Checklists And Glossary - Academy

How to use this lesson

This module is a final review. It is designed to be revisited before comparing contracts or after a scanner field feels unclear.

A checklist cannot make a trade safe, but it can make it harder to skip the questions that matter.

Covered call checklist

Do I own at least 100 shares per contract?
Am I willing to sell at the strike?
Is the contract liquid?
Is the spread reasonable?
Does the premium justify capped upside?
Are earnings, dividends, or major events coming up?
What will I do if assignment becomes likely?

Cash-secured put checklist

Am I willing to own the stock?
Do I have enough cash for assignment?
Is the contract liquid?
Is the DTE within my intended range?
What is the simplified effective purchase price?
What will I do if assigned?

Glossary essentials

Strike price: the price where shares may be bought or sold if exercised.
Expiration: the date the option contract expires.
Premium: the amount paid by the buyer and received by the seller.
Assignment: the seller fulfilling the contract obligation.
In the money: an option with intrinsic value.
Out of the money: an option with no intrinsic value.
DTE: calendar days to expiration.
Delta: estimated option-price change per $1 underlying move, holding other inputs constant.
Gamma: estimated change in delta per $1 underlying move.
Theta: estimated option-price change as one day passes, holding other inputs constant.
Implied volatility (IV): the volatility input implied by the option price; not a directional forecast.
Intrinsic value: max(stock − strike, 0) for a call, or max(strike − stock, 0) for a put.
Extrinsic value: option price minus intrinsic value.
Bid-ask spread: ask minus bid; a wider spread can make entry and exit more costly.
Volume: contracts traded in the session.
Open interest (OI): outstanding contracts at the observation time; it does not identify trade direction or ownership.
Premium yield: premium divided by the stated share value or reserved cash, for the contract period.
Annualized yield: period yield multiplied by 365 / DTE for a simple comparison; not a forecast or compounded return.
Breakeven: the underlying price at which a specified combined position has zero P&L, under stated timing and cost assumptions.
GEX: gamma exposure aggregated under a stated model and sign convention; not observed dealer inventory.
Roll: close an existing option and open a different option; account for each trade separately.

Checklist use case Hypothetical

A contract has attractive premium, but the checklist reveals low open interest, a wide spread, and earnings before expiration.

The investor has a clear reason to slow down.
The checklist prevents the premium number from dominating the decision.

A good checklist helps the investor notice risks before entering the trade.

Common misconception

Myth: Experienced traders no longer need checklists.
Reality: A checklist is useful precisely because familiar strategies can make repeated risk easy to overlook.

Key takeaway

Checklists are useful because they make the risk review harder to skip.