Glossary¶

Plain-language definitions. Skim once, then return whenever a page uses a term you do not remember.

Not financial advice

Educational definitions only.

Building blocks¶

Term	Plain meaning
Call	Contract with the right to buy the stock at the strike.
Put	Contract with the right to sell the stock at the strike.
Premium	Price of the option (or the net credit/debit of a multi-leg trade).
Strike	The price named in the contract.
Expiration	When the contract ends.
ITM	In the money — a call when stock is above the strike; a put when stock is below.
OTM	Out of the money — the opposite of ITM.
ATM	At the money — stock near the strike.

Term	Plain meaning
Credit spread	You open a multi-leg options trade and receive a net credit. Usually one short option plus one long option for protection.
PCS / put credit spread	Sell a put, buy a lower put. Also called a bull put spread. You want the stock to stay above the short put.
CCS / call credit spread	Sell a call, buy a higher call. Also called a bear call spread. You want the stock to stay below the short call.
Defined risk	You know the worst-case loss from the structure at entry (before fees).
Undefined risk	Loss can grow without a clean structural cap (classic example: naked short call).
Max loss	Worst case on a defined-risk trade. Spruce sizes positions from this number.
Max profit	On a credit spread, roughly the credit you collected.
Breakeven	Stock price at expiry where P&L is about zero (ignoring fees).

Term	Plain meaning
Delta	Sensitivity to a $1 stock move; also a rough “chance of finishing ITM” heuristic.
Theta	Time decay.
IV	Implied volatility — how much movement the market is pricing.
Buying power	Capital your broker sets aside for the trade — not the same as max loss.
Heat	Sum of open defined max losses, compared with account equity.
Roll	Close a position and reopen related strikes/expiry to manage risk or time.
CSP	Cash-secured put — short put backed by cash for assignment.
Wheel	A cycle of cash-secured puts and covered calls. Later topic.
Covered call	Short call against shares you already own.
HITL	Human-in-the-loop — suggestions allowed; live sending needs a person.
Dry-run	Practice / prepare without sending a live order.

Payoff formulas for PCS and CCS are on Credit-spread payoffs. Public references live on Sources.