- Delta
- A measure of how much an option's price changes when the stock price moves $1. Also represents the approximate probability of the option being ITM at expiration. Many wheel traders sell PUTs with 0.30 delta (30% probability of assignment).
- Theta (Time Decay)
- The amount an option loses in value per day, all else being equal. As an option seller, theta works in your favor. It accelerates in the last 30-45 days before expiration.
- Gamma
- The rate of change of delta. Important to understand that as expiration approaches, small price moves can cause large changes in whether you'll be assigned.
- Vega
- Measures sensitivity to implied volatility. Higher volatility = higher premiums. Wheel strategy benefits from high IV when selling options.
- The Greeks
- Collective term for Delta, Theta, Gamma, and Vega - the four main risk measures for options. Understanding these helps you select better trades.
- Extrinsic Value
- The portion of an option's price attributed to time remaining and volatility (not intrinsic value). This is what decays over time and what you want to capture as a seller.
- Intrinsic Value
- The real value of an option if exercised right now. For PUTs: max(Strike Price - Stock Price, 0). For CALLs: max(Stock Price - Strike Price, 0).
- Annualized Return
- Your return extrapolated to a full year for comparison purposes. Example: 2% return in 30 days ≈ 24% annualized (2% × 12 months).
- Probability of Profit (POP)
- The statistical likelihood that a trade will be profitable. In the wheel strategy, selling OTM options gives you high POP (often 60-80%) because the stock just needs to not move much.
- Max Profit
- For option sellers, the maximum profit is the premium collected. This is achieved when options expire worthless or are closed at little/no cost.
- Max Loss
- For cash-secured PUTs: (Strike Price × 100) - Premium. For covered CALLs: Technically unlimited on the upside opportunity cost, but capped risk at your cost basis.