Options glossary — UK retail context

0-9 and A to C

0DTE

An option on its last trading day. Gamma is at its most violent and theta at its smallest, which is why the library's pages close short options at 21 days and never trade the expiring series.

30-day rule (s.106A)

For shares, a disposal is matched, after any same-day acquisitions, with acquisitions of the same class within the following 30 days (TCGA 1992 s.106A) before the s.104 pool. It bites on the Wheel's share leg when a put is assigned within 30 days of a call being assigned. See the Wheel page.

American option

An option that can be exercised at any time before expiration. Most US single-stock options are American. UK tax treatment: gains taxed as CGT in GIA, tax-free in qualifying SIPP wrapper.

Appropriateness assessment

The knowledge-and-experience test an FCA-authorised broker must run before granting options permissions (COBS 10). Answer it honestly: it is the only external check most retail traders ever get. See UK basics.

Assignment

What happens when a sold option is exercised against you. Cash-secured put assignment: you buy the shares at the strike. Covered call assignment: your shares are called away at the strike. UK tax: assigned shares' cost basis = strike − premium received.

At-the-money (ATM)

An option whose strike is at (or near) the current underlying price. Highest extrinsic value, delta around 0.50.

Backspread

Sell one option and buy two further out: long gamma financed by a written strike, worst at the long strike. Level 3. See the backspread page.

Bid-ask spread

The difference between the highest buy price (bid) and lowest sell price (ask). Wide spreads mean transaction cost. UK retail tip: trade only options with a bid-ask spread under about 10% of the mid, the library's liquidity gate; under 5% is a stricter beginner threshold that sits inside it.

Big lizard

A short at-the-money straddle plus a bought call above it, so the upside is covered if the credit exceeds the call-spread width. Level 3. See the big lizard page.

Breakeven

The underlying price at expiry at which the position neither makes nor loses money, before commissions, spread and SDRT. Every strategy page's Risk box states it in pence or dollars.

Broken wing butterfly

A butterfly with one wing pushed further out, so it is entered for a smaller debit (or a credit) in exchange for risk on one side. Level 3. See the broken wing butterfly page.

Bull put spread (credit spread)

Selling a put and buying a lower-strike put. Net credit received. Defined risk = width of strikes − credit. Bullish-neutral strategy. UK CGT: there is no netting-at-close treatment — each leg is a separate asset. The short put is a disposal on grant (TCGA 1992 s.144(1)); the long put is a separate acquisition, pooled with any options of the same series in a s.104 holding (CG55535), giving a gain on sale or an allowable loss on abandonment (CG55415). A spread opened in one tax year and closed in the next straddles two tax years.

Butterfly (long)

Buy one option, sell two at a middle strike, buy one further out: a cheap, precise bet that the underlying finishes near the middle strike. See the long butterfly page.

Buying power reduction

The amount a position removes from what you can trade with. For a defined-risk spread it equals the maximum loss (width minus credit); for an uncovered option it is the broker's margin requirement, which rises as the trade goes wrong. See operational mechanics.

Calendar spread

Sell a near-dated option and buy the same strike in a later expiry: a trade on time decay and the term structure of volatility rather than direction. See the calendar spread page.

Call option

Right (not obligation) to BUY the underlying at the strike by expiration. Bullish bet.

Cash settlement

Settlement of an option by a cash payment of its in-the-money value rather than delivery of shares. FTSE 100 index options settle in cash against the EDSP; TCGA 1992 s.144A treats the settlement and the grant or purchase as one transaction, and no SDRT arises.

Cash-secured put

Selling a put while holding cash equal to the strike times the contract size (100 shares on a US contract, 1,000 on a traditional ICE UK series). If assigned, you buy at the strike. The usual Level 1 starting point for selling premium.

CFD (contract for difference)

An over-the-counter contract with a provider that pays the price difference on an underlying. Within CGT for an individual (HMRC treats retail CFDs as financial futures under TCGA 1992 s.143, CG56100), unlike a spread bet. See options versus spread bets and CFDs.

Chain (option chain)

The broker's table of every listed strike and expiry for an underlying, with bids, offers, volume and open interest. Read the contract size off the chain before you multiply anything.

Collar

Own the shares, buy a put below and sell a call above: a floor and a ceiling on a holding you cannot or will not sell. Level 1's capstone. See the collar page.

Contract multiplier

What one contract controls: 100 shares on a US equity option, 1,000 shares on a traditional ICE UK single-stock series (newer standard series are 100), £10 per index point on the FTSE 100. The commonest way a beginner oversizes a trade by ten times.

Covered call

Selling a call while owning the underlying (100 shares per call on a US contract, 1,000 on a traditional ICE UK series). Generates income, caps upside. UK tax: if the call lapses unassigned, the premium is a standalone chargeable gain in the tax year the call was written (TCGA 1992 s.144(1); CG55536) — it is not added to the shares' cost. If assigned, s.144(2) treats the grant and the share sale as a single transaction, so the gain is (strike + premium) less the shares' allowable cost, and any charge already made on the premium is set off or repaid. UK ISA note: no covered call can be written inside a stocks and shares ISA — HMRC's guidance for ISA managers lists "futures or share options" among the investments that "are not qualifying investments and may not be held in a stocks and shares ISA".

Credit spread

Any spread where you receive net premium. Bull put spread, bear call spread, iron condor. Defined risk and reward.

D to K

Debit spread

Any spread where you pay net premium. Bull call spread, bear put spread. Defined risk = debit paid.

Delta (Δ)

Sensitivity of option price to underlying price. A 0.50 delta call moves 50p for every £1 stock move. Also approximates probability of finishing in the money.

Diagonal spread

A calendar spread with different strikes as well as different expiries: a long-dated option financed by selling shorter-dated ones against it. See the diagonal spread page.

DTE (days to expiry)

Calendar days until the option expires. The library's premium-selling pages open at 30 to 60 DTE and leave at 21, where gamma starts to dominate theta.

Early assignment

Being assigned on an American-style option before expiry. The commonest trigger on a covered call is an ex-dividend date when the call's extrinsic value is below the dividend. See assignment and expiry.

EDSP

The exchange delivery settlement price: the level at which a FTSE 100 option is cash-settled at expiry, struck in the LSE intra-day auction on the expiry day. The expiring series stops trading shortly after 10:15 that morning.

European option

An option that can ONLY be exercised at expiration. FTSE 100 options are European. UK index options generally European.

Ex-dividend risk

The risk that a short call is exercised the day before a share goes ex-dividend so that the holder collects the dividend and you deliver the shares. Diarise every ex-date inside a covered call's life.

Exercise

The act of using your option right. For a call: buy the underlying at the strike. For a put: sell at the strike. Most retail traders close positions before expiration rather than exercising.

Exercise by exception

The OCC's automatic exercise of any option in the money by one cent or more at expiry unless the holder instructs otherwise. ICE applies its own automatic exercise at expiry; both can put shares in an account that has no cash for them.

Expected move

What the market is pricing in: roughly the share price times implied volatility times the square root of days to expiry over 365. The planner calculates it in pence or dollars.

Expiration / Expiry

The date the option contract ends. After expiration, in-the-money options are auto-exercised; out-of-the-money expire worthless.

Expiry cut-off

The last moment you can instruct your broker to exercise or not exercise: the broker's own deadline before the OCC's 5:30 pm Eastern cut-off on expiry day, or before ICE's 18:30 London rule.

Extrinsic value

The portion of option price beyond intrinsic value. Made up of time premium and volatility premium. Decays toward zero at expiration.

FSCS

The Financial Services Compensation Scheme: up to £85,000 of eligible investment-compensation claims against an FCA-authorised firm that fails. It never covers trading losses, and it does not cover a US-regulated account at all. See the broker comparison.

FTSE 100 options

UK index options on ICE Futures Europe, £10 per index point, European-style and cash-settled against the EDSP. Standard monthly series expire on the third Friday; ICE also lists weekly Flex (FLX) and £1-per-point daily mini (8LX) series, though not every broker offers them. UK tax: CGT in a GIA; permitted inside a SIPP only where the administrator allows it.

Gamma (Γ)

The rate of change of delta. High gamma = delta can swing rapidly. Highest near expiration for ATM options.

Gamma risk

The risk that delta changes faster than you can manage it, so a small move in the share becomes a large change in exposure. Highest for at-the-money options near expiry; the reason for the 21-day time stop.

GIA (General Investment Account)

UK unwrapped account. All options strategies permitted. Gains subject to CGT (18%/24% in 2026/27 above £3k allowance).

Grant-date rule (s.144)

For an option you write, the grant is itself the disposal: TCGA 1992 s.144(1) and HMRC CG55536 make the premium a chargeable gain in the tax year you sell the option, not when it closes. The rule every tax box in this library is built on. See the worked examples.

ICE Futures Europe

The London exchange on which UK single-stock and FTSE 100 index options are listed and cleared through ICE Clear Europe. Traditional single-stock contracts cover 1,000 shares and are quoted in pence; the index option is £10 per point.

Implied volatility (IV)

The market's expected future price volatility, embedded in option premium. High IV = expensive options. IV spikes before earnings, crashes after.

In-the-money (ITM)

For a call: strike below current price. For a put: strike above current price. ITM options have intrinsic value.

Intrinsic value

The in-the-money portion. ATM and OTM options have zero intrinsic value.

Iron condor

Selling an OTM call AND OTM put, buying further-OTM call and put for protection. Profits if underlying stays in a range. Defined-risk strategy.

ISA (Individual Savings Account)

UK tax-free wrapper. No options at all, in any strategy, at any broker: HMRC's guidance for ISA managers lists "futures or share options" among the investments that "are not qualifying investments and may not be held in a stocks and shares ISA". This is a legal prohibition, not a platform choice, so there is no covered-call exception to look for.

IV percentile

The share of trading days in the past year on which implied volatility was lower than today. Used alongside IV rank to decide whether premium is dear or cheap.

IV rank

Where today's implied volatility sits between its one-year low (0) and high (100). The library's gate: sell premium at 30 or above, buy it below 25, do neither in between. See Greeks and implied volatility.

Jade lizard

A short put plus a short call spread, with the credit exceeding the call-spread width so there is no risk above. Level 3. See the jade lizard page.

L to S

Last trading day

The final session in which an expiring series trades: 16:30 London on the third Friday for ICE UK single stocks, shortly after 10:15 on the expiry day for the FTSE 100, the close on expiry day for US options. After it you can only exercise, be assigned, or lapse.

LEAPS

Long-dated options, typically one to three years to expiry, used deep in the money as a share substitute. See the LEAPS page.

Leg / Multi-leg

A single component of a multi-option strategy. An iron condor has 4 legs.

Liquidation

The broker closing positions without your instruction to cure a margin deficit. At Interactive Brokers it can happen in real time and in US hours; the positions closed are the broker's choice.

Liquidity

Ease of buying/selling at fair price. Measured by open interest, daily volume, and bid-ask spread. UK retail should only trade options with daily volume > 100 contracts per strike.

Liquidity gate

The library's rule that an option is not tradeable unless it has a live two-sided quote with a bid-ask spread under about 10% of the mid. ICE UK single-stock series often fail it.

Long

Buying an option (paying premium). Long call = bullish bet; long put = bearish bet.

Margin (selling options)

Capital required to sell options. Naked option sales require margin equal to a percentage of underlying value. Cash-secured puts require the full strike times the contract size in cash (100 shares on a US contract, 1,000 on a traditional ICE UK series).

Margin call

The broker's notice that the account's equity has fallen below the maintenance requirement. Cure it by adding cash or closing positions before the broker does. See operational mechanics.

Max loss

The most a position can lose at expiry before commissions, spread and SDRT: the premium for a bought option, width minus credit for a spread, the full collateral for a cash-secured put, unlimited for an uncovered call. Written in pounds before every order in this library.

Moneyness

Whether an option is ITM, ATM, or OTM. Affects delta, premium composition, and assignment probability.

Naked option

Selling an option without owning the underlying (naked call) or holding cash collateral (naked put). Unlimited or extreme downside risk. Most UK retail brokers prohibit or heavily margin naked options.

Net liquidation value (NLV)

What the account would be worth if every position were closed now: cash plus the market value of positions. The base for the Level 3 sizing rules and for the USD 110,000 portfolio-margin gate at Interactive Brokers UK.

OCC

The Options Clearing Corporation, which clears every US listed option, guarantees both sides, and allocates assignments to writers at random.

Open interest

Total number of contracts outstanding for a specific strike+expiry. Indicator of liquidity. Higher = more liquid.

Out-of-the-money (OTM)

For a call: strike above current price. For a put: strike below current price. OTM options have only extrinsic value.

Physical delivery

Settlement of an option by delivering the shares: 100 on a US contract, 1,000 on a traditional ICE UK series. The delivery is a share purchase or sale for CGT, and a UK purchase carries 0.5% SDRT.

Pin risk

Not knowing at the close on expiry day whether a short option that finished at or near the strike will be assigned. The cure is to close short options before the last bell.

Poor man's covered call (PMCC)

A deep-in-the-money LEAP in place of the shares, with monthly calls sold against it. See the PMCC page.

Portfolio margin

Risk-based margining that nets a whole portfolio's exposures instead of margining each position by formula. Interactive Brokers UK gates it at about USD 110,000 of net liquidation value. Level 3 territory.

Premium

The price paid (long) or received (short) for an option contract. Premium = intrinsic + extrinsic value.

Put option

Right (not obligation) to SELL the underlying at the strike. Bearish bet or insurance on owned shares.

Ratio spread

Buy one option and sell two further out, leaving one uncovered: the first structure in the curriculum with no floor. Level 3. See the ratio spread page.

Reg T margin

The US formula-based margin regime (Regulation T and FINRA Rule 4210): an uncovered short option needs 100% of its value plus 20% of the underlying less any out-of-the-money amount, with a floor at 10%. See operational mechanics.

Rho (ρ)

Sensitivity of option price to interest rate changes. Usually minor for short-dated options; significant for LEAPS (long-dated options).

Roll

Closing an option and opening another with a different strike, expiry or both: two trades, two tax treatments (the buy-back is a cost of the original grant under TCGA 1992 s.148; the new option is a fresh grant). See managing and rolling.

s.148 closing purchase

TCGA 1992 s.148: when the writer of a traded option buys back an option of the same description, the purchase is disregarded as a disposal and its cost is added to the incidental costs of the original grant (HMRC CG55545). Relief is immediate; the earlier year is amended if already filed.

Same-day rule (s.105)

Shares of the same class bought and sold on the same day are matched with each other first (TCGA 1992 s.105), ahead of the 30-day rule and the s.104 pool.

SDRT

Stamp duty reserve tax at 0.5% of the consideration on buying UK shares, including shares delivered to you on exercise or assignment (HMRC STSM113030). Paid by the buyer, an allowable cost of the shares, and absent on cash-settled index options.

Section 104 holding

The pooled cost of all shares of the same class you hold, after the same-day and 30-day rules. Only options you buy in the same series pool this way; an option you write is its own grant-date disposal.

Series

One specific option: underlying, call or put, strike and expiry. A different expiry is a different series, which is why monthly short calls never pool with each other.

Short

Selling an option (collecting premium). Short call/put = bearish/bullish bet respectively. Brings obligation to deliver if exercised.

SIPC

The US Securities Investor Protection Corporation: up to USD 500,000 including USD 250,000 of cash if a US broker fails. The protection on a tastytrade or IBKR LLC account; not the FSCS, and no route to the Financial Ombudsman.

SIPP options trading

Options trading inside a Self-Invested Personal Pension, where growth is free of CGT. The constraint is a scheme and provider one, not an HMRC one: PTM121000 confirms the pension tax rules "do not impose any restrictions on the types of asset a pension scheme can invest in" and that scheme investments "include futures contracts and options contracts". In practice almost no UK SIPP provider permits them — the household names (Hargreaves Lansdown, AJ Bell) offer no options in any account — so check the specific administrator's permitted-investment schedule before assuming access.

Skew

The pattern of implied volatility across strikes: on equity indices out-of-the-money puts trade at higher implied volatility than calls. Skew is what a broken wing butterfly or ratio spread is priced off.

Spread

A position with multiple options. Bull/bear, vertical/horizontal, credit/debit. Defined risk vs naked positions.

Spread bet

A cash bet with a provider on where a price will go, outside CGT and income tax for an individual and with no relief for losses (HMRC BIM22015). Not an exchange-traded option: no exercise, no assignment, no delivery. See options versus spread bets and CFDs.

Straddle

A call and a put at the same strike. Bought, it is a bet on a large move either way; sold, the chain's largest credit with no floor. See the long and short straddle pages.

Strangle

A put below and a call above the current price. Bought, a cheaper bet on a big move; sold, a range trade with undefined risk. See the long and short strangle pages.

Strike (price)

The price at which the option holder can exercise. £100 call = right to buy at £100.

T to Z

Term structure

How implied volatility differs between expiries of the same underlying. Calendar and diagonal spreads trade it; a front month above the back month (backwardation) is the short straddle page's entry condition.

Theta (Θ)

Time decay — how much value the option loses per day. Negative for long positions, positive for short positions. Accelerates close to expiration.

Tick size

The smallest price increment: 0.25p (£2.50 per contract) on a traditional ICE UK single-stock series, 0.5 points (£5) on the FTSE 100 option, one cent on most US options. A 2p spread on an 11p option is an 18% cost.

Tier gate

The written test each Level page sets before the next tier: for example all five Level 1 structures traded with real money, one assignment, one lapse and one full expiry cycle before Level 2.

UK Income Tax on options

For UK residents trading in a GIA: gains generally taxed as CGT (not income tax). Frequent professional trading may be reclassified as income — see HMRC trading guidance.

Vega (ν)

Sensitivity of option price to changes in implied volatility. Long options have positive vega. Short options have negative vega (profit from IV decreases).

Vega risk

The risk that implied volatility moves against the position: a long option loses when volatility falls, a short option loses when it rises. Measured per one point of implied volatility on every strategy page's Greeks table.

Volatility crush (IV crush)

Rapid drop in implied volatility — typically after earnings. Can wipe out gains on directionally correct long options.

Volume

Contracts traded in the session. With open interest, the liquidity check the library's entry tables require; single figures on an ICE UK series mean the trade fails the gate.

W-8BEN

US tax form UK residents complete to claim reduced 15% withholding (vs 30%) on US dividends. Required for trading US options at most brokers. Valid 3 years.

Wheel

Sell a cash-secured put, take assignment, sell covered calls until called away, repeat: a system with five tax entries per turn. See the Wheel page.

Sources and methodology

Definitions follow standard options industry usage with UK tax/wrapper context added from HMRC guidance and FCA-regulated broker rules. For complex options tax questions, see the tax adviser editorial recommendation. The methodology page documents sources.

Related options guides

• Full UK options reference (27 strategies)
• UK options for beginners
• The Greeks + implied volatility
• UK broker comparison for options
• UK options tax worked examples
• Main UK Tax Drag glossary (151 terms)