Option trading glossary

Glossary of Options Trading Terminologies.

Glossary Of Options Terminology.

Updated 1 Aug 2017.

Top 10 Must-Know Options Terms for Options Beginners.

Index by alphabetical order.

Accumulation - When stocks start moving sideways after a significant drop as investors start accumulating.

Adjusted Options - Non-standardized stock options with customized terms in order to price in major changes in the underlying stock's capital structure. Read the full tutorial on Adjusted Options.

All-or-None (AON) Order - An order that must be completely filled or else it will not be executed. This is a useful order for option traders executing complex option strategies which needs to be precisely filled. Types Of Options Orders Explained.

American-Style Option - An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style. Read The Tutorial On American Style Options.

Arbitrage - The simultaneous purchase and sale of financial instruments in order to benefit from price discrepancies. Option traders frequently look for price discrepancies of the same option contract between different option exchanges, thereby benefiting from a risk free trade. Read more about Options Arbitrage.

Ask Price - As used in the phrase 'bid and asked' it is the price at which a potential seller is willing to sell. Another way of saying this is the asking price for what someone is selling. You buy option contracts and stocks on their Ask price. Read more about Options Prices.

Assign - to designate an option writer for fulfillment of his obligation to sell stock (call option writer) or buy stock (put option writer). The writer receives an assignment notice from the Options Clearing Corporation. Read More About Options Assignment.

At the Money - When an option's strike price is the same as the prevailing stock price. Read More About At The Money Options.

Automatic Exercise - When in the money options are randomly and automatically exercised. Read more about Automatic Exercise.

Auto-trading - A three way agreement to have your options broker automatically execute trade recommended by your options advisory service. Read more about Auto-Trading.

Backspread - see Reverse Strategy. Read More About Backspreads.

Barrier Options - Exotic options which comes into existence or goes out of existence when certain prices has been reached. Read More About Barrier Options Here!

Bearish - An opinion that expects a decline in price, either by the general market or by an underlying stock, or both.

Bearish Options Strategies - Different ways to use options in order profit from a downwards move in the underlying stock. Read the tutorial on Bearish Options Strategies.

Bear Spread - an option strategy that makes its maximum profit when the underlying stock declines and has its maximum risk if the stock rises in price. The strategy can be implemented with either puts or calls. In either case, an option with a higher striking price is purchased and one with a lower striking price is sold, both options generally having the same expiration date. See also Bull Spread. Option Strategy Library.

Bear Trap - Any technically unconfirmed downward move that encourages investors to be bearish. It usually precedes strong rallies and often catches the unwary.

Beta - A figure that indicates the historical propensity of a stock price to move with the stock market as a whole.

Bid Price - The price at which a potential buyer is willing to buy from you. This means that you sell at the Bid Price. Read more about Options Prices.

Bid/Ask Spread - The difference between the prevailing bid and ask price. Generally, option contracts that are more liquid tend to have a tighter Bid/Ask Spread while option contracts that are less liquid and are thinly traded tend to have a wider Bid/Ask Spread. Read more about Options Prices.

Binary Options - Options that either pay you a fixed return when it ends up in the money by expiration or nothing at all. Read more about Binary Options.

Black-Scholes Model - A mathematical formula designed to price an option as a function of certain variables-generally stock price, striking price, volatility, time to expiration, dividends to be paid, and the current risk-free interest rate. Read More About Black-Scholes model.

Box Spread - A complex 4 legged options trading strategy meant to take advantage of discrepanies in options prices for a risk-free arbitrage.

Break - Even Point-the stock price (or prices) at which a particular strategy neither makes nor loses money. It generally pertains to the result at the expiration date of the options involved in the strategy. A "dynamic" break-even point is one that changes as time passes.

Breadth - The net number of stocks advancing versus those declining. When advances exceed declines the breadth of the market is inclining. When the declines exceed advances the market is declining.

Breakout - What occurs when a stock price or average moves above a previous high resistance level or below a previous low support level. The odds are that the trend will continue.

Bullish - An opinion in which one expects a rise in price, either by the general market or by an individual security.

Bullish Options Strategies - Different ways to use options in order profit from an upwards move in the underlying stock. Read the tutorial on Bullish Options Strategies.

Bull Call Spread - A bullish options strategy which aims to reduce the upfront cost of buying call options in order to profit from stocks that are expected to rise moderately. Read the Tutorial on Bull Call Spread.

Bull Spread - an option strategy that achieves its maximum potential if the underlying security rises far enough, and has its maximum risk if the security falls far enough. An option with a lower striking price is bought and one with a higher striking price is sold, both generally having the same expiration date. Either puts or calls may be used for the strategy. Option Strategy Library.

Bull Trap - Any technically unconfirmed move to the upside that encourages investors to be bullish. Usually precedes important declines and often fools those who do not wait form confirmation by other indicators.

Butterfly Spread - A neutral option strategy that has both limited risk and limited profit potential, constructed by combining a bull spread and a bear spread. Three strike prices are involved, with the lower two being utilized in the bull spread and the higher two in the bear spread. The strategy can be established with either puts or calls; there are four different ways of combining options to construct the same basic position. Learn Everything About The Butterfly Spread.

Buy To Open - To establish an options position by going long. Read the Buy To Open tutorial.

Call - see Call Option.

Call Broken Wing Butterfly Spread - A Butterfly Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to downside. This is achieved by buying further strike out of the money call options than a regular butterfly spread. Read the tutorial on Call Broken Wing Butterfly Spread.

Call Broken Wing Condor Spread - A Condor Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to downside. This is achieved by buying further strike out of the money call options than a regular Condor spread. Read the tutorial on Call Broken Wing Condor Spread.

Call Ratio Backspread - A credit options trading strategy with unlimited profit to upside and limited profit to downside through buying more out of the money calls than in the money calls are shorted. Read the tutorial on Call Ratio Backspread.

Call Ratio Spread - A credit options trading strategy with the ability to profit when a stock goes up, down or sideways through shorting more out of the money calls than in the money calls are bought. Read the tutorial on Call Ratio Spread.

Call Time Spread - Another name for Call Calendar Spread. An Options Trading strategy where long term call options are bought and near term call options are written in order to profit from time decay. Read the tutorial on Call Time Spread.

Called Away - The process in which a call option writer is obligated to surrender the underlying stock to the option buyer at a price equal to the strike price of the call option. Read the tutorial on Called Away.

Calendar Spread - A type of options trading strategy that uses a combination of options with different expiration dates in order to profit primarily from time decay. Read all about Calendar Spreads.

Calendar Straddle or Combination - A complex neutral options strategy involving the purchase of a long term straddle and the sale of a short term straddle. Read all about Calendar Straddle.

Calendar Strangle - A complex neutral options strategy involving the purchase of a long term strangle and the sale of a short term strangle. Read all about Calendar Strangle.

Call Options - Options which gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. Read All About Call Options .

Capitalization - The total amount of securities issued by a corporation. This may include: bonds, debentures, preferred stock, common stock and surplus.

Cash Secured Put - Short put options that are fully covered by cash needed in the event of an assignment. Read All About Cash Secured Put.

Cash Settlement / Cash Delivered - Options which, when exercised, delivers the profit in cash instead of an underlying asset. Read All About Cash Settled Options.

CBOE - The Chicago Board Options Exchange; the first national exchange to trade listed stock options.

CBOE VIX - See VIX.

Chain - A list of options quotes across multiple strike prices. Read more about Options Chains.

Class of Options - Option contracts of the same type and style that covers the same underlying asset.

Close - Period at the end of a trading day where final prices for the day are calculated.

Closing Order - The buying back or selling off of an option for which an option trader has the opposite position. An option trader who writes a call option will execute a closing order by "buying to close" that call option. An option trader who bought a call option will execute a closing order by "selling to close" that call option. Types Of Options Orders Explained.

Condor Spread - A complex neutral option strategy that profits from a stock trading within a predetermined range. Read All About Condor Spreads Here!

Contango - A term originating from the oil market. This is when farther month implied volatility is higher than nearer month implied volatility. This is indicative of a normal market condition.

Contingent Order - An advanced customizable options order that triggers contingent upon the fulfillment of predetermined criteria. Read more about Contingent Orders.

Correction - When a stock drops in price temporarily before rebounding later.

Contract Size - The amount of underlying asset covered by the option contract. This is generally 100. If an option is quoted for $2.50, then one contract would cost $2.50 x 100 = $250 and would cover 100 shares.

Contract Neutral Hedging - A static hedging technique involving buying 1 put option or selling 1 call option for every 1 share held. Read More About Contract Neutral Hedging Here!

Contrary Opinion - The belief opposite that of the general public and/or Wall Street. It is most significant at major market turning points. An overall consensus of opinion, whether bullish or bearish, usually marks an extreme. An investor taking a contrary view will usually benefit in time.

Conversion - The transformation of a long stock position into a position which is short the stock using options, without closing the original long stock position, through the use of synthetic positions. Read more about Conversions.

Consolidation - When stocks starts going sideways after a significant rise as investors start selling some of their holdings to take profit.

Contract Range - The highest and lowest price that an options contract has traded at. Find out more about Contract Range.

Cover - to buy back as a closing transaction an option that was initially written.

Covered Call Write - a strategy in which one writes call options while simultaneously owning an equal number of shares of the underlying stock. Read All About Covered Calls Here!

Covered Put Write - a strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security. Learn Everything About The Covered Put.

Covered Straddle Write - the term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.

Covered Warrant - the term used for structured warrants that works almost exactly the same as call options and put options. Read about the Differences Between Warrants & Options.

Credit - Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account. There are many credit option strategies. Read All About Debit And Credit Spreads Here!

Credit Spread - A Credit Spread position is an option spread in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account. Read more about Credit Spreads.

Day Order - An order that expires at the end of the trading day if it is not executed. Read All About Options Orders Here!

Day trader / Daytrader - Traders who open and close option positions or multiple option positions all within the same trading day.

Day trading / Daytrading - Trading methodolody that involves making multiple trades that are opened and closed all within the same trading day. Read more about Options Trading Styles.

Debit - An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.

Debit Spread - Option spreads which you have to pay money to put on. Read more about Debit Spreads .

Decay - See Time Decay.

Deliverables - The financial assets that are delivered to the options holders when options are exercised.

Delta - the amount by which an option’s price will change for a corresponding change in price by the underlying entity. Call options have positive deltas, while put options have negative deltas. Technically, the delta is an instantaneous measure of the option’s price change, so that the delta will be altered for even fractional changes by the underlying entity. Consequently, the terms "up delta" and "down delta" may be applicable. They describe the option’s change after a full 1-point change in price by the underlying security-either up or down. The "up delta" may be larger than the "down delta" for a call option, while the reverse is true for put options. For more detailed explanation on Delta and other option greeks, please go to Options Delta.

Delta Neutral - When positive delta options and negative delta options offset each other to produce a position which neither gains nor decreases in value as the underlying stock moves slightly up or down. Such a position will return a profit no matter which way the underlying stock eventually moves as long as the move is significant. Learn How To Perform Delta Neutral Trading.

Delta Spread - A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option.

Derivatives - A financial instrument whose value is derived in part from the value and characteristics of another financial instrument. Examples of derivatives are options, futures and warrants.

Diagonal Call Time Spread - A neutral options trading strategy profiting primarily through time decay by buying long term at the money call options and shorting short term out of the money call options against them. Read the Diagonal Call Time Spread Tutorial.

Diagonal Spread - An options spread on the same underlying, same type but different expiration month and strike. Read the Diagonal Spread Tutorial.

Discount - An option is trading at a discount if it is trading for less than its intrinsic value. A future is trading at a discount if it is trading at a price less than the cash price of its underlying index or commodity. See also Intrinsic Value and Parity.

Discount Broker - A brokerage firm that offers low commission rates. Get A List Of Option Brokers Here!

Dividend - When a company pays a share of the profit to existing shareholders. This share of profit may be in cash or options. Read about the Effects of Dividends on Stock Options.

Downside Protection - Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. Alternatively, it may be expressed in terms of the distance the stock could fall before the total position becomes a loss (an amount equal to the option premium), or it can be expressed as percentage of the current stock price.

Dynamic Hedging - A hedging technique which requires constantly rebalancing in order to maintain the hedge ratio.

Early Exercise (assignment) - The exercise or assignment of an option contract before its expiration date.

Employee Stock Options - Stock options granted to employees by their companies as a mean of compensation and incentive. Read More About Employee Stock Options.

Equity Option - An option that has common stock as its underlying security.

ETF - Exchange Traded Funds. Open ended funds tradable over an exchange just like a stock. ETFs made it possible for investors to invest in a variety of other instruments like gold and silver just like investing in stocks.

European Exercise - A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option. Read The Tutorial On European Style Options.

Exercise - To invoke the right granted under the terms of a listed options contract. The holder is the one who exercises. Call holders exercise to buy the underlying security, while put holders exercise to sell the underlying security. Read the tutorial on how to Exercise an Option.

Exercise Limit - The limit on the number of contracts which a holder can exercise in a fixed period of time. Set by the appropriate option exchange, it is designed to prevent an investor or group of investors from "cornering" the market in a stock.

Exercise Price - The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract. It is the price at which the call holder may exercise to buy the underlying security or the put holder may exercise to sell the underlying security. For listed options, the exercise price is the same as the Strike Price.

Expected Return - A rather complex mathematical analysis involving statistical distribution of stock prices, it is the return which an investor might expect to make on an investment if he were to make exactly the same investment many times throughout history.

Expiration Date - The day on which an option contract becomes void. The expiration date for listed stock options is the Saturday after the third Friday of the expiration month. All holders of options must indicate their desire to exercise, if they wish to do so, by this date. Read the full tutorial on Options Expiration.

Expiration Time - The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 5:00 PM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30 PM on the business day preceding the expiration date. The times are Eastern Time.

Expire Worthless - When out of the money options lose all their value and expire on expiration day. Read the full tutorial on Expire Worthless.

Extrinsic Value - Also known as "Premium Value" or "Time Value". It is the difference between an option's price and the intrinsic value. Read the full tutorial on Extrinsic Value.

Fair Value - A term used to describe the worth of an option or futures contract as determined by a mathematical model.

Fiduciary Call - An option trading stratey which buys call options as a replacement for a protective put or married put in the same proportion. Read More About Fiduciary Calls Here!

Financial Instrument - A physical or electronic document that has intrinsic monetary value or transfers value. For example, cash, shares, futures, options and precious metals are financial instruments.

Frontspreads - Options strategies designed to profit from neutral market conditions where prices change very little. Read more about Frontspreads.

Fundamental Analysis - A method of analyzing the prospects of a security by observing accepted accounting measures such as earnings, sales, assets, and so on.

Gamma - The rate of change of a stock option's delta for one unit change in the price of the underlying stock. Read All About Options Gamma.

Gamma Neutral - A position which has zero or near zero gamma value resulting in the delta value of the position staying stagnant no matter how its underlying stock moves. Read All About Gamma Neutral.

Goldilock Economy - An economy that has steady growth and moderate inflation which is neither too heated nor cold and allows for stock market friendly monetary policies.

Good Until Canceled (GTC) - A designation applied to some types of orders, meaning that the order remains in effect until it is either filled or cancelled. Read All About Options Orders Here!

Going Forward - Analyst's Jargon. Meaning "In The Future". 12 months going forward means 12 months in the future.

Greeks - A set of mathematical criteria involved in the calculation of stock option prices. Please read more about Option Greeks.

Grocession - A prolonged period of 0 to 2% growth in GDP that will feel like a recession.

Hedge - Transactions that will protect against loss through a compensatory price movement. Read All About Hedging Here!

Hedge Ratio - The mathematical quantity that is equal to the delta of an option. It is useful in facilitation in that a theoretically riskless hedge can be established by taking offsetting positions in the underlying stock and its call or put options. Read All About Hedge Ratio Here!

Historical Volatility - Volatility of past price movement of the underlying asset. Also known as Realised Volatility.

Horizontal Call Time Spread - An option strategy in which longer term at the money call options are bought and short term at the money call options are written in order to profit when the underlying stock remains stagnant. Read the tutorial on Horizontal Call Time Spread.

Horizontal Put Time Spread - An option strategy in which longer term at the money put options are bought and short term at the money put options are written in order to profit when the underlying stock remains stagnant. Read the tutorial on Horizontal Put Time Spread.

Horizontal Spread - An option strategy in which the options have the same strike price, but different expiration dates.

Implied Volatility - A measure of the volatility of the underlying stock, it is determined by using prices currently existing in the market at the time, rather than using historical data on the price changes of the underlying stock. Read more about Implied Volatility.

Incremental Return Concept - A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he is targeted to sell-possibly at substantially higher prices.

Index - A compilation of the prices of several common entities into a single number.

Index Option - An option whose underlying asset is an index instead of a hard asset such as stocks. Most index options are cash-based. Read the full tutorial on Index Options !

In the Money - A term describing any option contract that has intrinsic value. A call option is in-the-money if the underlying security is higher than the strike price of the call. A put option is in-the-money if the security is below the strike price. Read ALL About In The Money Options here.

Intrinsic Value - The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money. For call options, this is the difference between the stock price and the striking price, if that difference is a positive number, or zero otherwise. For put options it is the difference between the striking price and the stock price, if that difference is positive, and zero otherwise. Read the full tutorial on Intrinsic Value !

Last Trading Day - The third Friday of the expiration month. Options cease trading at 3:00 PM Eastern Time on the last trading day.

Leg - (Verb) A risk oriented method of establishing a two-sided position. Rather than entering into a simultaneous transaction to establish the position (a spread, for example), the trader first executes one side of the position, hoping to execute the other side at a later time and a better price. The risk materializes from the fact that a better price may never be available, and a worse price must eventually be accepted.

(Noun) In an option strategy involving many kinds of options, each option type is known as a leg. Read the full tutorial on Options Leg !

Legging - Entering each leg of a complex options trading position seperately and individually. Read the full tutorial on Legging !

LEAPS - Long-Term Equity Anicipation Securities. Simply said, it is option contracts that expires 1 year or more in the future. Sometimes option contracts that expires 6 months to a year later are also known as a LEAPS. Read more aboutLEAPs.

Level II Quotes - Real time quotes provided by NASDAQ outlining the specific bid ask spread provided by each market maker. Read All About Level II Quotes Here.

Leverage - In investments, the attainment of greater percentage profit and risk potential. A call holder has leverage with respect to a stock holder-the former will have greater percentage profits and losses than the latter, for the same movement in the underlying stock. Read About How To Calculate Options Leverage.

Limit - See Trading Limit.

Limit Order - An order to buy or sell securities at a specified price (the limit). Read more about Limit Order.

Liquid / Liquidity - The ease at which a purchase or sale can be made without disrupting existing market prices. Read About What Affects Stock Option Liquidity Here!

Listed Option - A put or call option that is traded on a national option exchange. Listed options have fixed striking prices and expiration dates.

Long - To be long is to own something. Read more about Long Options Positions.

LookBack Options - Exotic options which allows the holder to "Look Back" at the price action of the underlying asset during expiration to decide the optimal price at which to exercise the Lookbacks Options. Read More About LookBack Options Here!

Margin (stocks) - To buy a security by borrowing funds from a brokerage house. The margin requirement-the maximum percentage of the investment that can be loaned by the brokerage firm-is set by the Federal Reserve Board.

Margin (options) - Cash deposit needed to be held in account when writing options. Read the full tutorial on Options Margin.

Marked-To-Model - A valuation method using financial models for level 2 assets, which are less liquid assets that are hard to value due to an absence of a readily available market.

Market Maker - An exchange member whose function is to aid in the making of a market, by making bids and offers for his account in the absence of public buy or sell orders. Several market-makers are normally assigned to a particular security. The market-maker system encompasses the market-makers and the board brokers. Read All About Market Makers Here!

Market Order - An order to buy or sell securities at the current market price. The order will be filled as long as there is a market for the security. Read All About Options Market Order!

Market On Close (MOC) - An option trading order that fills a position at or near market close. Read All About Options Orders Here!

Married Put and Stock - a put and stock are considered to be married if they are bought on the same day, and the position is designated at that time as a hedge. Read More About Married Puts Here!

Mini Index Options - Index options that are only one-tenth the size of regular index options. Read More About Mini Index Options Here!

Mini Options - Stock options that covers only 10 shares instead of 100 shares. Read More About Mini Options Here!

Model - A mathematical formula designed to price an option as a function of certain variables-generally stock price, striking price, volatility, time to expiration, dividends to be paid, and the current risk-free interest rate. The Black-Scholes model is one of the more widely used models.

Moneyness - The strike price of an option in relation to the prevailing price of the underlying asset. Read More About Moneyness Here!

Multiple Compression - Where the overall market sell off over a period of time in order to generally reduce PE ratios across the board due to pessimism about the macro economy.

Multiple Expansion - Where the overall market rallies over a period of time in order to generally increase PE ratios across the board due to optimism about the macro economy.

NASDAQ - National Association of Securities Dealers Automatic Quotation System. It is an electronic market place in USA where securities are listed and traded electronically.

Naked Option - see Uncovered Option.

Narrow Based - Generally referring to an index, it indicates that the index is composed of only a few stocks, generally in a specific industry group. Narrow-based indices are NOT subject to favorable treatment for naked option writers.

Near The Money Options - Options with strike prices near to the spot price of the underlying stock. Read the tutorial on Near The Money Options.

Neutral - Describing an opinion that is neither bearish or bullish. Neutral option strategies are generally designed to perform best if there is little or no net change in the price of the underlying stock.

Neutral Options Strategies - Different ways to use options in order profit a stock remains stagnant or within a tight trading range. Read the tutorial on Neutral Options Strategies.

Non-Equity Option - An option whose underlying entity is not common stock; typically refers to options on physical commodities, but may also be extended to include index options.

One Sided Market - A market condition where there are significantly more sellers than buyers or more buyers than sellers. In this case, there are not enough buyers putting up offers to buy from sellers or that there are not enough sellers putting up offers to sell to buyers.

Open Interest - The net total of outstanding open contracts in a particular option series. An opening transaction increases the open interest, while any closing transaction reduces the open interest. Read More About Volume and Open Interest.

Option - The right to buy or sell specific securities at a specified price within a specified time. A put gives the holder the right to sell the stock, a call the right to buy the stock.

Options Chains - Tables presenting the various options that a stock offers over various strike price and expiration dates. Read the full tutorial on Options Chains.

Options Contracts - Contingent claims contracts that allows its holder to buy or sell a specific asset when exercised. Read the full tutorial on Options Contracts.

Options on Futures - Options that have futures contracts as their underlying asset. Read the full tutorial on Options on Futures.

Optionable Stocks - Stocks with tradable options.

Option Pain - Also known as Max Pain or Max Option Pain. It is the stock price which will result in the most number of options contracts expiring out of the money. Read More About Option Pain.

Option Pricing Curve - A graphical representation of the projected price of an option at a fixed point in time. It reflects the amount of time value premium in the option for various stock prices, as well. The curve is generated by using a mathematical model. The delta (or hedge ratio) is the slope of a tangent line to the curve at a fixed stock price.

Option Trader - Also known as Options Trader. It is anyone who buys and sells options in the capital market. Read more about Option Traders.

Option Trading - Also known as Options Trading. It is the buying and selling of stock and index options in the capital market so as to speculate for leveraged profits in every market condition or perform hedging to reduce portfolio risk. Read more about Option Trading.

Options Clearing Corporation (OCC) - The issuer of all listed option contracts that are trading on the national option exchanges.

Options Margin - See "Margin (Options)".

Options Trading - The buying and selling of stock and index options in the capital market so as to speculate for leveraged profits in every market condition or perform hedging to reduce portfolio risk. Read more about Options Trading.

Options Trader - Anyone who buys and sells options in the capital market. Read more about Option Trading.

Options Strategist - An investment professional who specializes in research, analysis and execution of options strategies.

Options Symbol - A string of alphabets that define specific options contracts. Can be referred to as the name of an options contract. Read more about Reading Options Symbols.

Out of the Money - Describing an option that has no intrinsic value. A call option is out-of-the-money if the stock is below the strike price of the call, while a put option is out-of-the-money if the stock is higher than the strike price of the put. Read More About Out Of The Money Options.

Over-the-Counter Option (OTC) - An option traded over-the-counter, as opposed to a listed stock option. The OTC option has a direct link between buyer and seller, has no secondary market, and has no standardization of striking prices and expiration dates.

Overvalued - Describing a security trading at a higher price than it logically should. Normally associated with the results of option price predictions by mathematical models. If an option is trading in the market for a higher price than the model indicates, the option is said to be overvalued.

Parity - Describing an in-the-money option trading for its intrinsic value: that is, an option trading at parity with the underlying stock. Also used as a point of reference-an option is sometimes said to be trading at a half-point over parity or at a quarter-point under parity, for example. An option trading under parity is a discount option.

Physical Option - An option whose underlying security is a physical commodity that is not stock or futures. The physical commodity itself typically a currency or Treasury debt issue-underlies that option contract.

Physically Settled Option - An option which the actual underlying asset exchange hands when exercised. Read more about Physically Settled Options.

Portfolio - Holdings of securities by an individual or institution. A portfolio may contain options of different stocks or a combination of shares, options and other financial instruments.

Position - Specific securities in an account or strategy. A covered call writing position might be long 1,000 XYZ and short 10 XYZ January 30 calls. It also refers to facilitate; buy or sell a block of securities, thereby establishing a position.

Position Trading - The use of options trading strategies in order to profit from the unique opportunities presented by stock options, such as time decay, volatility and even arbitrage to make safe, fixed, albeit lower profit. Read more about Options Trading Styles.

Premium - The total price of an option contract is made up of the sum of the intrinsic value and the time value premium. Even though most people refer to the price of an option contract as the "Premium", it is actually an inaccurate expression. The Premium of an option contract is the part of the price that is not intrinsic. Please read more about Options Premium.

Premium Over Parity - See Extrinsic Value.

Profit Range - The range within which a particular position makes a profit. Generally used in reference to strategies that have two break-even points-an upside break-even and a downside breakeven. The price range between the two break-even points would be the profit range.

Profit Table - A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph.

Protected Strategy - A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). The Ride The Flow System is an example of a protected strategy.

Protective Call - An option trading hedging strategy that protects profits made in a short stock position using call options. Read More About Protective call Here!

Protective Put - An option trading hedging strategy that hedges against a drop in stock price using put options. Read More About Protective Put Here!

Public Book (of orders) - The orders to buy or sell, entered by the public, that are away from the current market. The board broker or specialist keeps the public book. Market-makers on the CBOE can see the highest bid and lowest offer at any time. The specialist’s book is closed (only he knows at what price and in what quantity the nearest public orders are).

Pull back - A temporary fall in price after a rally. The rally usually continues after a Pull Back. This is also known as a "Correction".

Put Broken Wing Butterfly Spread - A Butterfly Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to upside. This is achieved by buying further strike out of the money put options than a regular butterfly spread. Read the tutorial on Put Broken Wing Butterfly Spread.

Put Broken Wing Condor Spread - A Put Condor Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to upside. This is achieved by buying further strike out of the money put options than a regular put condor spread. Read the tutorial on Put Broken Wing Condor Spread.

Put Call Parity - Put Call Parity is an option pricing concept that requires the extrinsic values of call and put options to be in equilibrium so as to prevent arbitrage. Put Call Parity is also known as the Law Of One Price. Read About Put Call Parity Here.

Put Call Ratio - The ratio of the number of open put options against the number of open call options. The higher the resulting number, the more put options are bought or shorted on the underlying asset. For daily total equity put call ratio, please visit Option Trader's HQ. Read more about Put Call Ratio.

Put Option - An option granting the holder the right to sell the underlying security at a certain price for a specified period of time. See also Call. Read About Put Options Here.

Put Ratio Backspread - A credit options trading strategy with unlimited profit to downside and limited profit to upside through buying more out of the money puts than in the money puts are shorted. Read the tutorial on Call Ratio Backspread.

Put Ratio Spread - A credit options trading strategy with the ability to profit when a stock goes up, down or sideways through shorting more out of the money puts than in the money puts are bought. Read the tutorial on Put Ratio Spread.

Quadruple Witching - The third Friday of March, June, September and December when Index Futures, Index Options, Stock Futures and Stock Options expire. This is one of the most volatile trading days of the year, with exceptionally high trading volume. Read all about Quadruple Witching.

Quarterlies / Quarterly Options - Options with quarterly expiration cycle. Read more about Quarterly Options.

Ratio Backspread - Credit volatile options trading strategy that opens up one leg for unlimited profit through selling a smaller amount of in the money options against the purchase of at the money or out of the money options of the same type. Read the Tutorial on Ratio Backspreads.

Ratio Calendar Combination - A strategy consisting of a simultaneous position of a ratio calendar spread using calls and a similar position using puts, where the striking price of the calls is greater than the striking price of the puts.

Ratio Calendar Spread - Selling more near-term options than longer-term ones purchased, all with the same strike; either puts or calls.

Ratio Spread - Constructed with either puts or calls, the strategy consists of buying a certain amount of options and then selling a larger quantity of out-of-the-money options.

Ratio Strategy - A strategy in which one has an unequal number of long securities and short securities. Normally, it implies a preponderance of short options over either long options or long stock.

Ratio Write - Buying stock and selling a preponderance of calls against the stock that is owned.

Realize (a profit or loss) - The act of closing a position, incurring a profit or a loss. As long as a position is not closed, the profit or loss remains unrealized.

Resistance - A term in technical analysis indicating a price area higher than the current stock price where an abundance of supply exists for the stock, and therefore the stock may have trouble rising through the price.

Reward / Risk Ratio - A gauge of how risky a position can be by dividing its maximum profit potential against the maximum loss potential. A ratio of above 1 means that the potential reward is higher than the potential loss. Read the full tutorial on Calculating Reward Risk Ratio.

Return On Investment (ROI) - The percentage profit that one makes, or might make, on his investment.

Return If Exercised - The return that a covered call writer would make if the underlying stock were called away.

Return If Unchanged - The return that an investor would make on a particular position if the underlying stock were unchanged in price at the expiration of the options in the position.

Reversal - The transformation of a short stock position into a position which is long the stock using options, without closing the original short stock position, through the use of synthetic positions. Read more about reversals and synthetic positions.

Reverse Hedge - A strategy in which one sells the underlying stock short and buys calls on more shares than he has sold short. This is also called a synthetic straddle and is an outmoded strategy for stocks that have listed puts trading.

Reverse Strategy - A general name that is given to strategies which are the opposite of better known strategies. For example, a ratio spread consists of buying calls at a lower strike and selling more calls at a higher strike. A reverse ratio spread also known as a backspread consists of selling the calls at the lower strike and buying more calls at the higher strike. The results are obviously directly opposite to each other.

Risk Graph - A graphical representation of the risk/reward profile of an option position. Learn All About Risk Graphs Now!

Risk Free Return - Profit on a risk free investment instrument such as the Treasury bills. It is a common standard of measuring the opportunity cost of having your money in anything other than Treasury bills.

Roll Down - Close out options at one strike and simultaneously open other options at a lower strike. Read the tutorial about Roll Down.

Roll Forward - Close out options at a near-term expiration date and open options at a longer-term expiration date. Read the tutorial about Roll Forward.

Rolling - A follow up action in which the strategist closes options currently in the position and opens other options with different terms, on the same underlying stock.

Roll Up - Close out options at a lower strike and open options at a higher strike. Read the tutorial about Roll Up.

Rotation - A trading procedure on the option exchanges whereby bids and offers, but not necessarily trades, are made sequentially for each series of options on an underlying stock.

Russell Sage - Renowned American Politician and Financier who introduced OTC call and put options in 1872. Read about the History of Options Trading.

Security / Securities - (finance) A tradable financial instrument signifying ownership in financial assets issued by companies or governments. Such financial assets includes but are not restricted to stocks, bonds, futures and debts.

Sell To Close - Closing a position by selling an option contract you own. Learn About Sell To Close Now!

Sell To Open - Opening a position by selling an option contract to a buyer. Learn About Sell To Open Now!

Selling Climax - Exceptionally heavy volume created when panic-stricken investors dump stocks. Often this marks the end of a bear market and is a spot to buy.

Series - An option contracts on the same underlying stock having the same striking price, expiration date, and unit of trading.

Settlement - The resolution of the terms of an options contract between the holder and the writer when the options contract is exercised. Read the full tutorial on Options Settlement.

Short (to be short) - To Short means to Sell To Open. That means to write or sell an options contract to a buyer. This gives you the obligation to fulfill the exercise of the option should the buyer decides to do so. Read all about Short Options Positions.

Short Backspread - Volatile options strategies which are set up with a net credit and unlimited profit potential in one direction.

Short Calendar Spread - Volatile options strategies that profit primarily through the difference in time decay of long term and short term options, achieved through writing longer term options and buying short term options. Read the full tutorial on Short Calendar Spreads.

Short Horizontal Calendar Call Spread - Short Calendar Spread that uses only call options. Read the full tutorial on Short Horizontal Calendar Call Spreads.

Short Covering - The process of buying back stock that has already been sold short.

Spread - An options position consisting of more than one type of options on a single underlying asset. Read the full tutorial on Options Spreads.

Spread Order - An order to simultaneously transact two or more option trades. Typically, one option would be bought while another would simultaneously be sold. Spread orders may be limit orders, not held orders, or orders with discretion. They cannot be stop orders, however. The spread order may be either a debit or credit.

Spread Strategy - Any option position having both long options and short options of the same type on the same underlying security.

Static Hedging - A hedging technique where a hedging trade is established and held without needing to rebalance.

Stock Options - Options contracts with shares as the underlying asset. Read All About Stock Options.

Stock Replacement Strategy - A trading strategy that seeks to reduce risk and volatility through owning deep in the money call options instead of the stock itself and using the remaining cash for hedging. Read All About Stock Replacement Strategy.

Stock Repair Strategy - An options strategy that aims to recover lost value in a stock quickly through writing call options against it. Read All About Stock Repair Strategy.

Stop Limit Order - Similar to a stop order, the stop-limit order becomes a limit order, rather than a market order, when the security trades at the price specified on the stop. Read All About Options Stop Loss Here!

Stop Order - A traditional stop loss method which closes a position when a predetermined price is hit. Read All About Options Orders Here!

Straddle - The purchase or sale of an equal number of puts and calls having the same terms.

Strip Straddle - A Straddle with more put options than call options. Read the full tutorial on Strip Straddle.

Strap Straddle - A Straddle with more call options than put options. Read the full tutorial on Strap Straddle.

Strategy - With respect to option investments, a preconceived, logical plan of position selection and follow-up action.

Strike Arbitrage - An options arbitrage strategy that locks in discrepancies in options pricing between strike prices for a risk-free arbitrage. Read More About Strike Arbitrage.

Strike Price - The price at which the buyer of a call can purchase the stock during the life of the option or the price at which the buyer of a put can sell the stock during the life of the option. Read More About Strike Prices.

Structured Warrants - An alternative to stock options which works almost exactly like stock options and traded in markets such as the Singapore market. See how Structured Warrants Are Traded In The Singapore Market.

Support - A term in technical analysis indicating a price area lower than the current price of the stock, where demand is thought to exist. Thus a stock would stop declining when it reached a support area. See also Resistance.

Swing Trading - A trading methodology that trades short term price swings for short term profits. Read more about Options Trading Styles.

Synthetic Position - A combination of stocks and/or options that return the same payoff characteristics of another stock or option position.

Synthetic Put - A security which some brokerage firms offer to their customers. The broker sells stock short and buys a call, while the customer receives the synthetic put. This is not a listed security, but a secondary market is available as long as there is a secondary market in the calls.

Synthetic Stock - An option strategy that is equivalent to the underlying stock. A long call and a short put is synthetic long stock. A long put and a short call is synthetic short stock.

Synthetic Short Straddle - A combination of stocks and call options which produces the same payoff characteristics as a Short Straddle. Read More About Synthetic Short Straddle.

Synthetic Straddle - A combination of stocks and call options which produces the same payoff characteristics as a Long Straddle. Read More About Synthetic Straddle.

Systematic Risk / Systemic Risk - Overall market risk that cannot be diversified away using a diversified portfolio based in the same market.

Take Delivery - To fulfill the obligation of buying stocks when put options that you sold becomes exercised.

Technical Analysis - The method of predicting future stock price movements based on observation of historical stock price movements.

Thales of Miletus - The creator of options back in 332BC. Read about the History of Options Trading.

Theoretical Value - The price of an option, or a spread, as computed by a mathematical model.

Theta - One of the 5 option greeks. Theta determines the rate of time decay of an option contract's premium. For more details on how Theta works and how it is calculated, please visit Option Greeks.

Ticker Symbol - Symbol representing the shares and options of a company's shares traded in the stock market. MSFT is the ticker symbol for Micrsoft shares while MSQFB is the ticker symbol for Microsoft's June29Call options.

Time Decay - The reduction of a stock option's extrinsic value as expiration date draws nearer. See "Theta" above. Read the full tutorial on Time Decay.

Time Spread - see Calendar Spread. Read the full tutorial on Time Spreads.

Time Value - Also known as "Premium Value" or "Extrinsic Value". It is the difference between an option's price and the intrinsic value. Read more about how Stock Options Are Priced.

Topping Out - A peak point where the sellers begin to outnumber the buyers.

Total Return Concept - A covered call writing strategy in which one views the potential profit of the strategy as the sum of capital gains, dividends, and option premium income, rather than viewing each one of the three separately.

Trading Limit - The exchange imposed maximum daily price change that a futures contract or futures option contract can undergo.

Trend - The direction of a price movement. A trend in motion is assumed to remain intact until there is a clear change.

Triple Witching - Prior to 2001. The third Friday of March, June, September, and December, when stock options, index futures and options on index futures expire. After 2001, the introduction of Single Stock Futures transformed Triple Witching into Quadruple Witching as single stock futures expire on the third Friday of every quarterly month as well.

Type - The designation to distinguish between a put or call option.

Uncovered Option - A written option is considered to be uncovered if the investor does not have a corresponding position in the underlying security.

Underlying Asset - The security which one has the right to buy or sell via the terms of a listed option contract. An underlying asset can be any financial instrument on which option contracts can be written based on. Some examples are : Stocks, ETFs, Commodities, Forex, Index.

Undervalued - Describing a security that is trading at a lower price than it logically should. Usually determined by the use of a mathematical model.

Variable Ratio Write - An option strategy in which the investor owns 100 shares of the underlying security and writes two call options against it, each option having a different striking price.

Vertical Spread - Any option spread strategy in which the options have different striking prices, but the same expiration date. Read the full tutorial on Vertical Spreads.

Vertical Ratio Spread - Vertical spreads that buy and short an unequal number of options on each leg. Read the full tutorial on Vertical Ratio Spreads.

VIX - An index measuring the level of implied volatility in US index options and is used as a measurement of volatility in the US stock market. Read More About VIX.

VIX Options - Non-equity options based on the CBOE VIX. Read More About VIX Options.

Volatile - A stock or market that is expected to move up or down unexpectedly or drastically is known as a volatile market or stock.

Volatile Strategy - An option strategy that is constructed to profit no matter if the underlying stock moves up or down quickly. Read All About Volatile Option Strategies.

Volatility - A measure of the amount by which an underlying security is expected to fluctuate in a given period of time. Generally measured by the annual standard deviation of the daily price changes in the security, volatility is not equal to the Beta of the stock. Read More About Volatility.

Volatility Crunch - A sudden, dramatic, drop in implied volatility resulting in a sharp reduction in extrinsic value and hence the price of options. Read More About Volatility Crunch.

Volatility Index - Also known as VXN, is an index by the CBOE that measures volatility in the market using implied volatility of S&P500 stock index options.

Volatility Skew - A graphical characteristic of the implied volatility of options of the same underlying asset across different strikes forming a right skewed curve. Read More About Volatiliy Skew.

Volatility Smile - A graphical characteristic of the implied volatility of options of the same underlying asset across different strikes forming the concave shape of a smile. Read More About Volatiliy Smile.

Volume - The number of transactions that took place in a trading day. Read More About Volume and Open Interest.

Write - To short an option. This is the act of creating a new options contract and selling it in the exchange using the Sell To Open order. The person who writes an option is known as the "Writer". Read the full tutorial on Options Writing.

WALK LIMIT® Order - WALK LIMIT® is a registered U. S trademark of optionsXpress Holdings Inc. covering securities and commodities trading and investment services and software. One of the services offered under the WALK LIMIT® mark is a type of automated limit order that "walks" your order from the National Best Bid or Offer (NBBO) in prescribed time and price increments up to (or down to) the asking price (bid price) in order to save you time while attempting to get the best fill prices for the orders.

Options Trading Glossary of Terms.

The basic fundamentals of options trading are relatively easy to learn, but this is a very complex subject once you get into the more advanced aspects. As such it's no surprise that there is a fair amount of terminology and jargon involved that you may not be familiar with. We have compiled this comprehensive glossary of terms to be a useful reference tool for anyone learning about trading options.

Although we always try and explain any terminology we use in the context that we are using it in any particular page or article we write, there may be occasions when you come across a term that you don't understand. This glossary of terms is here to be used if you ever require an explanation for what a particular word or phrase means.

Albatross Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Albatross Spread.

All Or None Order: Often abbreviated as AON, this is a type of order that must be either filled entirely or not at all.

American Style Option: A contract that gives the holder the flexibility of choosing to exercise their option at any point between buying the contract and the contract expiring. More on American Style.

Approval Levels: See Trading Levels.

Arbitrage: Taking advantage of price discrepancies by buying and selling to create a risk free trade.

Arbitrage Trading Strategies: Strategies that involve the use of arbitrage. Read more at Arbitrage Strategies.

Ask Price: The price it costs to buy an option.

Assignment: When the writer of a contract is required to fulfill their obligations under the terms of that contract – for example buying the underlying security if they have written calls or selling the underlying security if they have written puts. The writer will be issued with an assignment notice in such circumstances.

At the Money Option: An option where the price of the underlying security is the same as the strike price.

Automatic Exercise: The process by which in the money options are automatically exercised if they are in the money at the point of expiration.

Auto Trading: A trading method that involves using a third party to select your trades and having your broker automatically execute them. Read more on Auto Trading.

Basket Option: A type of option that is based on a group of underlying securities rather than just one.

Barrier Option: A type of option that can come into existence or go out of existence based on specific criteria is usually related to the price of the underlying security. More about Barrier Options.

Bear Butterfly Spread: This is an advanced strategy that can be used when the outlook of an underlying security is bearish. Learn how to use a Bear Butterfly Spread.

Bear Call Spread: A simple strategy, using calls, that can be used when the expectation is that the underlying security will decline in price. Learn how to use a Bear Call Spread.

Bearish: An expectation that an option, or any financial instrument, will decrease in price.

Bearish Trading Strategies: Strategies that can be used to profit from a downward move in the price of a financial instrument. List of Bearish Strategies.

Bear Market: When the overall market is in decline.

Bear Put Ladder Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Bear Put Ladder Spread.

Bear Put Spread: A simple strategy using puts that can be used when the expectation is that the underlying security will decline in price. Learn how to use a Bear Put Spread.

Bear Ratio Spread: This is a strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Bear Ratio Spread.

Bear Spread: A spread that is created to profit from bearish movements.

Bear Trap: An unconfirmed market movement which suggests a bear market, but is unconfirmed and ends up with the market moving upwards.

Bid Price: The price at which an option can be sold.

Bid Ask Spread: The difference between the bid price and the ask price of an option. An indicator of liquidity, and often referred to simply as the spread.

Binary Option: A type of option that pays a fixed return if it expires in the money or nothing if it expires at the money or out of the money. More about Binary Options.

Binomial Options Pricing Model: Can be abbreviated to BOPM; a pricing model that was developed by Cox, Ross and Rubinstein in 1979. Read more about the Binomial Pricing Model.

Black Scholes Options Pricing Model: A pricing model that is based on factors that include the strike price, the price of the underlying security, the length of time until expiration, and volatility. Read about the Black Scholes Pricing Model.

Box Spread: An advanced strategy that involves the use of arbitrage.

Break Even Point: The price or price range of the underlying security at which a strategy will break even, with no profits and no losses.

Breakout: When the price of a security moves above an existing resistance level or below an existing support level. The expectation is that the security will continue to move in the prevailing direction.

Broker: An individual or a company that executes orders to buy and sell financial instruments on behalf of clients.

Broker Commissions: The charge from a broker for executing orders on behalf of clients.

Bull Butterfly Spread: This is a strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Butterfly Spread.

Bull Call Ladder Spread: This is a strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Call Ladder Spread.

Bull Call Spread: A simple strategy, involving calls, which can be used when the expectation is that the underlying security will increase in price. Learn how to use a Bull Call Spread.

Bull Condor Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Condor Spread.

Bullish: An expectation that an option, or any financial instrument, will increase in price.

Bullish Trading Strategies: Strategies that can be used to profit from an upward move in the price of a financial instrument. List of Bullish Strategies.

Bull Market: When the overall market is moving upwards.

Bull Put Spread: A simple strategy, involving puts, which can be used when the expectation is that the underlying security will increase in price. Learn how to use a Bull Put Spread.

Bull Spread: A spread that is created to profit from bullish movements.

Bull Trap: An unconfirmed market movement which suggests a bull market, but is unconfirmed and ends up with the market moving downward.

Butterfly Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Butterfly Spread.

Buy to Close Order: An order that is placed when you want to close an existing short position through buying contracts that you have previously written. Read more about the Buy to Close Order.

Buy To Open Order: An order that is placed when you want to open a new position through buying contracts. Read more about the Buy to Open Order.

Calendar Call Spread: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Also known as a Time Call Spread. Learn how to use a Calendar Call Spread.

Calendar Put Spread: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Also known as a Time Put Spread. Learn how to use a Calendar Put Spread.

Calendar Spread: A type of spread that is created using multiple contracts with different expiration dates. Also referred to as a time spread. Read more about Calendar Spreads.

Calendar Straddle: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Calendar Straddle.

Calendar Strangle: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Calendar Strangle.

Call: See Call Option. Call is often used instead of the full term.

Called Away: The process that takes place when the writer of calls is required to fulfill their obligation and sell the underlying security at the agreed strike price.

Call Option: A type of option which grants the holder the right, but not the obligation, to buy the relevant underlying security at an agreed strike price. Read more about Calls.

Call Ratio Backspread: An advanced strategy that can be used for profit in a volatile market, when there is a bullish outlook. Learn how to use a Call Ratio Backspread.

Call Ratio Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Call Ratio Spread.

Carrying Cost: The implied cost of using capital to purchase financial instruments based on interest incurred from borrowing that capital or interest lost from taking that capital from an interest bearing account.

Cash Settled Option: A type of option in which any profits due to the holder at the point of exercise or expiration are paid in cash rather than an underlying security being transacted. Read more about Cash Settled Options.

Chain: Tables that are used to show various information related to specific options. Read more about Chains.

Chooser Option: A type of option that allows the holder to choose whether it's a call or a put at some point during the term of the contract.

Close: The point at the end of a trading day when the market closes and final prices are calculated.

Closing Order: An order which is used to close an existing position. See Buy To Close Order or Sell To Close Order.

Combination Order: A type of order that combines multiple orders into one.

Commodity Option: A type of option where the underlying security is either a physical commodity or a commodity futures contract.

Compound: A type of option where the underlying security is another contract.

Condor Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Condor Spread.

Contingent Order: A type of order that allows for the trader to set specific parameters for exiting a position.

Contract Neutral Hedging: A technique for hedging that involves a trader buying as many options as units of the underlying security they own.

Contract Range: The range between the highest and lowest price that an option contract has been traded at.

Contract Size: The number of units of the underlying security that are covered by a contract. The typical contract size is 100. It should be noted that prices are displayed based on one unit of underlying security. So if an option is listed with an ask price of $2.00, and the contract size is 100, it would actually cost $200 to buy one contract covering 100 units of the underlying security.

Conversion & Reversal Arbitrage: An advanced strategy that involves the use of arbitrage. Read more on conversion & reversal arbitrage at Arbitrage Strategies.

Covered Call: This is a simple strategy that can be used to make a profit from existing stock holdings when they are neutral and they are protected against a short term drop in their price. Learn how to use a Covered Call.

Covered Put: This is an advanced trading strategy that can be used in conjunction with short selling stock to profit if the stock remains neutral; it also protects against a short term rise in their price. Learn how to use a Covered Put.

Credit: Money that is received into a trading account.

Credit Spread: A type of spread that is cash positive – i. e. you receive more for writing the options involved in the spread than you spend on buying the options involved in the spread. Read more about Credit Spreads.

Currency Option: A type of option where the underlying security is a specific currency.

Day Order: A type of order that is cancelled at the end of a trading day if it hasn't been filled.

Day Trader: A trader who enters and exits their trading positions within one trading day, often holding onto positions for just a few minutes or hours.

Day Trading: The style of trading used by day traders, where positions are entered and exited within the same trading day. Read more about Day Trading.

Debit: Money that is paid out from a trading account.

Debit Spread: A type of spread that is cash negative i. e. you spend more on buying the options involved in the spread that you receive for writing the options involved in the spread.

Delta Neutral Hedging: A strategy that is used to protect an existing position from small movements in price. This can be used to hedge existing positions in stocks or other financial instruments. Read more about Delta Neutral Hedging.

Delta Neutral Trading: A strategy designed to create trading positions which will neither profit nor loss if there are small movements in the price of the underlying stock, but will return profits if the price of the underlying security moves significantly in either direction. Read more about Delta Neutral Trading.

Delta Value: One of the Greeks, the delta value measures the theoretical effect of changes in the price of the underlying security on the price of the option. Also referred to as Options Delta.

Derivative: A financial instrument which derives its value primarily from the value of another financial instrument. Options are a type of derivative.

Diagonal Spread: A type of spread that is created by using multiple contracts with different expiration dates and different strike prices. Read more about Diagonal Spreads.

Directional Risk: The risk of loss from the price of a security moving in an unfavorable direction. For example, if you write calls you exposed to the directional risk of the underlying security possibly increasing in price.

Directional Outlook: The expectation of which direction, if any, that the price of a security will move in. For example, if you are expecting a security to increase in price you have a bullish outlook.

Discount Broker: A type of broker that carries out transactions at a low price, but generally offers little in the way of additional services. For more information please read Full Service Brokers vs Discount Brokers.

Discount Option: An option that is trading for less than its intrinsic value.

Dividend: A payment that can be made by a company to its shareholders, representing their share of profits.

Dynamic Position: A position which is constantly adjusted as required to serve its purpose.

Early Assignment: When the writer of contracts is required to fulfill their obligations under the terms of those contracts prior to the expiration date; early assignment happens when contracts are exercised early.

Early Exercise: When an American style is exercised prior to the expiration date.

Employee Stock Options: A type of option that is based on stock in a company and issued to employees of that company: typically as a form of remuneration, bonus, or incentive. Read more about Employee Stock Options.

European Style Option: An options contract that can only be exercised at the point of expiration and not before. Read more about European Style Options.

Exercise: The process by which the holder of a contract uses their right under the terms of that contract to either buy or sell the relevant underlying security at the stated strike price. Learn more about Exercising an Option.

Exercise Limit: A limit on the number that can be exercised that may be imposed on the holder.

Exercise Price: See Strike Price.

Expiration Date: The date on which a contract expires and effectively ceases to exist. Options must be exercised on or before this date, or they will expire worthless.

Expire Worthless: When a contract reaches the expiration date and has no value i. e. it's either at the money or out of the money at the point of expiration.

Expiry: See Expiration Date.

Extrinsic Value: The component of a price that is affected by factors other than the price of the underlying security, such as time left until expiration. Read more on the following page: Price of Options.

Fiduciary Call: A strategy that is designed to effectively cover the costs of exercising a call. Read more about Fiduciary Calls.

Fill or Kill Order: Often abbreviated to FOK, this is a type of order that must be either completely filled with immediate effect or cancelled.

Financial Instrument: A real or virtual asset that has an inherent monetary value and/or transfers monetary value. Stocks, shares, options, currencies, futures, and commodities are all forms of financial instruments.

Fundamental Analysis: A style of analyzing the value of a financial instrument by studying certain specific factors that relate to the true value of that security. Studying the financial reports of a company would be a way to carry out fundamental analysis on stock in that company.

Futures Option: A type of option where the underlying security is a future contract.

Full Service Broker: A type of broker that offers expert advice and professional guidance in addition to executing orders for a client; they typically charges higher fees and commissions.

Gamma Neutral Hedging: A hedging technique that involves creating positions where the overall gamma value is as close to zero as possible so that the delta value of the positions should remain static whether or not the price of the underlying security moves up or down. Read more about Gamma Neutral Hedging.

Gamma Value: One of the Greeks, the gamma value measures the theoretical effect of changes in the price of the underlying security on the delta value of that option. Also referred to as Options Gamma.

Going Long: Taking a long position on a financial instrument with the expectation that it will increase in price over time. Buying a contract is going long on that option.

Going Short: Taking a short position on a financial instrument with the expectation that it will decrease in price. Writing a contract is going short on that option.

Good Until Cancelled: Often abbreviated to GTC, this is a type of order that stays active until it is either filled or cancelled.

Greeks: A series of values that can be used to measure the sensitivity of an option to changes in market conditions and the theoretical changes in the price of an option caused by specific factors such as the price of the underlying security, volatility, and time left until expiry. Read more about the Greeks.

Hedge / Hedging: An investment technique used to reduce the risk of holding a specific investment. Options are commonly used as hedging tools: protecting another's existing position or a position in another financial instrument such as stock.

Historical Volatility: Often abbreviated to HV, a measure of the volatility of the price a financial instrument over a specified period of time in the past.

Holder: The owner of options contracts.

Horizontal Spread: A type of spread that's created using multiple contracts with different expiration dates, but with the same strike price. Read more about Horizontal Spreads.

Immediate or Cancel Order: Often abbreviated to IOC, this is a type of order that must be partially or completely filled immediately or cancelled. If the order is only partially completed, the balance of the order is cancelled.

Implied Volatility: Often abbreviated to IV, it's a measure of the estimated volatility of the price a financial instrument at the current time. Read more about Volatility and Implied Volatility.

Index Option: A type of option where the underlying security is an index, such as the S & P 500.

In the Money Option: An option where the price of the underlying security is in a favorable position, relative to the strike price, for the holder: meaning it has intrinsic value. A call is in the money when the price of the underlying security is higher than the strike price and a put is in the money when the price of the underlying security is lower than the strike price.

Intrinsic Value: The component of a price that's affected by the profit that is effectively built into a contract when it's in the money – i. e. the amount of theoretical profit that could be realized by exercising the option.

Iron Albatross Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Albatross Spread.

Iron Butterfly Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Butterfly Spread.

Iron Condor Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Condor Spread.

LEAPS: The acronym for Long Term Equity Anticipation Securities. These are contracts that expire several months, or longer, in the future.

Leg: When an options position is made up of a combination of multiple positions, each of the individual positions is known as a leg.

Legging: The process of entering or exiting a position that is made up of a combination of multiple positions by transacting each position individually. Read more about Legging.

Legging In: See Legging; the process of entering a position using legging.

Legging Out: See Legging; the process of exiting a position using legging.

Level II Quotes: Also known as Level 2 Quotes. Real time quotes that are provided by exchanges detailing the exact bid ask spreads being offered by market makers. Typically used by very active traders to get the best possible prices at any given time.

Leverage: The use of specific financial instruments, such as options, to get a greater potential return on invested capital, or the use of borrowed capital to achieve potentially greater profits. Read more about Leverage.

Limit Order: A type of order used to buy or sell financial instruments at a specified maximum or minimum price respectively.

Limit Stop Order: Also known as a stop limit order, an order to close a position when a certain price is reached, if the order can be filled within a specified limit.

Liquidity: A measure of the ease with which a financial instrument can be bought or sold without impacting the price, or the ease with which a financial instrument can be converted to cash.

Listed Option: A type of option that is listed on an exchange, with fixed strike prices and expiration dates.

Long: You are long on a financial instrument if you own that instrument and/or you stand to gain from it increasing in price.

Long Call: This is a simple strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Long Call.

Long Gut: This is a simple strategy that can be used when price of the underlying security is volatile and expected to move significantly, but the direction of the move is unclear. Learn how to use a Long Gut.

Long Position: The position of being long on a financial instrument. If you own options contracts, then you hold a long position on them.

Long Put: This is a simple strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Long Put.

Long Straddle: This is a simple strategy that can be used when the price of the underlying security is volatile. Learn how to use a Long Straddle.

Long Strangle: This is a simple strategy that can be used when price of the underlying security is volatile and expected to move significantly, but the direction of the move is unclear. Learn how to use a Long Strangle.

Long Term Equity Anticipation Securities: See LEAPS.

Look Back Option: A type of option that allows the holder to exercise the option at the best price that underlying security reached during the life of the option. Read more about Look Back Options.

Margin: Margin has multiple meanings depending on the context that it's being used in. Margin related to buying stocks is the process of borrowing capital from a broker to buy stocks. Margin related to options trading is the amount of cash required to be held in a trading account when writing contracts. Read more about Margin.

Market Makers: Professional, high volume traders that are generally employees of financial institutions and are responsible for ensuring there's adequate depth and liquidity within the market in order for it to run efficiently. Read more about Market Makers.

Market On Close Order: Often abbreviated to MOC, this is a type of order that is filled at the end of a trading day.

Market Order: A type of order used to buy or sell financial instruments at the current market price. A market order will always be filled providing there's a corresponding seller or buyer.

Market Stop Order: Also known as a stop market order, an order to close a position at market price when a certain price is reached.

Married Puts: A hedging strategy that uses stocks and options. Read more about Married Puts.

Max Pain / Max Option Pain: See Option Pain.

Moneyness: A method used to measure the relationship of the strike price of an option to the current price of the underlying security. Read more about Moneyness.

Morphing: The changing of one position into another position with just one order, typically used with synthetic positions.

Naked Option: Also known as an uncovered option, this is where the writer of a contract doesn'tt have a corresponding position in the underlying security to protect them against unfavorable price movements. For example, writing calls without owning enough of the underlying security is writing naked options or taking a naked position.

Near The Money Option: An option where the price of the underlying security is very close to the strike price.

Neutral Market: When the overall market is relatively stable it's either bullish or bearish.

Neutral Outlook: An expectation that the market, or a specific financial instrument, will remain relatively stable in price.

Neutral Trading Strategies: Strategies that can be used to profit from the price of a financial instrument not moving, or moving only slightly. List of Neutral Strategies.

One Sided Market: A market where the buyers significantly outnumber the sellers or the sellers significantly outnumber the buyers.

One Cancel Other Order: Often abbreviated to OCO, this is a type of combination order where one order is cancelled when the other one is filled.

One Trigger Other Order: Often abbreviated to OTO, this is a type of combination order where one order is automatically executed when the other one is filled.

Online Broker: A broker that enables you to enter your orders using an online trading platform.

Opening Order: An order that is used to open a new position. See Buy To Open Order or Sell To Open Order.

Open Interest : A measurement of the total number of open positions relating to a particular option. Read more about Open Interest.

Optionable Stock: Stock that has options based on it.

Option / Options Contract: The right to buy or sell a specified underlying security at a fixed strike price within a specified period of time.

Option Pain: The theoretical price of an underlying security that will result in the highest number of traders losing the highest amount of money due to options contracts expiring out of the money. Also known as Max Pain. Read more about Option Pain.

Options Broker: An individual or a company that executes orders to buy and sell options contracts on behalf of clients. List of the Best Brokers.

Options Trader: Any investor that buys and/or sells options contracts.

Options Trading: The process of buying and/or selling options contracts as a form of investment, to make short term profits, or to hedge existing positions.

Options Symbol: Effectively the name of an option; a string of characters that defines specific options contracts.

Out of the Money Option: An option where the price of the underlying security is in an unfavorable position, relative to the strike price, for the holder: meaning it has no intrinsic value. A call is out of the money when the price of the underlying security is lower than the strike price and a put is out of the money when the price of the underlying security is higher than the strike price.

Outlook: An expectation on which direction, if any, the market or a specific underlying security will move.

Over The Counter Option: A type of option that is only sold over the counter (OTC) and not on the public exchanges. They are typically highly customized options with specific parameters.

Physical Option: An option where the underlying security is a physical asset that is neither stock nor futures contracts.

Physically Settled Option: A type of option in which the underlying security changes hands between the holder and the writer of the options when it's exercised.

Portfolio: The combined holdings of any financial instruments owned by an individual, group, or financial institution.

Position Trader: A trader who uses the unique opportunities that options offer to profit from factors such as time decay and volatility.

Position Trading: The style of trading used by position traders, who are usually very experienced traders, to take advantage of the opportunities for profit that are created by the mechanics of options trading. Read more about Position Trading.

Premium: A term that can be used to describe the whole price of an option or the extrinsic value of an option. Read more about Premium.

Premium Value: See Extrinsic Value.

Pricing Model: A mathematical formula that is used to value or price an option contract based on specific factors. See Black Scholes Pricing Model or Binomial Pricing Model for examples.

Pricer: A specific type of chain that displays the five main Greeks in addition to other standard information.

Protective Call: A strategy that is used to protect profits in a short stock position. Learn how to use a Protective Call.

Protective Put: A strategy that is used to protect profits in a long stock position. Learn how to use a Protective Put.

Put: A type of option which grants the holder the right, but not the obligation, to sell the relevant underlying security at an agreed strike price. Read more about Put Options.

Put Call Parity: A concept related to pricing that's based on avoiding arbitrage by ensuring the extrinsic values of related calls and when puts are equal, or close to equal in value.

Put Ratio Backspread: An advanced strategy that can be used for profit in a volatile market, when there's a bearish outlook. Learn how to use a Put Ratio Backspread.

Put Ratio Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Put Ratio Spread.

Quadruple Witching: The third Friday in the months of March, June, September, and December are the days when stock options, index options, stock futures, and index futures all reach their expiration point; this usually leads to high trading volume and increased volatility.

Quarterly Option: A type of option that uses a quarterly expiration cycle.

Ratio Spread: A type of spread that is created using multiple contracts of differing amounts. This typically involves writing a higher amount of options than is being bought, but the ratio can be either way around. Read more about Ratio Spreads.

Realize a Profit: The process of taking profits when closing an existing a position. Profit that exists in an open position is unrealized profit.

Realize a Loss: The process of incurring losses when closing an existing position. Losses that exist in an open position are unrealized losses.

Resistance Level: A price point, higher than its current price, that a financial instrument has not risen above over a given period of time.

Return On Investment: Often abbreviated to ROI, this is the percentage of profit that's made, or could be made, on an investment.

Reverse Iron Albatross Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Albatross Spread.

Reverse Iron Butterfly Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Butterfly Spread.

Reverse Iron Condor Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Condor Spread.

Rho Value: One of the Greeks, the rho value measures the theoretical effect of changes in interest rates on the price of the option. Also referred to as Options Rho.

Risk Graph: A graph used to illustrate the risk to reward ratio of a position. Read more about Risk Graphs.

Risk Reversal: A simple strategy that's typically used for the purposes of hedging. Read more about Risk Reversal.

Risk to Reward Ratio: An indication of how much risk is involved in a position in relation to the potential rewards or profits. Read more about Risk to Reward Ratio.

ROI: See Return on Investment.

Rolling Down: The process of closing an existing position and opening a comparable position at the same time, but with a lower strike price.

Rolling Forward: The process of closing an existing position and opening a comparable position at the same time, but extending the time left until expiry.

Rolling: A trading technique used to close an existing position and open a similar one at the same time, with slightly different terms. Read more about Rolling.

Rolling Up: The process of closing an existing position and opening a comparable position at the same time, but with a higher strike price.

Sell To Close Order: An order that's placed when you want to close an existing long position through selling the contracts you have previously bought. Read more about the Sell to Close Order.

Sell To Open Order: An order that's placed when you want to open a new position through writing new contracts. Read more about the Sell to Open Order.

Settlement: The process by which the terms of a contract are resolved when the option is exercised. Read more about Settlement.

Short: You are short on a financial instrument if you have short sold that financial instrument and/or you stand to gain from it falling in price.

Short Albatross Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Condor Spread.

Short Bear Ratio Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Short Bear Ratio Spread.

Short Bull Ratio Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Short Bull Ratio Spread.

Short Butterfly Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Butterfly Spread.

Short Calendar Straddle: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Calendar Straddle.

Short Calendar Strangle: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Calendar Strangle.

Short Call: This is a simple strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Short Call.

Short Call Calendar Spread: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Call Calendar Spread.

Short Condor Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Condor Spread.

Short Gut: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Gut.

Short Position: The position of being short on a financial instrument. If you write contracts then you hold a short position on them.

Short Put: This is a simple strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Short Put.

Short Put Calendar Spread: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Put Calendar Spread.

Short Selling: The selling of a financial instrument that isn't currently owned, with the expectation of buying it back in the future at a lower price.

Short Straddle: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Straddle.

Short Strangle: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Strangle.

Spread: A position that's created by buying and/or selling different contracts on the same underlying security to combine multiple positions into one effective position. Read more about the Types of Options Spreads.

Spread Order: A type of order that's used to create a spread by simultaneously transacting all the required trades.

Stock Option: A type of option where the underlying security is stock in a publically listed company.

Stock Repair Strategy: A strategy that's used to recover losses from held stock that has fallen in value. Read more about Stock Repair Strategy.

Stock Replacement Strategy: A strategy that involves buying deep in the money call options instead of the underlying stock. The strategy is used to reduce the capital required to enter the position. Read more about Stock Replacement Strategy.

Stop Limit Order: See Limit Stop Order.

Stop Market Order: See Market Stop Order.

Stop Order: A type of order that's used to automatically close a position when a specified price is reached.

Strap Straddle: This is a simple strategy that can be used when price of the underlying security is volatile, but the inclination occurs when the move will be to the upside. Learn how to use a Strap Straddle.

Strap Strangle: This is a simple strategy that can be used when the price of the underlying security is volatile, but the inclination occurs when the move will be to the upside. Learn how to use a Strap Strangle.

Strike Arbitrage: An advanced strategy that involves the use of arbitrage. Read more about the strike arbitrage at Arbitrage Strategies.

Strike Price: The price specified in a contract at which the holder of the contract can exercise their option. The strike price of a call is the price at which the holder can buy the underlying security and the strike price of a put is the price at which the holder can sell the underlying security.

Strip Straddle: This is a simple strategy that can be used when the price of the underlying security is volatile, but the inclination occurs when the move will be to the downside. Learn how to use a Strip Straddle.

Strip Strangle: This is a simple strategy that can be used when the price of the underlying security is volatile, but the inclination occurs when the move will be to the downside. Learn how to use a Strip Strangle.

Support Level: A price point, lower than its current price, that a financial instrument hasn't fallen below over a given period of time.

Swing Trader: A trader who looks for relatively short term price swings and aims to profit from those swings by trading accordingly.

Swing Trading: The style of trading used by swing traders, where positions are usually held for a relatively short period of time in order to profit from short term price swings. Read more about Swing Trading.

Synthetic Long Call: A synthetic position which is essentially the same as owning calls. It involves buying puts and buying the related underlying security.

Synthetic Long Put: A synthetic position which is essentially the same as owning puts. It involves buying calls and short selling the related underlying security.

Synthetic Long Stock: A synthetic position which is essentially the same as owning stocks. It involves buying at the money calls and writing at the money puts on the relevant stock.

Synthetic Position: A position that's created using a combination of stocks and options, or a combination of different positions, to emulate another stock position or option position. Read more about Synthetic Positions.

Synthetic Short Call: A synthetic position which is essentially the same as being short on call options. It involves short selling stock and then writing put options based on that stock.

Synthetic Short Put: A synthetic position which is essentially the same as being short on put options. It involves buying a stock and then writing call options based on that stock.

Synthetic Short Straddle: A synthetic strategy that essentially replicates the Short Straddle trading strategy. Read more about the synthetic short straddle at Synthetic Strategies.

Synthetic Short Stock: A synthetic position which is essentially same as being short on stock. It involves the writing of at the money call options and buying at the money put options on the relevant stock.

Synthetic Straddle: A synthetic strategy that essentially replicates the Long Straddle trading strategy. Read more about the synthetic straddle at Synthetic Strategies.

Technical Analysis: A style of analysis used to predict the future price movements of a financial instrument by studying historical data relating to the volume and price. This typically involves analyzing charts and graphs to find patterns and trends.

Theoretical Value: The value of a specific option, or position, that is calculated by a pricing model or other mathematical formulas.

Theta Value: One of the Greeks, the theta value measures the theoretical rate of time decay of that option. Also referred to as Options Theta.

Time Decay: The process by which the extrinsic value diminishes as the expiration date of the option gets closer. Read more about Time Decay.

Time Call Spread: See Calendar Call Spread.

Time Put Spread: See Calendar Put Spread.

Time Spread: See Calendar Spread.

Time Value: See Extrinsic Value.

Trading Plan: A detailed plan that a trader would prepare to lay out how they'll approach their trading. The plan would usually include defined objectives, details of methods that will be used for budget control, risk management, and which strategies will be used.

Trailing Stop Order: A type of order that includes a stop price which is based on a percentage or absolute change from the previous best price.

Trading Levels: A level that's assigned to account holders at brokers to indicate what level of risk they can be exposed to. They are used to protect traders that have insufficient capital or inadequate experience from entering trades that they shouldn’t have. Also known as approval levels. Read more about Trading Levels.

Trading Style: The method and/or approach that a trader undertakes to follow; there are several specific types of trading styles. Read more about Types of Options Trader & Trading Style.

Trend: A recognizable and continued movement in a market or in the price of a specific financial instrument.

Uncovered Option: See Naked Option.

Underlying Asset: See Underlying Security.

Underlying Security: The asset, security, or financial instrument that an option is based on.

Underlying Financial Instrument: See Underlying Security.

Vega Value: One of the Greeks, the vega value measures the theoretical effect of changes in the implied volatility of the underlying security on the price of the option. Also referred to as Options Vega.

Vertical Spread: A type of spread that's created using multiple contracts with different strike prices, but it has the same expiration dates. Read more about Vertical Spreads.

Volatile: A financial instrument or whole market, that's moving unexpectedly and/or dramatically is said to be volatile.

Volatile Market: A market that's constantly moving unexpectedly and dramatically, with a high level of price instability.

Volatile Trading Strategies: Strategies that can be used to profit from a volatile market and/or a volatile financial instrument. List Of Volatile Strategies.

Volatility: A measure of how a financial instrument is expected to fluctuate over a specified period of time. Read more about Volatility.

Volatility Crunch: A significant drop in implied volatility.

Volatility Skew: When a graph that represents the implied volatility across options with the same underlying security, but different strike prices form a curve skewed to right.

Volatility Smile: When a graph that represents the implied volatility across options has the same underlying security but different strike prices, forms a concave similar in appearance to a smile.

Volume: The amount of transactions that took place involving a specified financial instrument such as a particular option. One with a high volume means it has been heavily traded.

Weekly Option: A type of option that uses a weekly expiration cycle.

Writer: The creator of new contracts to sell.

Writing an Option: The process of effectively creating new contracts to sell.

Trading Glossary:

The Financial world has developed a special investment based language to help describe the stock market, investments, securities for the stock market, stock market analysis, and it's conditions. Often at times one is confronted with a term which is totally alien to them, or has a completely different meaning from what one thought. Misunderstanding these terms can sometimes lead to the wrong conclusion, and that can cost you money!

Uncovered Options Signals.

Financial News Blog.

Options References.

Financial Press Review.

Options References.

From Reuters: After years of pulling out the stops to boost a stubbornly sluggish U. S. economy, the Federal Reserve is moving back to "normal" monetary policy, a top Fed official said on Thursday.

News History.

News History.

Articles by Category.

Latest Articles.

12/8/2017 - More Volatility - Increasing volatility suggest paying less attention to Bullish signals with focusing more on the bearish signals.

12/1/2017 - Side-way Trending - Once again, the SBV Flow helps to avoid choppy signals other technical indicator would generate during the current side-way trending. Continue monitoring the SBV Flow to see the exit from the current uncertain market.

11/10/2017 - Increasing volatility - As 2-month bullish rally ended and we started seeing increase in volatility and shifting toward side-way trending. See how SBV Flow could be traded under such conditions.

11/3/2017 - SBV Flow - The SBV Flow cought the end of the Bullish rally on the S&P 500 index and went back into the bullish area by collection additional profit in the pockets of those who uses Selling Buying volume flow to trade.

10/20/2017 - +294 on S&P 500 - Our system avoided choppy signals during a week of side-way trending. After that a strong bullish week delivered nice profit for growing portfolio. The the system successfully avoids choppy signals in side-way price trending. Follow the SBV Flow on the S&P 500 to know when to buy and when to sell.

8/25/2017 - Summer-Vacation Season - The SBV Flow simple trading system helps to avoid choppy signals during the summer-vacation season. .

8/18/2017 - +200 on S&P 500 - The SBV Flow simple trading system performed greatly over the past two months by delivering stable signals. Only one red signal was recorded over that time. Follow volume - see where the money flow and you know what direction to trade.

8/17/2017 - Low Breadth - Extremely low Breadth readings suggest close bottom of the current correction. Use SBV Flow and Advance / Decline indicators to trade on the market with profit.

8/11/2017 - Sell Signal - The SBV Flow indicator perfectly spotted the reversal by generating the "Sell" signal on the S&P 500 index. Continue monitoring the Selling Buying volume to know when to buy.

8/3/2017 - Side-way trend - The SBV Flow simple trading system successfully avoids the choppy signals in side-way narrow range trending. When most of the other system lose all profit during side-way trends our system remains stable.

7/28/2017 - Perfect signal - Perfect "Buy" signal was closed on 7/28/2017 by delivering 1.8% on the S&P 500 index. The system is back in bullish position as a new "Buy" signal was generated by the Selling-Buying Flow indicator on the same day.

7/21/2017 - Bulls do not weaken - Money Flow continues to be positive - the Bulls continue to push the S&P 500 up and the simple trading system remains in the bullish position since July 7th.

7/14/2017 - Volatility continues to rise - As volatility continues to rise, the money flow remains negative and the simple trading system continues to remain in the bearish position.

6/30/2017 - More side-way action - SBV Flow protected from the today's crash. Continue monitoring the Selling and Buying Volume to know when to go bullish again.

6/27/2017 - Watch SBV Flow to know when to go Buy - SBV Flow protected from the today's crash. Continue monitoring the Selling and Buying Volume to know when to go bullish again.

Trading Glossary Map.

Site Review:

Refernces Map.

Disclaimer.

© 1997-2017 Highlight Investments Group. All Rights Reserved. SV1.

Products.

A comprehensive list of option-oriented terms and their definitions.

These option trading terms are used with some frequency throughout our website and in our various publications.

Assignment.

The process by which a seller (or writer) of an option is notified that he is being required to fulfill his obligation to sell stock (call assignment) or buy stock (put assignment).

Backspread.

Any spread in which in-the-money options are sold and a greater quantity of out-of-the-money options are bought. In a more general sense, it may refer to any strategy that makes money when the market becomes volatile.

Bear spread.

A spread which makes money if the underlying stock or future declines in price. Typically constructed by buying puts at one strike and selling a like number of puts with a lower strike.

Break-even Point.

The point at which a strategy or position would neither make nor lose money (generally, at the option's expiration date).

Bull spread.

A spread which makes money if the underlying stock or future rises in price. Typically, one would buy calls at a certain strike and sell the same number of calls at a higher strike.

Calendar spread.

A spread in which one sells options at one strike and buys options at a longer maturity with the same striking price. In a neutral calendar spread, one would not necessarily buy and sell the same quantity of options. The spread may be constructed with either puts or calls, but they are not mixed; that is, if one buys calls, he also sells calls to complete the spread -- puts would not be involved in that case.

An option or future that settles for cash at its expiration date, rather than being converted into stock or a physical commodity.

Closing transaction.

A trade that reduces an investor's position. Closing buy transactions reduce one's short position, and closing sell trades reduce an existing long position.

Collateral.

The loan value of marginable securities; generally used to finance the writing of naked options.

Contrarian.

One who thinks that the popular opinion of the masses is wrong, and will therefore go against that opinion. If everyone is bullish, the contrarian will interpret that as a sell signal.

1) to buy back an option that was written; 2) to sell an option against an existing position in the underlying stock or futures.

Covered option.

A written option is considered covered if the investor has an offsetting position in the underlying security. Written calls are covered by long stock; written puts are covered by short stock.

Covered write.

Typically meant to denote the strategy in which one is long the stock or future and is short an equal number of calls.

Money received in an account. When a spread is done "at a credit", the dollars from the options sold are greater than the cost of the options purchased.

Money expended from an account. A debit spread requires an outlay of dollars to establish.

The amount by which an option's price will change if the underlying security moves one point in price. See also 'position delta'.

An option is trading at a discount if it is selling for less than its intrinsic value. Example XYZ is 55, the Jan 50 call is 4½ this is a ½ point discount, since the intrinsic value is 55 − 50 = 5.

Early exercise or assignment.

The exercise or assignment of an option before its expiration date. Not allowed for certain options, which are known as European options.

Equity options.

Options which have common stock as their underlying security.

Equivalent positions.

Two strategies are equivalent if they have the same profit picture at expiration. Selling naked puts is equivalent to writing covered calls; buying stock and puts is equivalent to buying calls.

European exercise.

A feature of some options which means that they are only allowed to be exercised at expiration, but not before. Therefore, there can be no early assignment of a European option. Many index options have this feature.

To invoke the holder's right to buy stock (calls) or sell stock (puts).

Expected return.

A mathematical estimate of the return that can be made from a position. It is technically the return which an investor might expect to make if he were to make exactly the same investment many times throughout history. If one consistently invests in positions with high expected returns, he should, on average, outperform those who don't.

Expiration date.

The date on which an option contract becomes void. For equity and index options, it is the Saturday after the third Friday of the expiration month. For futures options, each one is different. However, most commodity-based futures options expire in the month before the future expires.

Fair Value.

A term used to describe the theoretical worth of an option or futures contract; determined generally by a mathematical model, with volatility sometimes being a subjective variable.

A standardized contract calling for the delivery of a specified quantity of a commodity at a specified date in the future. In some cases, the contract is cash-based, meaning that no actually commodity is delivered; rather the contract is settled for cash.

Futures options.

Options which have futures contracts as their underlying security.

The amount by which the delta will change when the underlying stock moves by one point. See delta.

Historical Volatility.

A measure of the volatility of the underlying stock or futures contract, determined by using historical price data.

Implied Volatility.

A measure of the volatility of the underlying stock or futures contract. It is determined by using prices currently existing in the market at the time, rather than using historical data price changes.

Index future or option.

A future or option whose underlying entity is an index. Most index futures and options are cash-based, meaning they settle for cash at their expiration, rather than for shares of the index itself.

In-the-money.

A term describing any option that has intrinsic value. A call is in-the-money if the stock or future is trading higher than the striking price; a put is in-the-money if the stock is trading lower than the striking price.

Inter-market spread.

A spread involving contracts on two different markets, generally referring to futures contracts. For example, one might be long Deutschmark futures and short Yen futures as a hedge.

Intra-market spread.

A spread involving different contracts on the same underlying commodity. Example long July soybeans, short May soybeans.

Intrinsic value.

The amount by which an option is in-the-money; it is never a negative number. For calls, the difference between the stock or futures price and the striking price; for puts, the difference between the striking price and the stock or futures price.

Limit Order.

An order to buy or sell at a specific price. A limit buy order is placed below the current market price; a limit sell order is placed above the current market price.

The investment required by a brokerage firm. Long options must be paid for in full. Futures contracts and naked options are margined. In this sense, one is not borrowing money from the broker. Rather the margin is a deposit of collateral against potential losses from the position.

Moving average.

An average of closing prices over a specific time period, which could be hourly, daily, weekly, or even monthly. A 200-day moving average of a stock price is sometimes considered to be significant support or resistance.

Naked option.

A written option is considered to be naked, or uncovered, if the investor does not have an offsetting position in the underlying stock or futures. See covered option.

Describing a position that does not have exposure to a certain factor of the marketplace. For example, delta neutral means that the position is not affected by short-term market movements; gamma neutral means that the position will not be affected by even larger market movements; vega neutral means the position is not affected by changes in implied volatility.

Opening Transaction.

A trade which adds to the net position of an investor; an opening buy adds more long options or futures, while an opening sell adds more short stock or futures.

Open Interest.

The net total of outstanding open futures or options contracts that have been purchased. Note that for every opening buy, there is an opening sell as well, but the open interest only counts one side, not both.

Out-of-the-money.

Describing an option with no current intrinsic value. For calls, when the stock or future is below the strike; for puts when the stock or future is above the strike.

Describing an in-the-money option trading for its intrinsic value. Also used as a point of reference -- an option is sometimes said to be trading at a specific distance "over parity" or "under parity". An option trading under parity is trading at a discount.

Profit Graph.

A graphical representation of the profit potential of a position. Usually, the stock or future price is plotted on the horizontal axis, while the dollars of profit or loss are plotted on the vertical axis. Results may be plotted at any point in time. Generally, in The Option Strategist, profit graphs will show results projected two weeks hence, as well as projected results at expiration of the nearest-term option in the position.

Position delta.

A measure of the exposure of an entire option position to market movement. It is computed by summing the following for every option in the position quantity × delta × shares per option.

another word for price, when speaking of an option.

Put-call Ratio.

A measure of option trading volume that is sometimes used as a contrarian technical indicator to predict forthcoming market movements. The ratio is computed by dividing trading volume of puts by the trading volume of calls. It may be used in a specific case, such as options on gold futures, for example. It may also be used in a broader sense by dividing the total volume of all puts trading on equities on all exchanges by all calls traded. If the ratio gets too high, that indicates too many people are buying puts. Since this is a contrarian indicator, that would be a buy signal. Conversely, if too many calls are being bought, the ratio will be too low, and that is generally a sell signal.

Ratio spread.

A spread in which the number of options sold is larger than the number purchased. Hence the strategy involves naked options. See also backspread.

Resistance.

A term in technical analysis indicating a price area higher that the current stock price where an abundance of supply exists. Therefore the stock or future may have trouble rising through the resistance price.

To close an option and re-establish a similar position in another option on the same underlying security. To roll a long call, one would sell the call he owns, and buy another call, generally with either a higher strike or a longer time to expiration, or both.

A term referring to volatilities of options at different striking prices on the same underlying security. If the implied volatilities are different at each strike, there is said to be volatility skewing.

For options, any option position having both long options and short options of the same type (put or call) on the same underlying stock or futures contract. For futures, any position involving both long and short futures either with different months on the same commodity, or on two related commodities.

Stop order.

An order which becomes a market order when the stock or future trades at the price specified on the stop order. Buy stop orders are placed above the current market price; sell stop orders are placed below the current market price.

Any position involving both puts and calls on the same side of the market, with the same striking price. For example, a long straddle involves buying both puts and calls with the same striking price.

A term in technical analysis indicating a price area lower than the current price of the stock or future, where demand is thought to exist. Thus a stock or futures contract would stop declining when it reached a support area.

Technical Analysis.

The method of predicting future price movements based on observations of historical price movements; applies to either stocks or futures.

Theoretical Value.

The price of an option or spread as computed by a mathematical model. See also fair value.

Uncovered option.

See naked option.

Underlying security.

A broad term used to denote the stock, index, or futures contract which underlies a particular series of options.

A term to describe the amount by which an option's price will change for a 1 percent change in the volatility of the underlying security.

Volatility.

A measure of the amount by which an underlying security is expected to fluctuate in a given period of time. See also skewing.

The amount of trading of a stock, option, or future. Excessive trading volume in an equity option may portend a move in price by the underlying stock. If one can spot unusually heavy trading in calls, that may be a buy signal for the underlying stock.

To sell an option. The investor who sells is called the writer.

Product Categories.

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.

Testimonials*: Testimonials are believed to be true based on the representations of the persons providing the testimonials, but facts stated in testimonials have not been independently audited or verified. Nor has there been any attempt to determine whether any testimonials are representative of the experiences of all persons using the methods described herein or to compare the experiences of the persons giving the testimonials after the testimonials were given. You should not necessarily expect the same or similar results.

Performance Results: Past performance results for advisory services and educational products are shown for illustration and example only, and are hypothetical.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

© 2015 The Option Strategist | McMillan Analysis Corporation.