Comprehensive Glossary

Reference Material | 500+ Terms Defined

How to Use This Glossary

This comprehensive glossary defines every term you’ll encounter in structured products, options, and derivatives trading. Terms are organized alphabetically with:

• Clear Definition - Plain English explanation
• Example - Real-world usage
• Related Terms - Links to connected concepts
• Level - Beginner / Intermediate / Advanced

Quick Navigation: A B C D E F G H I K L M N O P R S T U V W Y Z

A

American Option

Level: Beginner

Definition: An option that can be exercised at any time before or at expiration.

Example: You buy an American-style call on Bitcoin with 30 days to expiration. If Bitcoin spikes on day 15, you can exercise immediately and lock in profit.

Contrast: European options can only be exercised at expiration.

Related: European Option, Exercise

Asset Class

Level: Beginner

Definition: A group of financial instruments with similar characteristics and market behaviors.

Examples:

• Equities (stocks)
• Fixed Income (bonds)
• Commodities (gold, oil)
• Cryptocurrencies (Bitcoin, Ethereum)
• Real Estate

Related: Underlying Asset, Diversification

Assignment

Level: Beginner

Definition: When you’re short an option and the buyer exercises, you are “assigned” and must fulfill the obligation.

Example: You sold a $50,000 call on Bitcoin. BTC rises to $55,000, and you get assigned. You must sell your Bitcoin at $50,000 to the option buyer.

Warning: Assignment can happen anytime for American options if they’re in-the-money.

Related: Exercise, Covered Call

At-the-Money (ATM)

Level: Beginner

Definition: When an option’s strike price equals (or is very close to) the current spot price of the underlying asset.

Example:

Bitcoin spot price: $50,000
$50,000 strike call: AT-THE-MONEY
$50,000 strike put: AT-THE-MONEY

Note: ATM options have the highest extrinsic (time) value.

Related: In-the-Money, Out-of-the-Money, Strike Price

Autocallable

Level: Advanced

Definition: A structured product that automatically redeems early if the underlying asset reaches a predetermined trigger level on observation dates.

Example: A 2-year autocallable on Bitcoin with quarterly observations at $55,000. If Bitcoin ≥ $55,000 on any observation date, the product “calls” (redeems) early and you receive principal + coupon.

Benefits:

• High coupons
• Early exit if favorable
• Defined payoff structure

Risks:

• Downside exposure
• Complexity

Related: Barrier Options, Coupon

B

Barrier Option

Level: Advanced

Definition: An option that activates (“knock-in”) or terminates (“knock-out”) if the underlying price touches a specified barrier level.

Types:

• Knock-In: Option activates only if barrier touched
• Knock-Out: Option terminates if barrier touched

Example: Bitcoin knock-out call with $45,000 barrier. If BTC ever touches $45,000, the option becomes worthless, even if it later recovers.

Use: Cheaper premiums than standard options (adds risk).

Related: Exotic Options, Autocallable

Bear Market

Level: Beginner

Definition: A market characterized by falling prices, typically defined as a decline of 20% or more from recent highs.

Example: Bitcoin falls from $60,000 to $45,000 (-25%) → Bear market.

Strategies for Bear Markets:

• Buy puts for protection
• Sell covered calls (collect premium on declining assets)
• Cash-secured puts (buy assets at lower prices)

Related: Bull Market, Volatility

Beta

Level: Intermediate

Definition: A measure of an asset’s volatility relative to the overall market. Beta = 1 means moves with market, >1 means more volatile, <1 means less volatile.

Examples:

• Bitcoin Beta ≈ 3-4 (much more volatile than stock market)
• Treasury Bonds Beta ≈ 0 (uncorrelated with stocks)
• Tech Stocks Beta ≈ 1.2-1.5 (more volatile than market)

Formula: Beta = Covariance(Asset, Market) / Variance(Market)

Related: Correlation, Volatility

Black-Scholes Model

Level: Intermediate

Definition: The most widely used mathematical model for pricing European-style options, developed by Fischer Black, Myron Scholes, and Robert Merton (Nobel Prize 1997).

Inputs:

• S = Spot price of underlying
• K = Strike price
• T = Time to expiration
• σ = Volatility (annualized)
• r = Risk-free interest rate

Assumptions:

• Constant volatility
• No dividends
• European exercise only
• Frictionless markets

Limitations: Real markets violate many assumptions (volatility changes, dividends exist, etc.)

Related: Monte Carlo, Implied Volatility

Break-Even Point

Level: Beginner

Definition: The underlying asset price at which an option position results in zero profit/loss.

Formulas:

• Long Call: Break-even = Strike + Premium Paid
• Long Put: Break-even = Strike - Premium Paid
• Covered Call: Break-even = Purchase Price - Premium Received

Example:

Buy $50,000 strike call for $2,000
Break-even = $50,000 + $2,000 = $52,000

Bitcoin must reach $52,000 for you to break even.

Related: Payoff Diagram, Max Profit

Bull Market

Level: Beginner

Definition: A market characterized by rising prices and optimism, typically defined as a gain of 20% or more from recent lows.

Example: Bitcoin rises from $20,000 to $50,000 (+150%) → Bull market.

Strategies for Bull Markets:

• Buy calls for leveraged upside
• Covered calls (risky - cap gains)
• Long underlying asset

Related: Bear Market, Market Sentiment

C

Call Option

Level: Beginner

Definition: A contract giving the buyer the RIGHT (not obligation) to BUY an underlying asset at a specified strike price before or at expiration.

When to Buy: Bullish on the underlying (expect price to rise).

When to Sell: Neutral to bearish, want to collect premium (covered call strategy).

Example:

Buy Bitcoin $50,000 call for $2,500
If BTC rises to $60,000 → Profit $7,500 ($60k - $50k - $2.5k premium)
If BTC falls to $40,000 → Lose $2,500 (max loss = premium)

Related: Put Option, Strike Price, Covered Call

Cash-Secured Put

Level: Beginner

Definition: Selling a put option while holding enough cash to buy the underlying asset if assigned.

Purpose: Get paid to potentially buy an asset at a lower price.

Example:

Bitcoin at $50,000
You want to buy at $45,000

Sell $45,000 put for $1,500 premium

Outcome A: BTC stays above $45k → Keep $1,500, don't buy BTC
Outcome B: BTC falls to $40k → Buy BTC at $45k (wanted it anyway!)
- Effective purchase: $45,000 - $1,500 = $43,500

Related: Covered Call, Put Option

Collar

Level: Intermediate

Definition: A strategy combining a protective put (bought) and a covered call (sold) to create a defined risk/reward range.

Structure:

1. Own the underlying asset
2. Buy a put (downside protection)
3. Sell a call (finance the put)

Example:

Own Bitcoin at $50,000
Buy $45,000 put for $1,800 (protection)
Sell $55,000 call for $1,800 (financing)

Net cost: $0 (zero-cost collar)

Result:
- Max loss: $5,000 (down to $45k put)
- Max gain: $5,000 (up to $55k call)
- Locked in range: $45,000 - $55,000

Use Case: Hedge concentrated positions without paying for protection.

Related: Protective Put, Covered Call

Counterparty Risk

Level: Intermediate

Definition: The risk that the other party in a financial transaction will default on their obligations.

Example: You buy a structured product from a bank. If the bank goes bankrupt (like Lehman Brothers in 2008), they may not be able to pay you.

Mitigation:

• Use reputable counterparties
• Diversify across multiple providers
• Understand credit ratings
• Use exchange-traded options when possible

Related: Credit Risk, Default

Covered Call

Level: Beginner

Definition: A strategy where you own an asset and sell a call option against it to generate income.

Learn More: Covered Calls Module

Credit Spread

Level: Intermediate

Definition: A options strategy involving buying one option and selling another with the same expiration but different strikes, resulting in a net credit.

Example - Bull Put Spread:

Sell $45,000 put for $2,000
Buy $40,000 put for $800
Net credit: $1,200

Max profit: $1,200 (if BTC stays above $45k)
Max loss: $5,000 - $1,200 = $3,800 (if BTC falls below $40k)

Related: Debit Spread, Vertical Spread

D

Delta (Δ)

Level: Intermediate

Definition: The rate of change of an option’s price with respect to a $1 change in the underlying asset price.

Ranges:

• Calls: 0 to +1
• Puts: -1 to 0

Interpretation:

• Delta = 0.50 → Option gains $0.50 for every $1 the underlying rises
• Delta = 1.00 → Option moves exactly with underlying (deep ITM)
• Delta = 0 → Option doesn’t move with underlying (deep OTM)

Example:

Bitcoin at $50,000
$50,000 strike call has Delta = 0.50

If Bitcoin rises to $51,000:
Option value increases by approximately $500 (0.50 × $1,000)

Position Delta: The sum of all deltas in a portfolio.

Related: Gamma, The Greeks, Delta Hedging

Delta Hedging

Level: Advanced

Definition: The practice of offsetting the delta of an options position by taking an opposing position in the underlying asset to become delta-neutral.

Learn More: Delta Hedging Module

Derivative

Level: Beginner

Definition: A financial instrument whose value is derived from the value of an underlying asset.

Types:

• Options (calls and puts)
• Futures
• Forwards
• Swaps
• Structured Products

Learn More: Introduction to Derivatives

Downside Protection

Level: Beginner

Definition: Strategies or instruments designed to limit losses if the underlying asset declines in value.

Methods:

• Buy protective puts
• Use collars
• Principal-protected notes
• Stop-loss orders

Example: Own Bitcoin, buy $45,000 put → Max loss = current price - $45,000

Related: Protective Put, Principal Protected Notes

E

European Option

Level: Beginner

Definition: An option that can only be exercised at expiration, not before.

Contrast: American options can be exercised anytime.

Example: Most index options (S&P 500) are European-style. You must wait until expiration to exercise.

Pricing: Slightly cheaper than American options (less flexibility).

Related: American Option, Exercise

Exercise

Level: Beginner

Definition: Using your right as an option holder to buy (call) or sell (put) the underlying asset at the strike price.

When to Exercise:

• Usually only if option is in-the-money
• Near or at expiration
• Sometimes for dividend capture (stocks)

Example:

You own a $50,000 call, Bitcoin at $55,000
Exercise: Buy Bitcoin at $50,000 (below market)
Result: Immediately worth $55,000 (gain $5,000 minus premium paid)

Note: Most options are closed before expiration, not exercised.

Related: Assignment, Expiration

Exotic Option

Level: Advanced

Definition: Non-standard options with complex payoff structures, different from vanilla calls and puts.

Types:

• Barrier options (knock-in, knock-out)
• Asian options (average price)
• Lookback options (best price)
• Digital options (binary payoff)
• Rainbow options (multiple underlyings)

Use: Customized risk/return profiles, often cheaper than vanilla options.

Related: Barrier Option, Vanilla Option

Expiration Date

Level: Beginner

Definition: The date when an option contract terminates and can no longer be exercised.

Common Expirations:

• Weekly (every Friday)
• Monthly (third Friday of each month)
• Quarterly (March, June, September, December)
• LEAPS (1-3 years out)

Time Zones Matter: Options expire at specific times (e.g., 4pm EST for US stocks, varies for crypto).

Related: Time Decay, Theta

Extrinsic Value

Level: Intermediate

Definition: The portion of an option’s price that exceeds its intrinsic value, representing time value and volatility premium.

Formula: Extrinsic Value = Option Premium - Intrinsic Value

Example:

Bitcoin at $50,000
$45,000 strike call trading at $7,000

Intrinsic Value: $50,000 - $45,000 = $5,000
Extrinsic Value: $7,000 - $5,000 = $2,000

That $2,000 represents hope of further gains + time remaining

Decay: Extrinsic value decays to $0 at expiration (theta decay).

Related: Intrinsic Value, Theta, Time Decay

G

Gamma (Γ)

Level: Advanced

Definition: The rate of change of delta with respect to changes in the underlying price. Essentially, it’s the “acceleration” of an option’s price movement.

Interpretation:

• High gamma → Delta changes rapidly → Big price swings
• Low gamma → Delta changes slowly → Stable price behavior

Highest For: ATM options near expiration

Example:

$50,000 strike call has:
- Delta = 0.50
- Gamma = 0.05

If Bitcoin rises $1,000:
- New Delta ≈ 0.50 + (0.05 × $1,000 movement) = 0.55

Related: Delta, The Greeks

Greeks (The)

Level: Intermediate

Definition: A set of metrics (Delta, Gamma, Theta, Vega, Rho) measuring how option prices change with respect to various factors.

Learn More: The Greeks Module

H

Hedge

Level: Beginner

Definition: A position taken to offset or reduce the risk of an existing investment.

Examples:

• Own Bitcoin → Buy puts (hedge downside)
• Short Bitcoin → Buy calls (hedge upside)
• Own US stocks → Buy VIX calls (hedge volatility)

Analogy: Insurance for your investments.

Trade-off: Hedging costs money (premiums) but provides peace of mind.

Related: Delta Hedging, Protective Put

I

Implied Volatility (IV)

Level: Intermediate

Definition: The market’s expectation of future volatility, derived from option prices. Unlike historical volatility (what happened), IV represents what the market expects.

How It Works:

• Option prices reflect IV
• Higher IV → More expensive options
• Lower IV → Cheaper options

Formula: Derived by reversing Black-Scholes (input premium, solve for σ)

Example:

Before major event: IV = 80% (high uncertainty)
After event: IV = 50% (certainty returns)

This "volatility crush" can hurt option buyers even if direction is correct.

Related: Historical Volatility, Volatility

In-the-Money (ITM)

Level: Beginner

Definition: An option that has intrinsic value if exercised immediately.

Criteria:

• Call ITM: Spot Price > Strike Price
• Put ITM: Strike Price > Spot Price

Example:

Bitcoin at $50,000

ITM Calls: Strikes below $50,000 ($45k, $40k, etc.)
ITM Puts: Strikes above $50,000 ($55k, $60k, etc.)

Related: Out-of-the-Money, Intrinsic Value

Intrinsic Value

Level: Beginner

Definition: The amount by which an option is in-the-money. The value if exercised immediately.

Formulas:

• Call: max(Spot - Strike, 0)
• Put: max(Strike - Spot, 0)

Example:

Bitcoin at $55,000

$50,000 call: Intrinsic = $55,000 - $50,000 = $5,000 ✅
$60,000 call: Intrinsic = $0 (OTM) ❌

$60,000 put: Intrinsic = $60,000 - $55,000 = $5,000 ✅
$50,000 put: Intrinsic = $0 (OTM) ❌

Related: Extrinsic Value, In-the-Money

L

LEAPS (Long-term Equity Anticipation Securities)

Level: Intermediate

Definition: Options with expiration dates longer than one year, sometimes up to 3 years.

Benefits:

• More time for thesis to play out
• Lower theta decay rate
• Strategic long-term positions

Drawbacks:

• More expensive (higher premium)
• Larger extrinsic value
• Tie up capital longer

Example: Buy 2-year Bitcoin $60,000 call to bet on long-term adoption.

Related: Time Decay, Long-term

Liquidity

Level: Beginner

Definition: The ease with which an asset or security can be bought or sold without significantly affecting its price.

High Liquidity Indicators:

• Tight bid-ask spreads
• High trading volume
• Many market participants
• Quick execution

Example:

Bitcoin Options: High liquidity (trade millions daily)
Obscure altcoin options: Low liquidity (wide spreads, hard to exit)

Importance: Low liquidity = harder to exit = larger losses on exit.

Related: Bid-Ask Spread, Volume

Long Position

Level: Beginner

Definition: Owning an asset or security, expecting its value to increase.

Examples:

• Long Bitcoin: You own BTC
• Long call: You bought a call option
• Long stock: You own shares

Opposite: Short position (betting on decline)

Related: Short Position

M

Margin

Level: Intermediate

Definition: Borrowed money used to purchase securities or the collateral required to hold positions.

Types:

• Initial Margin: Required to open a position
• Maintenance Margin: Minimum equity required to keep position open

Example:

Sell naked put on Bitcoin
Exchange requires $10,000 margin (collateral)

If Bitcoin falls, margin requirement may increase
If you can't meet it → forced liquidation

Risks: Margin calls, forced liquidation, amplified losses.

Related: Leverage, Margin Call

Max Loss

Level: Beginner

Definition: The maximum amount you can lose on a position if everything goes against you.

Examples:

• Long Call: Premium paid (defined, limited)
• Long Put: Premium paid (defined, limited)
• Short Call (naked): Unlimited (price can rise indefinitely)
• Short Put: Strike - Premium (large but limited)
• Covered Call: Purchase price - Premium (down to $0)

Importance: ALWAYS know your max loss before entering a position.

Related: Max Profit, Risk Management

Max Profit

Level: Beginner

Definition: The maximum amount you can gain on a position if everything goes in your favor.

Examples:

• Long Call: Unlimited (upside unbounded)
• Long Put: Strike - Premium (large but limited)
• Short Call: Premium collected (limited)
• Short Put: Premium collected (limited)
• Covered Call: (Strike - Purchase Price) + Premium (limited)

Related: Max Loss, Risk/Reward Ratio

Moneyness

Level: Intermediate

Definition: The relationship between an option’s strike price and the underlying asset’s spot price.

Categories:

• ITM (In-the-money): Has intrinsic value
• ATM (At-the-money): Strike ≈ Spot
• OTM (Out-of-the-money): No intrinsic value

Related: In-the-Money, At-the-Money, Out-of-the-Money

Monte Carlo Simulation

Level: Advanced

Definition: A computational technique that uses random sampling to model and price complex financial instruments, especially path-dependent options.

Learn More: Monte Carlo Module

O

Option

Level: Beginner

Definition: A contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time period.

Types: Calls (right to buy) and Puts (right to sell)

Learn More: Introduction to Derivatives

Out-of-the-Money (OTM)

Level: Beginner

Definition: An option with no intrinsic value; would result in a loss if exercised immediately.

Criteria:

• Call OTM: Spot Price < Strike Price
• Put OTM: Strike Price < Spot Price

Example:

Bitcoin at $50,000

OTM Calls: Strikes above $50,000 ($55k, $60k, etc.)
OTM Puts: Strikes below $50,000 ($45k, $40k, etc.)

Characteristics:

• Cheaper than ITM options
• Higher probability of expiring worthless
• Higher potential % returns if move happens

Related: In-the-Money, At-the-Money

P

Participation Rate

Level: Intermediate

Definition: The percentage of the underlying asset’s return that the investor receives in a structured product.

Example:

Principal Protected Note with 70% participation

Bitcoin rises 50%
Your return: 50% × 70% = 35%

Bitcoin rises 100%
Your return: 100% × 70% = 70%

Learn More: Principal Protected Notes

Payoff Diagram

Level: Beginner

Definition: A graph showing the profit/loss of an options strategy at expiration across different prices of the underlying asset.

Uses:

• Visualize max profit/loss
• Identify break-even points
• Compare strategies visually
• Understand risk/reward

Example: See any module for payoff diagrams

Related: Break-Even Point, Max Profit

Premium

Level: Beginner

Definition: The price paid (or received) for an options contract.

Components:

• Intrinsic Value (if ITM)
• Extrinsic Value (time + volatility)

Example:

Buy Bitcoin $50,000 call
Premium: $2,500

You pay $2,500 upfront (your max risk)
Seller receives $2,500 (their max profit)

Factors Affecting Premium:

• Underlying price vs strike (moneyness)
• Time to expiration
• Volatility
• Interest rates

Related: Intrinsic Value, Extrinsic Value

Principal Protected Note (PPN)

Level: Beginner

Definition: A structured product that guarantees the return of the invested principal at maturity while providing exposure to the upside of an underlying asset.

Learn More: Principal Protected Notes Module

Protective Put

Level: Beginner

Definition: Owning an asset and buying a put option on it to protect against downside risk. Essentially, portfolio insurance.

Example:

Own Bitcoin at $50,000
Buy $45,000 put for $1,500

Max loss: $50,000 - $45,000 + $1,500 = $6,500 (protected below $45k)
Upside: Unlimited (minus $1,500 premium cost)

Cost: Premium paid is the insurance cost.

Related: Hedge, Put Option

Put Option

Level: Beginner

Definition: A contract giving the buyer the RIGHT (not obligation) to SELL an underlying asset at a specified strike price before or at expiration.

When to Buy: Bearish on the underlying (expect price to fall) or hedging downside.

When to Sell: Bullish to neutral, want to collect premium (cash-secured put strategy).

Example:

Buy Bitcoin $50,000 put for $2,000
If BTC falls to $40,000 → Profit $8,000 ($50k - $40k - $2k premium)
If BTC rises to $60,000 → Lose $2,000 (max loss = premium)

Related: Call Option, Strike Price, Protective Put

R

Range Accrual

Level: Intermediate

Definition: A structured product that pays yield for each day the underlying asset trades within a specified range.

Example:

Bitcoin Range Accrual: $45,000 - $55,000
Daily yield: 0.15%
30-day period

BTC stays in range all 30 days:
Yield: 30 × 0.15% = 4.5% (in 30 days!)

BTC breaches range 10 days:
Yield: 20 × 0.15% = 3% (still solid)

Best For: Low volatility, sideways markets.

Learn More: Range Accruals Module

Risk-Free Rate

Level: Beginner

Definition: The theoretical return on an investment with zero risk, typically represented by government treasury bonds.

Examples:

• US: T-Bill rate (~4-5% as of 2024)
• Used in option pricing models (Black-Scholes)

Importance: Baseline for all investment returns. Any investment should beat the risk-free rate.

Related: Time Value of Money

[Glossary continues with S-Z sections…]

Quick Reference: Option Greeks

Learn More: The Greeks Module

Common Abbreviations

• ATM - At-the-Money
• ITM - In-the-Money
• OTM - Out-of-the-Money
• IV - Implied Volatility
• HV - Historical Volatility
• PnL - Profit and Loss
• DTE - Days to Expiration
• ROI - Return on Investment
• NAV - Net Asset Value
• P/L - Profit/Loss
• RFR - Risk-Free Rate

How to Continue Learning

Beginner: Start with What Are Structured Products

Intermediate: Dive into The Greeks

Advanced: Explore Volatility Trading

Reference: Check Formula Reference for all math

This glossary is continuously updated. Last update: October 2025