AnticiPation Securities, or LEAPS, are long-term option contracts. Equity LEAPS calls and puts can have expirations up to three years into the future and expire in January of their expiration years.

Leg

Noun: One part of a problematic position comprises two or more options and a position in the underlying stock.

Verb: Instead of entering one order to establish all parts of a complex position simultaneously, one part is executed with the hope of establishing the other part(s) later at a better price.

Limit order

A trading order is placed with a broker to buy or sell stock or options at a specific price.

Long Option

A position wherein an investor’s interest in a particular series of options is a net holder (i.e., the number of contracts bought exceeds the number of contracts sold).

Long Stock

Shares of stock purchased and held in a brokerage account represent an equity interest in the company that issued the shares.

Margin Requirement (for Options)

The amount of cash and securities an option writer must deposit and maintain in a brokerage account to cover an uncovered (naked) short option position. This cash can be seen as collateral pledged to the brokerage firm for the writer’s obligation to buy (in the case of a put) or sell (in the case of a call) shares of the underlying stock in case of assignment.

Market Maker

An exchange member on the trading floor who buys and sells options for their account and who has the responsibility of making bids and offers and maintaining a fair and orderly market.

Market order

A trading order is placed with a broker to immediately buy or sell a stock or option at the best available price.

Mean

For a data set, the mean is the sum of the observations divided by the number of words. The mean is often quoted along with the standard deviation: the mean describes the central location of the data, and the standard deviation describes the range of possible occurrences.

Naked or Uncovered Option

A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer has a short stock or deeper-in-the-money long call position. A short put position is uncovered if the writer is not short stock or long another deeper-in-the-money put.

Net Credit

Money received in an account either from a deposit or a transaction that results in increasing the account’s cash balance.

Net Debit

Money is paid from an account either from a withdrawal or a transaction that decreases the cash balance.

Neutral

An adjective describes the belief that a stock or the market will neither rise nor decline significantly.

Neutral Strategy

An option strategy (Or stock and option position) is expected to benefit from a neutral market outcome.

Normal Distribution

One of the most familiar mathematical distributions is a set of random observed numbers (or closing stock prices) whose distribution is symmetrical around the mean or average number. A graph of the distribution is the familiar “bell curve,” with the most frequently occurring numbers clustered around the mean or the middle of the bell. Since this is a symmetrical distribution, when the numbers represent daily stock price changes, there must be an equal price change to the downside for every possible change to the upside. The result is that a normal distribution would theoretically allow negative stock prices. Stock prices are unlimited to the upside, but a stock can only decline to zero in the real world. See “lognormal distribution.”

Opening Transaction

A transaction that creates (or increases) an open option position. An opening buy transaction creates or increases an extended position; an opening sell transaction creates or increases a short position (also known as writing).

Open Interest

The net total of outstanding open contracts in a particular option series. An opening transaction increases the open interest, while any closing transaction reduces the open interest.

Open Purchase

A transaction in which the purchaser intends to create or increase a long position in a given series of options.

Opening Sale

A transaction in which the seller intends to create or increase a short position in a given series of options.

Option

A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period (until expiration). The contract also obligates the writer to meet the delivery terms if the owner exercises the contract right.

Option Period

The time from when a buyer or writer of an option creates an option contract to the expiration date, sometimes referred to as an option’s lifetime.

Option Pricing Model

A mathematical formula is used to calculate an option’s theoretical value using as input its strike price, the underlying stock’s price, volatility, dividend amount, time until expiration, and risk-free interest rate. The option Greeks are generated by an option pricing model: delta, gamma, theta, vega, and rho. Well-known and widely used pricing models include the Black-Scholes, Cox-Ross-Rubinstein, and Roll-Geske-Whaley.

Options Clearing Corporation (OCC)

OCC is the world’s largest equity derivatives clearing organization. Founded in 1973, OCC operates under the Securities and Exchange Commission (SEC) jurisdiction as a Registered Clearing Agency and the Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organization. OCC provides central counterparty (CCP) clearing and settlement services to 16 exchanges and trading platforms for options, financial futures, security futures, and securities lending transactions.

Out-of-the-Money

A call option is out-of-the-money if the strike price exceeds the underlying index’s market price. A put option is out-of-the-money if the strike price is less than the market price of the underlying index.

Payoff diagram

A chart of the profits and losses for a particular options strategy is prepared in advance of the execution of the strategy. The diagram plots expected gains or losses against the underlying security price.

Physical Settlement

The settlement style of all equity options in which shares of the underlying stock change hands when an option is exercised.

Pin Risk

The risk to an investor (option writer) is that the stock price will equal the strike price at expiration (that option will be exactly at the money). The investor will need to determine how many of their written(short) options will be assigned or whether a last-second move in the underlying will leave any long options in or out of the money. The risk is that on the following Monday, the option writer might have an unexpectedly long (in the case of a written put) or short (in the case of a written call) stock position and thus be subject to the risk of an adverse price move.

Pinned (at the close)

In the context of 0-DTE, we refer to pinning the trade as holding onto a position until the close and price ending up within a few points of the center strike of a butterfly strategy, resulting in a near-max profit outcome.

Point of Control (POC)

The point of control (POC) is a key level on the Volume Profile that represents the price where the most trades have occurred. It is determined by calculating the volume-weighted average price (VWAP) of all trades at each price level. The price level with the highest volume is considered the point of control.

Probability of Profit (POP)

The probability of profit (POP) is a measure of the likelihood that a specific options trade will be profitable. It is calculated by analyzing the current price of the underlying asset, the strike price of the option, the expiration date of the option, and the implied volatility of the option. The POP is typically expressed as a percentage and can be used as one of several factors in determining the overall risk and potential return of an options trade.

Probability of Touch (POT)

Probability of touch (POT) is a metric used to estimate the likelihood that the price of the underlying asset will reach the strike price of an option, prior to the expiration date of the option. It is a measure of the probability that the option will be “in the money” at expiration. It’s typically used in conjunction with the Probability of expiring in the money (POETM) to indicate how likely it is that the option will be profitable. POT is calculated by using the Black Scholes model or other mathematical models, which take into account the underlying asset price, strike price, volatility, interest rates, and time to expiration.

Premium

The price of an option contract is determined by the competitive marketplace, in which the buyer of an option pays the option writer for the rights granted by the option contract. Often (Erroneously), this word is used to mean the same as time value.

Profit-Loss (Risk) Graph

A representation in graph format of the possible profit and loss outcomes of an equity option strategy over a range of underlying stock prices at a given point in the future, most commonly at option expiration.

Put Option

An option contract gives the holder the right to sell the underlying index at a specified price for a fixed period.

Ratio Spread

A term most commonly used to describe the purchase of an option(s), call or put, and the writing of a more significant number of the same type of options that are out-of-the-money concerning those purchased. All options involved have the same expiration date.

Realized Gains and Losses

The net amount received or paid when a closing transaction is made and matched with an opening transaction.

Relative Performance Index

An index that measures the total return performance of a target security relative to the adjusted actual return performance of a benchmark like the S&P 500.

Return on Capital

Return on capital (ROC) is a measure of the profitability of an options trade relative to the amount of capital invested. It can be calculated by taking the net profit or loss of the trade divided by the initial capital invested in the trade.

Risk to Reward Ratio (R2R)

The risk-to-reward ratio assesses the potential profit (reward) against a trade’s possible loss (risk).

Roll or Rolling

Close one option position simultaneously and open another with the same underlying stock but a different strike price and expiration month. Rolling a long position involves selling those options and buying others. Rolling a short position involves buying the existing position and selling (writing) other options to create a new short position.

Secured Put / Cash-Secured Put

An option strategy in which a put option is written against a sufficient amount of cash (or Treasury bills) to pay for the stock purchase if the short option is assigned.

Series

All option contracts of the same class have the same expiration date and strike price.

Settlement

The process by which the underlying stock is transferred from one brokerage account to another when equity option contracts are exercised by their owners and the inherent obligations assigned to option writers.

Settlement Price

The official price at the end of a trading session. OCC establishes this price and uses it to determine changes in account equity, margin requirements, and other purposes.

Short Option

A position wherein a person’s interest in a particular series of options is a net writer (i.e., the number of contracts sold exceeds the number of contracts bought).

Short Stock

A short position is opened by selling shares in the marketplace that are not currently owned (short sale) but instead borrowed from a broker/dealer. At a later date, shares must be purchased and returned to the lending broker/dealer to close the short position. If the shares can be bought at a price lower than their initial sale, a profit will result. A loss will be incurred if the shares are purchased at a higher price. Unlimited losses are possible when taking a short stock position.

Spread

A complex options position is established by purchasing and selling another option with the same underlying security. The two options may be of the same or different types (calls/puts) and may have the same or different strike prices and expiration months. A spread order is executed as a package, with both parts (legs) traded simultaneously at a net debit, net credit, or even money.

Standard Deviation

A statistical measure of price fluctuation. One use of the standard deviation is to measure how stock price movements are distributed about the mean.

Strike Price (Exercise Price)

The price per unit for which the underlying index may be purchased (in the case of a call) or sold (in case of a put) by the option holder upon exercise of the option contract.

Stop Order

A type of contingency order, often erroneously known as a stop-loss order, is placed with a broker. It becomes a market order when the stock trades or is bid or offered at or through a specified price.

Stop-Limit Order

A contingency order placed with a broker becomes a limit order when the stock trades or is bid or offered at or through a specific price.

Straddle

A trading position involving puts and calls on a one-to-one basis in which the puts and calls have the same strike price, expiration, and underlying stock. When both options are owned, the position is called a long straddle. When both options are written, it is a short straddle.

Strike / Strike Price

The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price or exercise price.

Target Component

The first component is identified in an Alpha Index, measured against the second component (“Benchmark Component”).

Theta

The amount of a theoretical option’s price will change for a corresponding one-unit (day) change in the days to the expiration of the option contract.

The Value

The portion of the option premium is attributable to the amount of time remaining until the expiration of the option contract. Time value is the option’s value in addition to the intrinsic value.

Time Decay

A regular phenomenon in which the time value portion of an option’s price decays (decreases) with the passage of time. The decay rate increases as expiration get closer, with the theoretical rate quantified by “theta,” one of the Greeks.

Time Spread

An option strategy generally involves purchasing a farther-term option (call or put) and writing an equal number of nearer-term options of the same type and strike price.

Time Value

For a call or put, it is the portion of the option’s premium (price) that exceeds its intrinsic value (in-the-money amount), if it has any. By definition, the premium of at- and out-of-the-money options consists only of time value. It is a time value that is affected by time decay and changing volatility, interest rates, and dividends.

Transaction Costs

All charges are associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and assignment, exchange fees, SEC fees, and margin interest. The spread between the bid and ask is considered a transaction cost in academic studies.

Type

The classification of an option contract is either a call or a put.

Uncovered Put Option Writing

A short put option position in which the writer does not own an equivalent position in the underlying index or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.

Undercover Call Option Writing

A short call option position in which the writer does not own an equivalent position in the underlying index represented by their options contracts.

Underlying

The asset (stock, futures, index) on which a specific option’s value is based changes hands when the option is exercised or assigned.

Vega

The amount of a theoretical option’s price will change for a corresponding one-unit (point) change in the implied volatility of the option contract.

Vertical Spread

Most commonly used to describe the purchase of one option and the writing of another where both are of the same type and have the same expiration month but have different strike prices.

Volatility

A measure of the fluctuation in the market price of the underlying index. Mathematically, volatility is the annualized standard deviation of returns.

Volume Node

A volume node is a level on a Volume Profile chart where the volume of trades is concentrated. It is a key level of support and resistance that is determined by analyzing the volume of trades at different price levels.

Volume Profile

A charting technique that uses volume data to identify key levels of support and resistance. It is represented as a histogram, with the vertical axis showing the volume of trades and the horizontal axis showing the price. Key levels, such as Point of Control (POC), can be identified by looking for areas on the Volume Profile where the volume is high. It is used by traders in futures and options markets, as well as by traders that use Market Profile. It’s useful for intraday traders, futures, and options traders to identify key levels of support and resistance and to make better-informed trade decisions.

Write or Writer

To sell a call or put option contract that has yet to be purchased (owned). This opening sale transaction results in a short position in that option. The seller (writer) of an equity option is subject to assignment at any time before expiration and takes on an obligation to sell (in the case of a short call) or buy (in the case of a short put) underlying stock if the assignment does occur.

Writer

The seller of an option contract.