Short answers to options terms from OptionLab (option-graph.com), each in a sentence or two, with a link to the full article or the matching tool when one is available. Where a rule differs between Israel and the US, between contract types or between brokers, the answer says so.
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Also called: derivatives
A derivative is a contract whose value comes from the price of something else, the underlying, such as a stock, an index, a currency or a commodity. Options and futures are the best-known derivatives, and in Israel both trade on the TA-35 index.
Read the full article: What Are Derivatives? Options vs. Stocks vs. Futures
Also called: options
An option is a contract that gives its buyer the right, but not the obligation, to buy (a call) or sell (a put) an asset at a fixed strike price on or before expiration. The buyer pays a premium for that right; the writer receives it and takes on the obligation to complete the trade if the buyer exercises.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: call
A call option gives its buyer the right, but not the obligation, to buy the underlying at the strike price. Held to expiration, it makes money only if the underlying finishes above the strike plus the premium paid, before fees, with the premium in the same unit as the price: in index points for MAOF (the premium is the shekel option price divided by 50) or in dollars per share in the US. Before expiration its value also depends on the time left and on volatility.
Read the full article: What Is a Call Option? Definition, Example & Payoff
Also called: put
A put option gives its buyer the right, but not the obligation, to sell the underlying at the strike price, so with everything else unchanged its value rises as the underlying falls. Held to expiration, it makes money only if the underlying finishes below the strike minus the premium, before fees, with the premium in the same unit as the price: in index points for MAOF (the premium is the shekel option price divided by 50) or in dollars per share in the US. Investors use puts to profit from a decline or to protect a holding.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: option writer · option seller
The buyer pays a premium and gets a right; the writer (seller) receives the premium and must buy or sell at the strike if the buyer exercises. On the option itself the buyer's loss is capped at the premium and fees, while the writer's gain is capped at the premium and the loss can be much larger.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: long · short
A long position means you own something you bought, such as an option; a short position means you sold or wrote something you do not own. In options, a long call or long put is a purchase and a short call or short put is a written option; long does not necessarily mean bullish, since a long put gains from a fall.
Selling an option you bought earlier closes the position: the right passes to someone else and you have no remaining obligation. Writing means selling an option you do not hold, which opens a short position with an obligation and margin requirements; a trading platform may label both as “sell”, so check that the order closes your position.
Also called: underlying
The underlying is the asset an option or futures contract refers to and takes its value from: a stock, an index, a currency or a commodity. For TA-35 options (MAOF) the underlying is the TA-35 index; for a US stock option it is the company's stock.
Read the full article: What Are Derivatives? Options vs. Stocks vs. Futures
A shareholder owns part of a company with no expiration date, and can lose up to the whole amount invested. A call buyer pays a premium that is lower than the cost of the same number of shares, and the loss on the option is capped at that premium, but the option expires: if the price is not above the strike by then, it expires worthless even if the stock rose a little.
Read the full article: What Are Derivatives? Options vs. Stocks vs. Futures
No. Buying a call or put, or writing an uncovered option, does not require owning the underlying, but your broker may require approval for options trading, and writing requires margin. Owning the underlying is needed only for covered strategies such as a covered call, and TA-35 options (MAOF) involve no shares at all because they are cash-settled.
Read the full article: What Is an Option? Meaning, Origins and Uses
There is no single minimum: buying an option costs the premium times the contract multiplier, plus fees. For TA-35 options (MAOF) the price is already quoted in shekels per contract, so an option priced at NIS 500 costs NIS 500 plus fees; writing options requires margin, and brokers may set their own minimums.
You buy an option through a broker or bank that offers derivatives trading, usually after your account is approved for it: choose the underlying, expiration, strike and type (call or put), then send a buy order, for example a limit order that sets a maximum price. The site is an analytical and educational tool, not a broker or trading platform, so no trades are executed on it.
Also called: option price
The premium is the price of an option: what the buyer pays and the writer receives. For TA-35 options (MAOF) the premium is quoted in shekels per contract, so it must not be multiplied by 50 again; in other markets, check the contract specification for whether prices are quoted per unit or per contract.
Also called: exercise price · strike
The strike price is the price set in the contract at which a call holder may buy, or a put holder may sell, the underlying. At expiration, the underlying price relative to the strike decides whether the option has value: a call has value only if the price is above the strike, a put only if it is below.
Also called: strike spacing
The strike interval is the gap between neighbouring strikes in a series, and it is set by the contract specification. Per the TASE specification read on 20 October 2026, monthly TA-35 options (MAOF) use 20-point intervals, with extra strikes every 10 points from eight weeks before expiry, and weekly options use 10 points.
Intrinsic value is what an option would be worth if exercised right now: for a call, the amount by which the underlying is above the strike; for a put, the amount by which it is below. It is never negative and is zero for an out-of-the-money option; at expiration it is the option's entire value.
Also called: extrinsic value
Time value is the part of the premium above intrinsic value, that is, the premium minus intrinsic value, with both in the same unit; for MAOF, first divide the shekel option price by 50 to get points. It reflects the chance that the price moves before expiration; it typically shrinks as expiration approaches but can also grow, for example when volatility rises, and at expiration it is zero.
Also called: moneyness
These terms describe the underlying price relative to the strike: a call is in the money when the price is above the strike and a put when it is below, an option is at the money when the price is at or very near the strike, and out of the money when exercising now would be worth nothing. They say whether there is intrinsic value, not whether a trade is profitable, because they ignore the premium paid.
An in-the-money option includes intrinsic value, an amount it is already worth, plus time value, so it costs more. An out-of-the-money option has no intrinsic value and its price is time value only, reflecting the chance it ends in the money; it is cheap because that chance is smaller, not because it is a bargain.
Also called: fair value
A theoretical price is what a model such as Black–Scholes calculates from its inputs (underlying price, strike, time, interest rate and volatility); the market price is what the option actually trades at. They differ because the market prices in a different volatility from the one entered, because the model's assumptions do not fully hold, or because the quote is delayed or based on an old trade.
Open the tool: Black-Scholes Calculator
A low price does not make an option cheap: a far out-of-the-money option is inexpensive because its chance of being worth something at expiration is small. To compare, look at implied volatility against other options and against historical volatility, as well as the breakeven and maximum loss; no single measure makes an option a bargain.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Two options with the same strike may be a call and a put, or have different expirations or different underlyings. A call and a put at the same strike have different intrinsic values, and an option with a later expiration typically carries more time value.
Also called: expiration date · expiry
Expiration is when the right in an option ends, on a date fixed in the contract. Until then the option has a market value that moves with the underlying price, the time left and volatility; at expiration only intrinsic value remains, and an in-the-money option is generally exercised or settled under the contract's and broker's rules.
Also called: last trading date
The last trading day is the final day a series can be bought or sold on the exchange, set by the contract rules. According to the TASE derivatives calendar as of 20 October 2026, for the monthly TA-35 (MAOF) series it is the Thursday before the expiry-index fixing day (usually a Friday), and for a weekly series it is the trading day before the fixing day. In the US, standard SPX options, settled on opening prices on the expiration date, stop trading on the business day before, while SPXW options stop trading on the expiration day itself, at 16:00 New York time.
Also called: settlement index
The expiry (settlement) index is the value against which TA-35 options (MAOF) are settled. Under the TASE specification it is calculated from the opening prices of the TA-35 constituents on the fixing day, so it can differ from the live index level at the end of the series' last trading day.
Exercise means using the right in an option: buying (call) or selling (put) the underlying at the strike. US stock options are exercised by delivering shares, while index options such as TA-35 (MAOF) and SPX pay the difference in cash; when you may exercise depends on the contract style, European or American.
Also called: exercise by exception
For TA-35 options (MAOF), the TASE specification says in-the-money options are exercised automatically at expiry and settled in cash. In the US, in-the-money options are generally exercised automatically, but brokers have their own cut-off times and instructions, and exercising a stock call requires the money to buy the shares; check your broker's rules before the last day.
Assignment is the notice to a writer that the option they wrote has been exercised; it obliges them to sell (call) or buy (put) the underlying at the strike, or to pay the difference in a cash-settled contract. With American-style options assignment can come before expiration; with European-style options such as TA-35 (MAOF), only at expiration.
In cash settlement no underlying is delivered; instead the difference between the settlement price and the strike is paid. For TA-35 options (MAOF) the payment is the difference between the expiry index and the strike times NIS 50 per contract, and in-the-money options are exercised automatically; US SPX options are also cash-settled, at the difference times $100.
Also called: exercise style
An American-style option can be exercised at any time up to expiration; a European-style option only at expiration. The names have nothing to do with geography: TA-35 (MAOF) and SPX options are European, while US single-stock options are American.
It depends on the contract and the broker. For TA-35 options (MAOF), an in-the-money option is settled in cash automatically and an out-of-the-money option expires worthless, so no action is needed; for a US stock option, an in-the-money option is generally exercised automatically and can leave you with a share position that needs cash or margin, so check your broker's rules in advance.
Also called: expire worthless
An option that finishes out of the money, or exactly at the strike, is worth zero at expiration because it has no intrinsic value: the buyer loses the premium and the writer keeps it. For TA-35 options (MAOF) nothing is paid, since only in-the-money options are exercised automatically. In contracts with delivery, such as US stock options, the holder's exercise instructions and the broker's rules can change the outcome near the strike, so check them.
An in-the-money option is worth its intrinsic value at expiration. For TA-35 options (MAOF) it is exercised automatically and pays the difference between the expiry index and the strike times NIS 50; a US stock option is generally exercised automatically into shares, which requires cash (for a call) or shares to deliver (for a put) unless you close it first.
There is no trading on days TASE is closed, and holidays can move expiry dates; according to the derivatives calendar as of 20 October 2026, the September 2026 monthly series expired on Thursday 24 September rather than a Friday. Intermediate holiday days have shortened sessions, so before each expiry check TASE's holiday schedule and derivatives calendar.
Also called: TA-35 options
MAOF is the common Israeli name for the options and futures on the TA-35 index traded on the Tel Aviv Stock Exchange (TASE), which officially calls them TA-35 index derivatives. The options are European-style and cash-settled, and monthly options have traded since August 1993.
An index option refers to a basket of stocks, such as the TA-35 or the S&P 500; a stock option refers to one company's shares. Index options are generally cash-settled and European-style (TA-35/MAOF, SPX), while US stock options are American-style and cover 100 shares per contract; TASE also lists derivatives on single stocks.
According to the TASE derivatives calendar as of 20 October 2026, monthly TA-35 (MAOF) series expire once a month with their expiry index fixed on a Friday, and three monthly series trade at any time. Weekly series open about a week before expiry and expire on every trading day. Expiry days changed with the move to Monday–Friday trading in 2026, and some TASE information pages still show the old rules.
Also called: contract size · point value
For TA-35 options (MAOF), each index point is worth NIS 50 per contract and prices are quoted in shekels per contract, so an option priced at NIS 1,000 equals 20 index points. In the US a standard stock option covers 100 shares, and SPX options use a $100 multiplier.
Also called: TASE trading hours
As of 20 October 2026, TASE derivatives trade Monday to Thursday 09:45–17:35 and Friday 09:45–14:00, Israel time. On Passover and Sukkot intermediate days other than Fridays trading ends at 14:35, so check TASE's holiday schedule before trading around holidays.
Also called: options chain
An option chain is a table of all options on one underlying for one expiration: calls on one side, puts on the other and strikes in the middle. It usually shows bid and ask, last trade, volume and open interest, but the columns depend on the data provider, and not every chain shows all of them.
Also called: bid price · ask price · offer
The bid is the highest price a buyer is currently offering, and the ask is the lowest price a seller is asking. Someone who wants to buy immediately usually pays the ask, and someone who wants to sell immediately usually receives the bid.
Also called: last trade
The last price is the price of the most recent trade, and for a thinly traded option it can be minutes, hours or days old. It can therefore be far from the current bid and ask, and the price you can trade at now is set by those, not by the last price.
Also called: spread
The spread is the gap between the bid, the highest price a buyer is currently offering, and the ask, the lowest price a seller is asking. Buying at the ask and selling straight back at the bid loses the spread, so in less liquid options a wide spread is a real cost.
Liquidity is the ability to buy or sell quickly at a price close to fair value; it shows in a narrow spread, large quoted sizes and volume. When an option has no buyers, selling means lowering your price or waiting, and an option with no market may stay with you until expiration.
Also called: volume
Trading volume is the number of contracts, or their value, traded over a period, usually a trading day. High volume shows activity but does not guarantee a narrow spread or a good price at any given moment.
Also called: OI
Open interest is the number of contracts in a series that have been opened and not yet closed, exercised or expired. Unlike volume, which counts trades, open interest shows how many contracts currently exist.
Also called: market order · limit order
A market order executes at the price currently available, so execution is almost assured but the price is not, and in options with a wide spread it can be far from what you expected. A limit order sets a price: a buy executes only at that price or lower and a sell only at that price or higher, but it may not execute at all.
A limit order executes only if someone will trade at your price or better, so if your price is far from the bid and ask, or there is not enough size, it waits. Other reasons: the market or series is closed, the order has expired, or the broker rejected it for margin or permissions.
Also called: slippage
Slippage is the difference between the price you expected and the price your order actually filled at. It is common with market orders, in options with a wide spread or small size, and in fast markets; a limit order caps it at the cost of possibly not filling.
Also called: quote size
Before sending an order, check the current bid and ask rather than just the last price, the spread between them and the quantity offered at each price (the quote size). If you want more than the quoted size, part of the order may fill at a worse price or not at all.
Also called: delayed quotes
A delayed quote shows a price from several minutes ago or more, so it suits analysis rather than pricing an order. Data in the app may be delayed, so check a current price with your broker before trading.
Also called: legging · combo order
Some brokers let you send a multi-leg strategy as one order, so all legs fill together or not at all; availability depends on the broker and market. When you open legs one by one, prices can move between fills, and if only some legs fill you are left with a different position than planned, such as an uncovered short option, with a different risk.
Also called: commissions
A commission is what the broker charges per trade, at a rate set in your agreement. It is paid on opening and again on closing, so it moves the breakeven and reduces net profit; the Options Profit Calculator does not include commissions, so their effect has to be added separately.
Also called: payoff diagram · P&L chart
A profit and loss chart shows how much a position makes or loses at expiration for every possible price of the underlying: the horizontal axis is the price and the vertical axis is profit or loss. The horizontal zero line separates profit from loss, and the points where the chart crosses it are the breakevens.
Open the tool: Options Profit Calculator
Also called: breakeven point
Breakeven is the underlying price at expiration at which a position neither makes nor loses money: for a long call it is the strike plus the premium, for a long put the strike minus the premium, before fees. The premium must be in the same unit as the strike: for MAOF, divide the shekel option price by 50 (an option at NIS 1,000 is 20 points), and in the US use the price per share. Straddles and iron condors have two breakevens, and more complex structures can have more.
Open the tool: Options Profit Calculator
Also called: max profit · max loss
Maximum profit and maximum loss are the best and worst outcomes of a position at expiration across all underlying prices. For a bought option the maximum loss is the premium, and for an uncovered short call it is unlimited; both figures refer to expiration, not to the value along the way, and in the Options Profit Calculator they exclude commissions, taxes and margin.
Open the tool: Options Profit Calculator
Held to expiration, a call buyer's profit, in index points for MAOF or in dollars per share in the US, is the greater of zero and the underlying price minus the strike, less the premium in the same unit; a put buyer's is the greater of zero and the strike minus the underlying price, less the premium. The writer gets the opposite result, so the writer's profit is capped at the premium. To get an amount per contract, multiply by NIS 50 per point for MAOF or by 100 shares in the US, and subtract fees; a MAOF option price is already quoted in shekels per contract, so divide it by 50 first.
Open the tool: Options Profit Calculator
Return on premium is the profit or loss divided by the premium paid; an option bought at 10 and sold at 15 returned 50% before fees. For a writer, the premium received is not the capital at risk, so return is also measured against the margin or the maximum loss.
Also called: net debit · net credit
A debit position costs money to open because you pay more premium than you receive; a credit position brings in more than you pay. The net cost is the premiums paid minus the premiums received, plus fees, with all premiums in the same unit: all in shekels per contract for MAOF, or all in dollars per share and then times 100 in the US; a credit is not guaranteed profit, because the position can still lose.
Open the tool: Options Profit Calculator
Gross profit is the difference between the closing and opening prices; net profit is that difference after fees and, where relevant, tax. On small trades, fees can turn a gross profit into a net loss.
Also called: paper profit
Realized profit comes from a position or leg that has been closed; unrealized profit is the change in value of an open position and can still change. Your cash balance is not your profit: it can include premiums received on open positions that may still turn into losses.
Leverage means exposure to a large asset relative to the amount invested, so a small move in the underlying can change an option's value by a large percentage. It works both ways, and an option buyer can lose the whole premium even when the underlying moves only slightly.
Also called: margin
Margin is cash or securities an option writer deposits to guarantee the obligation, so the premium received is not guaranteed profit. If the market moves against the writer the requirement can rise, and according to FINRA, in the US, a broker may close positions without notice if it is not met. In Israel, check the margin rules with your broker before writing.
Also called: closing transaction
You close a position with the opposite trade: sell an option you bought, or buy back an option you wrote, which is possible during trading hours up to the last trading day, even for a European-style option. You do not have to wait for expiration, but the closing price depends on the market at that moment, the spread, liquidity and fees.
Also called: roll
Rolling means closing a position and opening a similar one with a later expiration or a different strike, usually before expiration. Rolling does not erase a loss: the loss on the old position has been realized, and the new position adds its own risk, fees and spread.
The expiration line shows the result if you hold to expiration, when only intrinsic value remains, while today's profit is based on the options' current value, which includes time value. That is why they differ before expiration and typically converge as expiration approaches.
Read the full article: What Is a Call Option? Definition, Example & Payoff
Also called: volatility
Volatility measures how much an asset's price moves, usually expressed as the annualized standard deviation of returns, in percent. Historical volatility is calculated from past prices and implied volatility is derived from option prices; both describe the size of moves, not their direction.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: IV
Implied volatility is the volatility value that, entered into a pricing model such as Black–Scholes, reproduces an option's current market price. It reflects how much movement the market is pricing in, usually as an annualized figure, not which direction.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: realized volatility · HV
Historical, or realized, volatility is calculated from the actual changes in the underlying price over a past period, such as the last 30 trading days, and expressed in annual terms. It looks backward, unlike implied volatility, which reflects what the market prices in going forward, and the result depends on the period and method used.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: Black-Scholes
The Black–Scholes model calculates a theoretical price for a European option from five inputs: underlying price, strike, time to expiration, interest rate and volatility. The original 1973 paper assumes, among other things, a constant interest rate and volatility, log-normally distributed prices, no dividends or transaction costs, and exercise only at expiration, so its result is an estimate, not a market price.
Open the tool: Black-Scholes Calculator
Also called: risk-free interest rate
The risk-free rate is the interest rate on an investment considered safe, such as a short government bond, and it is one of the inputs to option pricing models. With everything else unchanged, a higher rate slightly raises call prices and lowers put prices, with a larger effect for longer expirations.
Open the tool: Black-Scholes Calculator
An expected dividend lowers the share price on the ex-dividend date, and according to OIC higher dividends tend to reduce call prices and increase put prices, with everything else unchanged. The Black–Scholes calculator has no dividend input, and with American-style options a dividend can also lead to early exercise and assignment for a call writer around the ex-dividend date.
Also called: volatility skew · term structure
Smile and skew describe implied volatility differing across strikes for the same expiration: in a smile it is higher at both ends, in a skew it is higher on one side. Term structure describes how implied volatility differs across expirations at the same strike.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: expected move
The expected move estimates the size of the move to expiration from implied volatility: underlying price × IV × √(days to expiration ÷ 365). It corresponds to one standard deviation in a simple model that assumes normal returns and constant volatility, so it is a model estimate, not a boundary or a real-world probability.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
High IV means the market is pricing in a large move, but it does not guarantee that move or say which direction. Low IV does not make an option cheap: the market may be right, and the price also depends on time, strike and distance from the money.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: volatility crush
IV crush is a sharp fall in implied volatility after a scheduled event, such as a company's earnings report, once the uncertainty the market priced in is resolved. It can lower an option's price even when the underlying moves the right way, and it is never guaranteed. Index options such as TA-35 (MAOF) have no earnings report of their own, but other scheduled events can work the same way.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Also called: IVR · IVP
IV rank shows, in percent, where current implied volatility sits between its lowest and highest values over a period, often a year; IV percentile shows the percentage of days in that period when IV was lower than now. There is no standard period or data source, so values from different providers are not necessarily the same.
A call and a put on the same underlying can rise together when implied volatility rises, and fall together when it falls or as time passes, even if the underlying barely moves. That is why an option can drop while the index is unchanged: elapsed time, or a fall in volatility, has reduced its time value.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Delta is the pricing model's estimate of how much an option's price changes when the underlying rises by one unit, with everything else unchanged. For a bought option it is between 0 and 1 for a call and between minus 1 and 0 for a put, and near expiration it approaches 1 or minus 1 for an in-the-money option and 0 for an out-of-the-money one.
Open the tool: Black-Scholes Calculator
Also called: gamma risk
Gamma is the pricing model's estimate of how much delta changes when the underlying moves by one unit. According to OIC and FINRA it is positive for bought options and highest for at-the-money options near expiration, which is when profit and loss can swing quickly; for deep in-the-money or far out-of-the-money options it is low.
Open the tool: Black-Scholes Calculator
Also called: time decay
Theta is the pricing model's estimate of how much an option's price changes as one day passes, with everything else unchanged, and for an option buyer it is usually negative. According to OIC, decay is not linear and accelerates as expiration approaches; it is largest for at-the-money options and small for deep in-the-money or far out-of-the-money ones. Many models also count weekends, but there is no industry-wide method; the Black–Scholes calculator shows theta per day.
Open the tool: Black-Scholes Calculator
Also called: volatility exposure
Vega is the pricing model's estimate of how much an option's price changes when implied volatility changes by one percentage point, with everything else unchanged. A rise in volatility generally makes both bought calls and bought puts more expensive, so it hurts an option writer; according to OIC, longer-term options tend to have higher vega.
Read the full article: What Is Implied Volatility? IV Explained With a Clear Example
Rho is the pricing model's estimate of how much an option's price changes when the interest rate changes by one percentage point. According to OIC, with everything else unchanged a higher rate raises call prices and lowers put prices, with a larger effect on longer-term options.
Open the tool: Black-Scholes Calculator
Position Greeks are the sum of each leg's Greeks times its quantity, direction (bought or written) and contract multiplier. They show the total exposure, for example a delta near zero for a position barely affected by a small move, but they change as price, time or volatility change.
A delta-neutral position has a total delta close to zero, so a small move in the underlying barely changes its value. The neutrality is temporary: delta changes as price, time or volatility change, and the position is still exposed to gamma, theta and vega.
If an option's price rises when the index falls, it is usually a put, whose delta is negative. A call writer profits from such a fall because the price of the call they wrote goes down, not because its price rises. If a call falls even though the underlying rose, the usual reasons are a drop in implied volatility or time decay outweighing the rise, or a delayed quote that has not updated yet.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: leg · vertical spread
A leg is one option, or the underlying, within a strategy; an option spread combines buying and writing options of the same type on the same underlying at different strikes or expirations. A vertical spread, with one expiration, caps both profit and loss at expiration compared with a single option.
Open the tool: Strategies
Also called: bull call spread
A bull call spread buys a call at a lower strike and writes a call at a higher strike with the same expiration; it costs less than buying the call alone, but the profit is capped. At expiration, with everything in index points for MAOF or in dollars per share in the US, the maximum loss is the net cost (debit) and the maximum profit is the difference between the strikes minus that net cost. To get an amount per contract, multiply by NIS 50 per point for MAOF or by 100 shares in the US; a MAOF option price is already quoted in shekels per contract, so divide it by 50 first to get points.
Open the tool: Bull Call Spread
Also called: bear put spread
A bear put spread buys a put at a higher strike and writes a put at a lower strike with the same expiration; it costs less than buying the put alone, but the profit is capped. At expiration, with everything in index points for MAOF or in dollars per share in the US, the maximum loss is the net cost and the maximum profit is the difference between the strikes minus that net cost. To get an amount per contract, multiply by NIS 50 per point for MAOF or by 100 shares in the US; a MAOF option price is already quoted in shekels per contract, so divide it by 50 first to get points.
Also called: credit spread
A credit spread brings in a net premium when opened, for example a bull put (write a higher-strike put, buy a lower-strike put) or a bear call (write a lower-strike call, buy a higher-strike call), and it requires margin. At expiration, with everything in index points for MAOF or in dollars per share in the US, the maximum profit is the net credit and the maximum loss is the difference between the strikes minus the credit. To get an amount per contract, multiply by NIS 50 per point for MAOF or by 100 shares in the US; a MAOF option price is already quoted in shekels per contract, so divide it by 50 first to get points.
Also called: iron condor
An iron condor combines a written put spread below the current price and a written call spread above it, with the same expiration; the maximum profit, the net credit, is reached when the price at expiration is between the two written strikes, but the position is profitable anywhere between the two breakevens, which lie slightly beyond them. The maximum loss, on one side only, is the spread width minus the credit, with everything in index points for MAOF or in dollars per share in the US. To get an amount per contract, multiply by NIS 50 per point for MAOF or by 100 shares in the US; a MAOF option price is already quoted in shekels per contract, so divide it by 50 first to get points.
Open the tool: Iron Condor
Also called: butterfly spread
A call butterfly buys a lower-strike call, writes two middle-strike calls and buys a higher-strike call, with equal spacing and the same expiration. Profit is concentrated around the middle strike at expiration and the maximum loss is the net cost; unlike a vertical spread, which profits from a move in one direction, a butterfly profits only if the price stays in a narrow range.
Open the tool: Butterfly Spread
Also called: iron butterfly
An iron butterfly writes a put and a call at the same strike and buys a lower put and a higher call as protection. The maximum profit, the net credit, is reached only if the price at expiration is exactly at the middle strike, and the position is profitable between the two breakevens; compared with an iron condor the credit is larger but that range is narrower.
Open the tool: Iron Butterfly
Also called: straddle · strangle
A straddle is a call and a put at the same strike and expiration; a strangle is a call and a put at different strikes, usually both out of the money. Buying them profits from a sharp move in either direction, with the premium paid as the maximum loss; writing them profits if the price stays close, but the loss on the call side is unlimited and on the put side it can be large.
Open the tool: Straddle
Also called: calendar spread · time spread
A calendar spread writes an option with a near expiration and buys an option of the same type and strike with a later expiration. The result depends on what the later option is worth when the near one expires, that is, on time and volatility, so it has no single expiration chart like a regular spread.
Open the tool: Calendar Spread
Also called: diagonal spread
A diagonal spread combines buying and writing options of the same type at different strikes and different expirations. As with a calendar spread, the result at the near expiration depends on what the later option is still worth, that is, on time and volatility.
Open the tool: Diagonal Spread
Also called: covered call
A covered position writes an option while holding the asset that may have to be delivered; the most common is the covered call, holding shares and writing a call on them. The premium adds income, but the gain above the strike is capped and almost all the downside of the shares remains.
Open the tool: Covered Call
Also called: naked option · uncovered option
Uncovered writing means writing an option without holding the underlying or an option that protects it. According to FINRA, the loss on an uncovered call is theoretically unlimited and on an uncovered put it can reach the strike price; net of the premium received that is the strike minus the premium, in index points for MAOF (the premium is the shekel option price divided by 50) or in dollars per share in the US, and per contract times NIS 50 or 100 shares. Brokers require margin, and the requirement can grow if the market moves against you.
Also called: synthetic
A synthetic position recreates the result of an asset or an option with a different combination. For example, buying a call and writing a put at the same strike and expiration recreates the result of holding the underlying, including its full risk; according to OIC, the exact relationship comes from put–call parity assuming zero interest and dividends, and interest or dividends shift it.
Also called: ratio spread
A ratio spread buys a different number of options than it writes, for example buying one call and writing two calls at a higher strike. The ratio can make the position cheaper, but the extra written options create a large risk on that side, and unlimited risk with extra written calls.
Strategies are compared on the same measures: maximum loss, maximum profit, breakevens, capital at risk and exposure to time and volatility, not maximum profit alone. With the same budget, compare how many contracts each allows; with different expirations, also compare results before expiration, since a single expiration chart does not describe the whole risk.
Open the tool: Strategies
Strategies such as an iron condor or a butterfly can profit if the price stays in a narrow range until expiration, and lose if it moves beyond the breakevens. Buying a straddle or strangle can profit from a sharp move in either direction, and loses the premium if the move is smaller than the distance to the breakevens; in both cases volatility and time affect the value before expiration.
Open the tool: Strategies
Also called: max loss
On the option itself, a buyer can lose at most the premium and fees, and the option can expire worthless; but if a stock option is exercised it creates a share position with its own risk, which does not happen with cash-settled TA-35 options (MAOF). A writer can lose more than the premium received: on an uncovered call the loss is theoretically unlimited, and on a put it can reach the strike minus the premium, in index points for MAOF (the premium is the shekel option price divided by 50) or in dollars per share in the US, and per contract times NIS 50 or 100 shares.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: hedge
Hedging means opening a position meant to gain when your portfolio loses, for example buying an index put while holding stocks. A hedge costs money and reduces profit, and it can lose together with the portfolio if the portfolio does not move like the index, if the hedge expires before the fall or if its size is wrong.
Read the full article: What Is an Option? Meaning, Origins and Uses
Also called: protective put
A protective put is a put bought on an asset you hold, such as shares. Through expiration the maximum loss per share is limited to the difference between the share's purchase price and the strike, plus the premium paid per share, and for a standard US contract you multiply by 100 shares; the premium reduces the gain if the shares rise, and the protection lasts only until expiration.
Also called: position sizing
Size a position by the loss you can accept if the worst case happens, not by what you can afford to pay or by the potential profit. A limited loss does not remove risk: you can still lose the whole limited amount, and for positions with unlimited loss you need a stress scenario instead of a maximum loss.
Also called: gap risk · overnight risk
A stress scenario checks what happens to a position in a sharp move, such as a gap of several percent at the open, together with changes in volatility and liquidity. Holding overnight or over a weekend exposes you to opening gaps, where the price skips intermediate levels, and stop orders do not guarantee an exit at your price.
Also called: stop order · stop-loss
A stop-loss order becomes a market order when the price reaches the stop price, so it does not guarantee an exit price: in a fast market or an opening gap, the fill can be far from the stop. It can also be triggered by a short-lived swing, and the order types available depend on the broker.
A strike is a term of the contract; a breakeven is the underlying price at expiration at which the whole position, premium included, comes to zero. Being close to a strike therefore says nothing about whether the position is in profit or loss, and the two distances are checked separately.
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You can check the calculations with the Options Profit Calculator and the Black–Scholes Calculator on option-graph.com. The glossary explains terms; it is not investment advice.