Options trading can be an exciting venture, but it comes with its own language. To excel in this arena, you need to grasp some key terminology. Let's unravel these essential concepts here:

Prices

• Underlying Price: This is the current market price of the asset you wish to trade, like a stock or Bitcoin.
• Strike Price: The strike price, also known as the exercise price, is the pre-agreed price at which an option holder can buy (for call options) or sell (for put options) the underlying asset. It's the rate specified in the option contract.
• Premium Price: An option premium is like the price tag on a financial contract. It's the amount of money you pay or receive when buying or selling an option. This price reflects the value of the option and can change based on factors like the asset's price, time, and market conditions.

Terms that describe the value of an option

• In the Money (ITM): An option is "in the money" when its strike price is advantageous compared to the current stock price. For call options, this means the stock price is higher than the strike price. For put options, it's when the stock price is lower than the strike price. In-the-money options generally have what’s known as intrinsic value as they are already profitable.
• Out of the Money (OTM): Conversely, an option is "out of the money" when its strike price is not favourable compared to the current stock price. For call options, this means the stock price is below the strike price. For put options, it's when the stock price is above the strike price. Out-of-the-money options typically lack intrinsic value as they are not yet profitable.
• At the money (ATM): This refers to options with a strike price that is either directly on or very near to the current stock price. This can also include the closest in-the-money (ITM) and out-of-the-money (OTM) options because the stock price rarely aligns precisely with the strike price.

 Expiration Date

• Expiration Date: This marks the day when the option contract expires, rendering the right to exercise the option null and void. Options can have various expiration dates, ranging from days to years.
• Time Value: Time value is like a clock ticking on your option. It shows how much time is left before the option expires. As the clock runs down, the time value usually goes down too.
• Theta (Θ): Theta is a gauge of how much an option's value decreases as time passes. It's often referred to as time decay. Options with less time until expiration experience more rapid time decay, while those with more time left decay at a slower pace.

Volatility 

• Volatility: Volatility tells us how much the price of something goes up and down. If something is very volatile, its price changes a lot. If it's not very volatile, its price changes less.
• Implied Volatility (IV): IV is like a crystal ball. It shows what the market thinks about how much the price of something will change in the future. This is super important because it helps set the price of options. When IV is high, options cost more. When IV is low, options cost less.
• Vega (V): Vega is like a sensitivity meter. It tells us how much an option's price will move if IV changes by 1%. If an option has high Vega, its price is very sensitive to changes in IV. If an option has low Vega, it's not very sensitive to IV changes.

Understanding these fundamental options trading terms is important for traders and investors alike. These concepts enable traders to make informed decisions about choosing, timing, and managing options positions effectively. By simplifying these terms, you can confidently navigate the intriguing and potentially profitable world of options trading.