Options & derivatives

• American and European optionsAmerican options can be exercised any time before expiry; European ones only at expiry.
• AssignmentBeing required to fulfil an option you sold, because the buyer exercised it.
• BackwardationWhen futures prices further out are lower than nearer ones, so rolling earns money.
• Call optionThe right to buy an asset at a fixed price before a set date.
• Cash-secured putSelling a put while holding enough cash to buy the shares if assigned.
• ContangoWhen futures prices further out are higher than nearer ones, so rolling a position costs money.
• Contract for differenceA leveraged contract paying the difference in an asset’s price, without owning it.
• Covered callSelling a call option on shares you already own, to collect premium in exchange for capping your upside.
• DeltaHow much an option’s price moves for a $1 move in the underlying.
• DerivativeA contract whose value comes from the price of something else.
• ExpiryThe date after which an option ceases to exist.
• Futures contractA standardised, exchange-traded agreement to buy or sell something at a set price on a future date.
• GammaHow fast delta itself changes as the underlying moves.
• Implied volatilityThe volatility the market is pricing into an option, derived from its premium.
• In the moneyWhether exercising an option now would produce a gain.
• Intrinsic value (options)What an option would be worth if it were exercised immediately.
• Notional valueThe total value of the underlying asset a derivative contract controls.
• OptionA contract giving the right, but not the obligation, to buy or sell something at a set price by a set date.
• Option spreadBuying one option and selling another to define both the cost and the maximum outcome.
• PremiumThe price paid for an option, made up of intrinsic value plus time value.
• Protective putBuying a put on shares you own, as insurance against a fall.
• Put optionThe right to sell an asset at a fixed price before a set date.
• Spread bettingA leveraged bet on price movement, structured as a wager rather than an investment.
• Strike priceThe price at which an option holder can buy or sell the underlying asset.
• SwapAn agreement between two parties to exchange one set of cash flows for another.
• ThetaHow much value an option loses each day simply because time passes.
• VIXAn index of the volatility the market expects in the S&P 500 over the next thirty days.
• VegaHow much an option’s price changes when implied volatility moves by one point.
• Volatility crushThe sharp fall in option prices after an anticipated event passes.
• WarrantA long-dated right to buy shares at a fixed price, issued by the company itself.

Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.