Options Trading Glossary

Essential options terms explained with real FTSE 100 examples in GBP.

Assignment ATM Call Delta Exercise Expiry Gamma ITM IV OTM Premium Put Strike Theta Vega

Call Option

The right (but not obligation) to buy an underlying asset at the strike price on or before expiry.

Live Example: You buy a FTSE 100 June 7,600 call at 38p. The FTSE is trading at 7,520. If FTSE rises to 7,700 at expiry, your call is worth 100p (intrinsic value). Profit: 100p − 38p = 62p × 100 shares per contract = £62 per contract.

Put Option

The right (but not obligation) to sell an underlying asset at the strike price on or before expiry.

Live Example: You buy a FTSE 100 June 7,400 put at 32p. The FTSE falls to 7,300 at expiry. Your put is worth 100p intrinsic value. Profit: 100p − 32p = 68p × 100 = £68 per contract.

Related: Delta, Theta · Bear Put Spread →

Strike Price

The fixed price at which you can buy (call) or sell (put) the underlying asset when you exercise the option.

Live Example: FTSE 100 is at 7,500. A 7,550 call has a strike of £7,550. You only profit at expiry if FTSE closes above 7,550 + premium paid. If premium was 30p, your breakeven is 7,580.

Related: ITM, OTM, ATM, Premium · P&L Calculator →

Premium

The price you pay (as a buyer) or receive (as a seller) for an options contract. Quoted per share; multiply by 100 for one standard contract.

Live Example: A FTSE 100 June 7,500 call trades at 45p. Buying one contract costs 45p × 100 = £45. This is your maximum loss as a buyer.

Related: Theta (time decay eats premium), IV (higher IV = higher premium) · Covered Call →

Expiry Date

The last date on which an option can be exercised. After this date, the option ceases to exist. Most UK-listed options use the third Friday of the expiry month.

Live Example: A "FTSE June 7,500 Call" expires on the third Friday of June. With 30 days left and FTSE at 7,480, the 7,500 call might be worth 28p. With 5 days left (same price), it might only be worth 8p — theta decay accelerates near expiry.

Related: Theta, ITM/OTM · P&L Calculator →

Delta (Δ)

How much an option's price moves for every £1 change in the underlying. Ranges from 0 to 1 for calls, 0 to −1 for puts. Also approximates the probability the option expires in-the-money.

Live Example: A FTSE 100 June 7,500 call at 45p has delta ~0.42. If FTSE rises 100 points to 7,600, the option price increases by approximately 0.42 × 100 = 42p to ~87p.

Related: Gamma (rate of delta change), ITM (delta ~0.8+), OTM (delta ~0.2−) · Bull Call Spread →

Gamma (Γ)

The rate of change of delta for every £1 move in the underlying. High gamma means delta changes rapidly — this accelerates near expiry and near ATM strikes.

Live Example: A FTSE 100 7,500 ATM call has delta 0.50 and gamma 0.003. If FTSE moves from 7,500 to 7,600, the new delta ≈ 0.50 + (0.003 × 100) = 0.80. The call is now much more sensitive to further moves.

Related: Delta, Expiry · All strategies →

Theta (Θ) — Time Decay

How much an option loses in value for each day that passes, all else equal. Theta is always negative for option buyers, and positive for sellers.

Live Example: You buy a FTSE 100 June 7,500 call for 45p. Theta is −0.8p/day. After 10 days with FTSE unchanged, the option is worth approximately 45 − (0.8 × 10) = 37p. Time decay costs you even when the market doesn't move.

Vega (ν)

How much an option's price changes for every 1% change in implied volatility. Long options have positive vega (benefit from rising IV); short options have negative vega.

Live Example: A FTSE 100 7,500 call is priced at 45p with IV at 18% and vega 0.20p per 1% IV. If IV spikes to 22% (e.g. ahead of a Bank of England decision), the call rises by 0.20 × 4 = 0.80p → ~45.8p even if the FTSE doesn't move.

Implied Volatility (IV)

The market's forward-looking expectation of how much the underlying will move, extracted from current option prices. Higher IV → more expensive options.

Live Example: Normal FTSE 100 IV might be 14%. Before a UK election, IV rises to 22% as uncertainty increases. A 7,500 ATM call that cost 35p at 14% IV might cost ~55p at 22% IV — the same option is 57% more expensive due to elevated fear.

In the Money (ITM)

An option has intrinsic value. A call is ITM when the underlying price is above the strike. A put is ITM when it's below the strike.

Live Example: FTSE is at 7,600. A 7,500 call is ITM by 100 points (£1.00 intrinsic value). It would trade at £1.00 + time value, e.g. ~£1.15.

Related: OTM, ATM, Delta (~0.7+ for deep ITM calls)

Out of the Money (OTM)

An option with no intrinsic value — only time value remains. A call is OTM when the underlying price is below the strike; a put is OTM when the underlying is above the strike.

Live Example: FTSE is at 7,500. A 7,700 call is OTM by 200 points. It might trade at just 8p — all time value — and will expire worthless unless FTSE rises above 7,700 before expiry.

Related: ITM, ATM, Theta

At the Money (ATM)

When the strike price is approximately equal to the current underlying price. ATM options have the highest time value and highest gamma.

Live Example: FTSE is at 7,500. The 7,500 call and 7,500 put are both ATM. Each has delta ~0.50. The call might trade at 45p and the put at 42p (the difference reflects interest rates / cost of carry). ATM options are the most liquid and most commonly traded.

Related: ITM, OTM, Gamma (highest ATM) · P&L Calculator →

Assignment

When an option seller is required to fulfil their obligation — selling shares (call seller) or buying shares (put seller) — because the buyer has exercised.

Live Example: You sold a FTSE 100 7,400 put for 30p. FTSE falls to 7,300. The buyer exercises. You are now assigned and must buy shares at 7,400 (effectively paying £100 above market). Net loss: £100 − £30 premium = £70 per share.

Related: Exercise, ITM · Cash-Secured Put →

Exercise

When the option buyer chooses to use their right to buy (call) or sell (put) the underlying at the strike price. Most retail traders close positions before expiry rather than exercise.

Live Example: You hold a FTSE 100 June 7,400 call. FTSE is at 7,600 near expiry. You could exercise and buy at £7,400, then sell in the market at £7,600 for a £200/share gain. Or simply sell the call for its intrinsic value (≈£200p) — usually the more practical choice.

Want to apply these concepts? Try the P&L Calculator, or use the Strategy Selector to find the right strategy for your outlook.