Bear Put Spread
Buy a higher-strike put and sell a lower-strike put — a bounded bearish bet with reduced premium.
Bear put spread: buy put(K2) + sell put(K1), where K1 < K2. Net debit = P(K2) − P(K1). Maximum profit = K2 − K1 − net debit (if stock falls below K1). Maximum loss = net debit (if stock stays above K2). Breakeven = K2 − net debit. The short lower put reduces cost but caps the profit at K1. Mirror image of the bull call spread, applied to the put side.
Bull Call Spread
Buy a lower-strike call and sell a higher-strike call — a leveraged bullish bet with limited loss.
Delta (Δ)
The sensitivity of an option's price to a $1 change in the underlying spot price.
Put-Call Parity
The no-arbitrage relationship between European call and put prices: C − P = S·e^(−δT) − K·e^(−rT).
Black-Scholes-Merton Model (BSM)
The foundational option pricing formula that gives the fair value of a European call or put as a function of spot, strike, rate, volatility, and time.
Gamma (Γ)
The rate of change of delta with respect to the spot price — the curvature of the option's value.
Theta (Θ)
The rate at which an option loses value as time passes — time decay per calendar day.