📘 Common Options Trading Terminologies Part - 2




🧮 11. Lot Size

Each option contract represents a fixed number of shares.
Example: 1 NIFTY lot = 75units. BankNifty lot = 30units, FinNifty lot = 65units, Sensex lot = 20units, BankEx lot = 30units, Reliance lot = 500 shares etc.,

📊 12. Open Interest (OI)

The total number of active (unsettled) option contracts for a given strike.

🔄 13. Time Decay (Theta)

Options lose value as expiry approaches — even if the price doesn’t move. This hurts buyers but benefits sellers. Known a enemy to Options Buyers and Friend to Seller/Writer

🌪️ 14. Implied Volatility (IV)

A measure of how much the market expects the price to move. Higher IV = higher premium, worst to Buyer good to Seller

⚙️ 15. Greeks

Mathematical tools that help traders measure option behavior:

  • Delta → Price movement sensitivity

  • Theta → Time decay effect

  • Vega → Volatility impact

  • Gamma → Rate of change of Delta

  • Rho → Sensitivity to interest rates

💼 16. Hedging

Using options to protect your portfolio from losses. Options are designed for hedging but now used for multiple purpose including Gambling.

🧠 17. Writing (Selling) an Option

When you create and sell a new option contract to earn premium income. Selling includes both PE and CE and/or both.

💸 18. Exercising an Option

Using your right to buy or sell the underlying asset at the strike price.

🪙 19. Settlement

The process of closing the contract — either in cash or by delivery (depending on exchange rules). Indices are Cash Settled and Stocks are Physical Delivery settlement.

🧭 20. Breakeven Point

The price level at which your profit and loss = zero. (For buyers, it’s strike ± premium depending on Call or Put.)