Understanding Basic Options Terminology and how to understand Unusual Whales

As part of our free weekly educational series.

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Hey all,

This is the Unusual Whales Team, and we are going to spend every Wednesday walking you through some trades of the week for free to help your trading!

If you’re new to trading, it is extremely important to understand the vocabulary surrounding options trading. So, in today’s issue, we’re going to break down some common terms related to options and trading. You can also find these definitions and so much more on the NEW Unusual Whales Info Hub.

The Bid-Ask Spread is the difference between the highest price that a buyer is willing to pay for an asset (the bid price) and the lowest price that a seller is willing to accept (the ask price).

Someone looking to be a seller can find a buyer at the bid price, whereas someone looking to be a buyer can find a seller at the ask price.

It is essentially a measure of market liquidity, as well as a measure of supply and demand. A wide spread may indicate that the market for the underlying is not very active, while a tighter spread may suggest the opposite.

The Bid-Ask Spread is often used in conjunction with options transactions prices in order to try and determine whether the trade was initiated by a buyer or a seller.

The Spot price of a transaction is the price at which the transaction occurred.

Options traders will generally use the Bid-Ask Spread and the spot price of a trade in order to help them determine the sentiment.

Side is a term that you'll see as a column header on the Unusual Whales flow feed. It is most often used to reference where along the Bid-Ask spread a trade took place.

Every trade will have be tagged with a side. There are four possible sides:

Ask - A transaction that took place at or closer to the ask will have the side ASK.

Bid - A transaction that took place at or closer to the bid will have the side BID.

Mid - A transaction that took place exactly between the bid and the ask will have the side MID.

None - The previous 3 labels made reference to where along the Bid-Ask spread a trade took place. The NONE tag is used in situations where the Bid-Ask spread may be irrelevant. Cross trades, trades that are out of sequence or late, or trades which have been modified or cancelled will be tagged NONE.

Volume refers to the total number of shares/contracts that have traded hands over the course of the day. Volume values update LIVE intraday.

The volume value DOES NOT differentiate between bought or sold options; ANY traded contract will count as 1 volume.

Open interest, or OI for short, refers to the total number of outstanding contracts. You can refer to the open interest of a specific option contracts, or the open interest for an equity as a whole.

Open interest values DO NOT update intraday.

The open interest value DOES NOT differentiate between bought or sold options: ANY open contract will be counted towards OI.

New open interest values will be disseminated market wide during the premarket of any given trading session. These updates will generally be completed by around 7:30 AM EST, at which point open interest values for all contracts will be available to view.

Incorrect open interest values can be sent out market wide. These incorrect values will correct themselves the follow session. Click here for more information.

Unusual Whales has launched an ALL NEW Info Hub!

Unusual Whales is always working on numerous features and education. Now, that education is all in ONE spot

From Guides on the Platform to General Options Education, the Unusual Whales Information Hub has you covered. What else would you like to see?

ITM, or In the money, is an expression that refers to an option that possesses intrinsic value. A call option is ITM if the strike price is below the price of the equity in question.

Example: With AAPL trading at $182.50 a 180C would be $2.50 ‘in the money.’

A put option is ITM if the strike price is above the price of the equity in question.

Example: With AAPL trading at $182.50 a 185P would be $2.50 ‘in the money.’

OTM, or Out of the money, is an expression that refers to an option that only contains extrinsic value. A call option is OTM if the strike price is above the price of the equity in question.

Example: With AAPL trading at $182.50 a 190C would be ‘out of the money.’

A put option is OTM if the strike price is below the price of the equity in question.

Example: With AAPL trading at $182.50 a 175p would be ‘out of the money.’

You can view a contract’s relationship to the stock’s spot price, either ITM or OTM, by looking at the %OTM column in the flow feed.

REMEMBER!! You can find articles like this and MANY others about Options and the Unusual Whales Platform on the new Information Hub!

DTE, or Days to Expiration, is used to reference the number of calendar days remaining until a contract's expiration date. An option expiring the same day is often referred to as a '0 DTE'. A contract displaying a negative DTE has expired.

Thank you as always for reading! REMEMBER!! You can find articles like this and MANY others about Options and the Unusual Whales Platform on the new Information Hub!!

NOTE: This post is not financial advice. The stock market is risky, and any trade or investment is expected to have some, or total, loss. Please do research before any trade. Do not use this information for investment decisions. Check terms on site for full terms. Agree to terms before considering this information.