Source — Options Glossary (Plain English)
A plain-English glossary of options-trading terminology, organised from instrument basics through reading the market, the Greeks, trade management, and defined-risk spreads. The document was originally framed around specific personal trade examples (NIFTY 25,000 CE, HAL/MAZDOCK short puts); those are stripped from this wiki layer and only the abstract concepts are retained.
Raw file: raw/finance/options-glossary-plain-english.md.
Structure of the source
- Understanding the instrument — call/put, strike, expiry, premium, lot size, ITM/ATM/OTM.
- Reading the market — India VIX, implied volatility (IV), 200/50 DMA, support/resistance, oversold/overbought (RSI).
- The Greeks — delta, theta, gamma, vega.
- Managing the trade — breakeven, stop loss, target, position sizing, risk-reward, expected value.
- Spreads and defined risk — bull call, bear put, bull put (credit), iron condor, debit vs credit.
All content is folded into options-trading as the master entity page. See that page for the synthesised treatment.
Key takeaways
- Option buyers have capped loss (premium), option sellers have open-ended risk unless the trade is structured as a spread. Naked selling is the single most common way beginners blow up.
- Volatility is priced into premium. High VIX = expensive options = bad time to buy, good time to sell. Low VIX = cheap options = good time to buy directional bets. (See the VIX regime table on options-trading.)
- Theta accelerates in the last 2–3 weeks before expiry. Pick farther expiries to keep time-decay gentle while a thesis plays out.
- Defined-risk spreads are the graduation from buy-only. They cap both profit and loss, let you harvest theta, and remove the tail risk of naked selling.
- Expected value beats win rate. Positive EV with disciplined position sizing compounds; obsession with high win-rate strategies often masks negative EV.
- Kelly-style position sizing applies directly: keep risk-per-trade small (1–2% of capital) so a drawdown doesn’t knock you out of the game.
How it connects to the rest of the wiki
- kelly-criterion — position sizing, never going to zero; the “reputation as bankroll” logic applies equally to trading capital.
- probability-theory — expected value calculation, distribution thinking, why variance matters.
- bayes-theorem — updating on new market information (earnings, macro prints) is a Bayesian exercise, though the glossary stays informal.
- loss-aversion — option buyers feel daily theta bleed disproportionately to its magnitude; sellers feel tail losses catastrophically. Understanding prospect-theory helps with premium-seller psychology.
- mental-accounting — treating option premium as “play money” is mental accounting; risk is risk regardless of which account it came from.
- sunk-cost-fallacy — averaging down on a losing option because “I’ve already paid X” is textbook sunk-cost reasoning.
- first-principles-thinking — breaking an option price into intrinsic + extrinsic value, and extrinsic into time + volatility, is first-principles decomposition.
- inversion — asking “how would I guarantee losing money in options?” (sell naked premium during calm markets, buy during panic, over-size, fight trend) yields most of the risk-management playbook by negation.
Confidence notes
- The glossary is accurate for Indian index and equity options as of early 2026 (NIFTY lot size = 75 after the late-2024 revision, monthly expiry on last Thursday).
- The Greeks’ sign conventions and the spread P&L formulas are standard and match any textbook treatment (e.g., Hull, Natenberg).
- VIX-level heuristics (12/14–18/20/26) are rules-of-thumb, not regime-invariant thresholds; treat them as orientation, not triggers.
Sources
raw/finance/options-glossary-plain-english.md— the ingested document.