Options: The Mechanics

A contract giving its holder the right, but not the obligation, to buy an asset at a fixed price on or before a set date.

A contract giving its buyer the right, but not the obligation, to sell a stock at a fixed price on or before a set expiry date.

The fixed price written into an option contract at which the holder may buy or sell the underlying asset if the option is exercised.

Moneyness describes where an option's strike price sits relative to the underlying's current price — in the money, at the money, or out of the money.

The price of an option contract: what the buyer pays and the writer receives, quoted per share and multiplied by the contract size.

The volatility figure backed out of an option's market price — what the market's pricing implies about the size of expected future moves, not their direction.

Delta estimates how much an option's price changes when the underlying stock moves $1 — a model-derived sensitivity, not a market quote and not a measure of risk.

Theta is a model estimate of how much an option's theoretical value changes as one day passes, with every other input held constant.

The total number of option contracts in a given series that are still outstanding — not yet closed, exercised, or expired.

An options position where someone who already owns shares sells a call option on those same shares, capping the upside in exchange for the premium received.