Straddle
Buying a call and a put at the same strike — profits from a large move in either direction.
Long straddle: buy ATM call + buy ATM put (same K and T). Net debit = C + P. Maximum loss = net premium (if stock expires exactly at K). Maximum profit = unlimited (call side) or K − premium (put side). Breakevens: K + net premium (upper), K − net premium (lower). Long straddle is a long volatility trade: it profits when realized volatility exceeds implied volatility. Short straddle (sell both) is the opposite — collect premium but exposed to large moves.
Bull Call Spread
Buy a lower-strike call and sell a higher-strike call — a leveraged bullish bet with limited loss.
Implied Volatility (IV)
The volatility that, when input into the BSM model, makes the model price equal to the market price of an option.
Vega (ν)
The sensitivity of an option's price to a 1% change in implied volatility.
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.
Delta (Δ)
The sensitivity of an option's price to a $1 change in the underlying spot price.
Gamma (Γ)
The rate of change of delta with respect to the spot price — the curvature of the option's value.