Term
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Definition
| An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style. |
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Term
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Definition
| The simultaneous purchase and sale of identical financial instruments or commodity futures in order to make a profit where the selling price is higher than the buying price. |
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Term
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Definition
| The price that market makers or sellers will accept to sell an option. |
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Term
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Definition
| When an options holder excercises the contract, an options writer is chosen to fulfill the obligation. |
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Term
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Definition
| A term that describes an option with a strike price that is equal to the current market price of the underlying stock. |
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Term
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Definition
| An investor who acts on the belief that a security or the market is falling or is expected to fall. |
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Term
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Definition
| A strategy in which a trader sells a lower strike call and buys a higher strike call to create a trade with limited profit and limited risk. A fall in the price of the underlying increases the value of the spread. Net credit transaction; Maximum loss = difference between the strike prices less credit; Maximum gain = credit; requires margin. |
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Term
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Definition
| A declining stock market over a prolonged period of time usually caused by a weak economy and subsequent decreased corporate profits. |
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Term
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Definition
| A strategy in which a trader sells a lower strike put and buys a higher strike put to create a trade with limited profit and limited risk. A fall in the price of the underlying increases the value of the spread. Net debit transaction; Maximum loss = d ifference between strike prices less the debit; no margin. |
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Term
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Definition
| The highest price at which a floor broker, trader or dealer is willing to buy a security or commodity for a specified time. |
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Term
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Definition
| The bid (the highest price a buyer is prepared to pay for a trading asset) and the asked (the lowest price acceptable to a prospective seller of the same security) together comprise a quotation, or quote. |
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Term
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Definition
| Demand for an asset drives up the price paid by buyers. |
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Term
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Definition
| The difference between bid and asked prices constitute the bid-asked spread. |
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Term
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Definition
| The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options. |
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Term
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Definition
| A stock with solid value, good security, and a record of dividend payments or other desirable investment characteristics. Many times they have a record of consistent dividend payments, receive extensive media coverage and offer a host of other benefic ial investment attributes. On the downside, blue chip stocks tend to be quite expensive and often have little room for growth. |
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Term
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Definition
| This term is derived from poker where blue chips hold the most value. Blue chips in the stock market are stocks with the best market capitalization in the marketplace. |
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Term
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Definition
| Financial instruments representing debt obligations issued by the government or corporations traded in the futures market. A bond promises to pay its holders periodic interest at a fixed rate (the coupon), and to repay the principal of the loan at mat urity. Bonds are issued with a par or face value of $1,000. Bonds are traded based upon their interest rates - if the bond pays more interest than available elsewhere, its worth increases. |
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Term
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Definition
| The point at which gains equal losses. The market price that a stock or future must reach for an option to avoid loss if exercised. For a call, the break-even equals the strike price plus the premium paid. For a put, the break-even equals the strike price minus the premium paid. |
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Term
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Definition
| A rise in the price of an underlying instrument above its resistance level or a drop below the support level. |
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Term
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Definition
| An investor who believes that a market is rising or is expected to rise. |
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Term
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Definition
| A strategy in which a trader buys a lower strike call and sells a higher strike call to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread. Net debit transaction; Maximum loss = debit; Maximum gain = difference between strike prices less the debit; no margin. |
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Term
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Definition
| A rising stock market over a prolonged period of time usually caused by a strong economy and subsequent increased corporate profits. |
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Term
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Definition
| A strategy in which a trader sells a higher strike put and buys a lower strike put to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread. Net credit transaction; Maximum loss = difference between strike prices less credit; Maximum gain = credit; requires margin. |
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Term
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Definition
| The sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher strike, and one option with an immediately lower strike. All options must be the same type, have the same underlying and have the same expiration date. |
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Term
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Definition
| Many options are spreads that have a buy option leg and a sell option leg. Buy IV is the implied volatility of the option leg with a buy component. Sell IV is the implied volatility of the option leg with a sell component. |
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Term
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Definition
| To buy at the end of a trading session at a price within the closing range. |
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Term
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Definition
| To buy at the beginning of a trading session at a price within the opening range. |
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Term
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Definition
| An order to purchase a security entered at a price above the current offering price triggered when the market hits a specified price. |
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Term
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Definition
| If you purchase an options contract, regardless of whether you're opening or closing a position, you're a buyer. |
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Term
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Definition
| A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a combined order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. See also Covered call / covered call writing |
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Term
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Definition
| A spread consisting of one long and one short option of the same type with the same exercise price, but which expire in different months. |
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Term
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Definition
| An option contract which gives the holder the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time in exchange for a paying a premium. |
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Term
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Definition
| The amount a call option costs. |
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Term
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Definition
| The amount of money an individual or business has available. |
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Term
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Definition
| The profit realized when a capital asset is sold for a higher price than the purchase price. |
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Term
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Definition
| The loss incurred when a capital asset is sold for a lower price than the purchase price. |
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Term
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Definition
| Refers to the current value of a corporation's outstanding shares in dollars. |
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Term
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Definition
| An option with an established profit cap or cap price. |
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Term
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Definition
| An account in which the customer is required to pay in full for all purchased securities. |
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Term
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Definition
| A dividend paid in cash to a shareholder out of a corporation's profits. |
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Term
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Definition
| The difference between the current price and the price of the previous day of a security. |
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Term
| Chicago Board of Trade (CBOT) |
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Definition
| Established in 1886, the CBOT is the oldest commodity exchange in the United States and primarily lists grains, T-Bonds and notes, metals and indexes. |
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Term
| Chicago Board Options Exchange (CBOE) |
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Definition
| The largest options exchange in the United States. |
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Term
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Definition
| Option contracts of the same type (call or put), style and underlying security. |
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Term
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Definition
| An institution established separately from the exchanges to ensure timely payment and delivery of securities. |
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Term
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Definition
| The price of the last transaction for a particular security each day. |
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Term
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Definition
| A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved. |
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Term
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Definition
| A transaction to eliminate a short position. |
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Term
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Definition
| The high and low prices recorded during the period designated as the official close. |
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Term
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Definition
| A transaction to eliminate a long position. |
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Term
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Definition
| A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence |
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Term
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Definition
| A service charge assessed by a broker and his/her investment company in return for arranging the purchase or sale of a security. |
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Term
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Definition
| The sale or purchase of 2 options with consecutive exercise prices, together with the sale or purchase of 1 option with an immediately lower exercise price and 1 option with an immediately higher exercise price. |
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Term
| Consumer Price Index (CPI) |
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Definition
| A measure of price changes in consumer goods and services. This index is used to identify periods of economic inflation or deflation. |
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Term
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Definition
| A unit of trading for a financial or commodity future, or option. |
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Term
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Definition
| A sudden decline in the price of a security after a period of market strength. |
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Term
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Definition
| A short call option position against a long position in an underlying stock or futures. An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite |
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Term
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Definition
| A short put option position against a short position in an underlying stock or futures. |
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Term
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Definition
| The difference in value between 2 options, where the value of the short position exceeds the value of the long position. |
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Term
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Definition
| The current exchange rate between differing currencies. |
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Term
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Definition
| The difference between the high and low price of a security in one trading day. |
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Term
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Definition
| The purchase and sale of a position in the same day. |
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Term
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Definition
| An approach to trading in which the same position is entered and exited within one day. |
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Term
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Definition
| The difference in value between 2 options, where the value of the long position exceeds the value of the short position. |
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Term
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Definition
| A deep-in-the-money call option has a strike price well below the current price of the underlying instrument. A deep-in-the-money put option has a strike price well above the current price of the underlying instrument. Both primarily consist of intrinsic value. |
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Term
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Definition
| The amount by which the price of an option changes for every dollar move in the underlying instrument. |
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Term
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Definition
| A position arranged by selecting a calculated ratio of short and long positions that balance out to an overall position delta of zero. |
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Term
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Definition
| A measure of option or underlying securities delta. |
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Term
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Definition
| An options strategy protecting an option against price changes in the option's underlying instrument by balancing the overall position delta to zero. |
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Term
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Definition
| Financial instruments based on the market value of an underlying asset. |
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Term
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Definition
| When 2 or more averages or indices fail to show confirming trends. |
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Term
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Definition
| A sum of money paid out to a shareholder from the stock's profits. |
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Term
| Dow Jones Industrial Average (DJIA) |
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Definition
| Used as an overall indicator of market performance, this average is composed of 30 blue chip stocks which are traded daily on the New York Stock Exchange. |
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Term
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Definition
| The potential for prices to decrease. |
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Term
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Definition
| The potential risk one takes if prices decrease in directional trading. |
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Term
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Definition
| The close of the trading day when market prices settle. |
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Term
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Definition
| A price level in a sideways market equal-distance from the resistance and support levels. |
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Term
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Definition
| An option on shares of an individual common stock or exchange traded fund. |
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Term
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Definition
| An option contract that can only be exercised on the expiration date. |
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Term
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Definition
| An area where an asset, option, future, stock or derivative is bought and sold. |
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Term
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Definition
| The price at which one country's currency can be converted into another country's currency. |
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Term
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Definition
| The process of completing an order to buy or sell securities. |
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Term
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Definition
| Implementing an option's right to buy or sell the underlying security. |
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Term
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Definition
| A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put). |
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Term
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Definition
| The stock price is randomly projected into the future using the stock's 20-day statistical (historical) volatility (SV) in the Optionetics option trade ranker tool. The stock price projection stops at the expiration of the earlist expiring option leg. The stock price future statistical distribution at option expiration is used to compute possible profits and losses. Expected Profit is the predicted profits minus the predicted losses expressed in total dollars. |
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Term
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Definition
| The date and time after which an option may no longer be exercised. |
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Term
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Definition
| The last day on which an option may be exercised. |
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Term
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Definition
| An opportunity that can yield large profits with usually a limited risk in a short amount of time. |
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Term
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Definition
| The price of an option less its intrinsic value. An out-of-the money option's worth consists of nothing but extrinsic or time value. |
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Term
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Definition
| Selling a rising price or buying a falling price. |
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Term
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Definition
| The value of an asset under normal conditions. |
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Term
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Definition
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Term
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Definition
| Placing an order to buy or sell an exact number of units or none at all. |
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Term
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Definition
| An order that must be filled or canceled immediately. |
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Term
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Definition
| The term used for debt instruments. |
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Term
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Definition
| A delta figure that does not change with the change in the underlying. A futures contract has a fixed delta of plus or minus 100. |
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Term
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Definition
| A variation in the market price of a security. |
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Term
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Definition
| The first expiration month in a series of months. |
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Term
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Definition
| An approach to trading research to predict futures and stock price movements based on a balance sheet and income statements, past records of earnings, sales, assets, management, products and services. |
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Term
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Definition
| All contracts covering the purchase and sale of financial instruments or physical commodities for future delivery. These orders are transacted on a commodity futures exchange. |
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Term
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Definition
| Agreement to buy or sell a set number of shares of a commodity or financial instruments in a designated future month at a price agreed upon by the buyer and seller. |
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Term
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Definition
| The degree by which the delta changes with respect to changes in the underlying instrument's price. |
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Term
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Definition
| A day in which the daily range is completely above or below the previous day's daily range. |
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Term
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Definition
| To buy securities, options or futures. |
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Term
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Definition
| To sell securities, options or futures. |
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Term
| Good Til' Canceled Order (GTC) |
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Definition
| Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it. |
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Term
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Definition
| A strangle where the call and the put are in-the-money. |
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Term
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Definition
| The intense selling of stocks by speculators who think the market is about to drop because they think prices are inflated. |
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Term
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Definition
| Reducing the risk of loss by taking a position through options or futures opposite to the current position they hold in the market. |
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Term
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Definition
| The highest price that was paid for a stock during a certain period. |
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Term
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Definition
| Refers to the high and low transactions prices that occur each trading day. |
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Term
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Definition
| A speculative high-priced stock that moves up and down sharply over a short period of time. |
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Term
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Definition
| A measurement of how much a contract's price has fluctuated over a period of time in the past; usually calculated by taking a stand`ard deviation of price changes over a time period. |
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Term
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Definition
| One who purchases an option. |
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Term
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Definition
| Market which has no volume that subsequently creates a lot of slippage due to lack of trading volume. |
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Term
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Definition
| An order which must be filled immediately or canceled. |
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Term
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Definition
| An index is a group of stocks which can be traded as one portfolio, such as the S&P 500. Broad-based indexes cover a wide range of industries and companies and narrow-based indexes cover stocks in one industry or economic sector. |
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Term
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Definition
| Call options and put options on indexes of stocks are designed to reflect and fluctuate with market conditions. Index options allow investors to trade in a specific industry group or market without having to buy all the stocks individually. |
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Term
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Definition
| The charge for the privilege of borrowing money, usually expressed as an annual percentage rate. |
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Term
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Definition
| Refers to a point in the business cycle when interest rates are declining and bond prices are rising. |
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Term
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Definition
| Observing the price movement of one market for the purpose of evaluating a different market. |
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Term
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Definition
| A spread consisting of opposing positions in instruments with two different markets. |
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Term
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Definition
| If you were to exercise an option and it would generate a profit at the time, it is known to be in the money. |
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Term
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Definition
| A "call" option is in-the-money if the strike price is less than the market price of the underlying security. A "put" option is in-the-money if the strike price is greater than the market price of the underlying security Intrinsic Value The amount by which a market is in-the-money. Out-of-the-money options have no intrinsic value. Calls = underlying -strike price. Puts = strike price - underlying. |
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Term
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Definition
| The in-the-money portion of an option's price. See also In-the-money option . The value of an option if you excercised it at a given moment. Out-of-the money and at-the-money options have no intrinsic value. For in-the-money options, the intrinsic value is the difference between the strike price and the underlying stock price. |
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Term
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Definition
| The combination of a long (short) straddle and a short (long) strangle. All options must have the same underlying and have the same expiration. |
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Term
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Definition
| Long-term stock or index options which are available with expiration dates up to three years in the future. |
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Term
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Definition
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Term
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Definition
| A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option. |
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Term
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Definition
| The maximum daily price limit for an exchange traded contract. |
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Term
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Definition
| An order to buy a stock at or below a specified price or to sell a stock at or above a specified price. |
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Term
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Definition
| Commodity exchange restrictions on the maximum upward or downward movements permitted in the price for a commodity during any trading session day. |
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Term
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Definition
| The ease with which an asset can be converted to cash in the marketplace. A large number of buyers and sellers and a high volume of trading activity provide high liquidity. |
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Term
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Definition
| A market where trading has been halted because prices have reached their daily trading limit. |
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Term
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Definition
| The term used to describe the buying of a security, contract, commodity, or option. When you own a security or option…You might have a long porition, or be long. |
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Term
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Definition
| This is the lowest price paid for a stock during a certain period. |
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Term
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Definition
| A trade which is hedged for purposes of limiting price loss as opposed to a directional trade where loss is unlimited. |
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Term
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Definition
| A market maker stands ready to buy or sell a particular security for his/her own account to keep the market liquid. |
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Term
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Definition
| A deposit contributed by a customer as a percentage of the current market value of the securities held in a margin account is thus the margin amount. This amount changes as the price of the investment changes. |
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Term
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Definition
| A customer account in which a brokerage firm lends the customer part of the purchase price of a trade. |
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Term
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Definition
| A call from a broker signaling the need for a trader to deposit additional money into a margin account to maintain a trade. |
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Term
| Margin Requirements (Options) |
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Definition
| The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes. |
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Term
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Definition
| At the end of each business day the open positions carried in an account held at a brokerage firm are credited or debited funds based on the settlement price of the open positions that day. |
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Term
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Definition
| An order specification that requires the broker to get the best price available on the close of trading, usually during the last five minutes of trading. |
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Term
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Definition
| Buying or selling securities at the price given at the time the order reached the market. A market order is to be executed immediately at the best available price, and is the only order that guarantees execution. |
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Term
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Definition
| The most recent price at which a security transaction took place. |
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Term
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Definition
| The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers. |
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Term
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Definition
| The daily adjustment of margin accounts to reflect profits and losses. In this way, losses are never allowed to accumulate. |
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Term
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Definition
| The simultaneous purchase of stock and put options representing an equivalent number of shares. This is a limited risk strategy during the life of the puts because the stock can always be sold for at least the strike price of the purchased puts. |
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Term
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Definition
| The maximum amount of losses possible from the option trade in the Optionetics option trade ranker tool. |
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Term
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Definition
| The maximum amount of net profit possible from the option trade in the Optionetics option trade ranker tool. |
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Term
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Definition
| Usually solidly established medium growth firms with less than 100 billion in assets. They provide better growth potential than blue-chip stocks, but do not offer as wide a variety of investment attributes. |
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Term
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Definition
| A model value for the option quote is the Bjerksund and Stensland Approximation of the Black-Scholes "fair" value of the option based on the estimated IV from the stock's other options. |
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Term
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Definition
| The Optionetics option trade ranker tool software uses an option mathematical model ( the Bjerksund Stensland American option model) to fairly price the option. The Optionetics software computes what the profit of the option strategy would be using the mathematical model option prices. The profit value is called the Model Profit. If this "model profit", when the trade is formed, is close to the profit of 0.0 ( a new trade should start with no profit ) then we are confident the option data being used for the trade is good. Model profits that exceed $200 likely are caused by incorrect option data. |
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Term
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Definition
| When a market continues in the same direction for a certain time frame, the market is said to have momentum. |
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Term
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Definition
| A technical indicator utilizing price and volume statistics for predicting the strength or weakness of a current market. |
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Term
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Definition
| Investing with (or against) the momentum of the market in hopes of profiting from it. |
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Term
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Definition
| The moving average is probably the best known, and most versatile, technical indicator. A mathematical procedure in which the sum of a value plus a selected number of previous values are divided by the total number of values. Used to smooth or eliminate t he fluctuations in data and to assist in determining when to buy and sell. |
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Term
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Definition
| You write a call on a stock you don't hold. |
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Term
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Definition
| An option written (sold) without an underlying hedge position. |
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Term
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Definition
| A securities position not hedged from market risk. |
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Term
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Definition
| The closing spread between the bid and asked prices of a security as a result of bidding and offering. |
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Term
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Definition
| An option with a strike price close to the current price of the underlying tradable. |
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Term
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Definition
| A short-term debt security, usually maturing in five years or less. |
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Term
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Definition
| Odds is the predicted profits divided by the predicted losses obtained by projecting the stock price randomly into the future using the Statistical Volatility (SV). The prediction stops at the expiration of the earlist expiring option leg. |
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Term
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Definition
| The lowest price at which a person is willing to sell. |
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Term
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Definition
| The change of the offer of the market related to a downward price movement at that specific time. |
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Term
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Definition
| To liquidate a futures position by entering an equivalent but opposite transaction. To offset a long position, a sale is made; to offset a short position, a purchase is made. |
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Term
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Definition
| The option in question is trading at its exercise price (also referred to as at-the-money).. |
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Term
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Definition
| If you purchase or write an option, creating a new position on that option, you establish an open position. |
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Term
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Definition
| The total number of outstanding option contracts on a given series or for a given underlying stock. |
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Term
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Definition
| An order to buy or sell a security at a specified price, valid until executed or canceled. |
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Term
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Definition
| The range of prices at which the first bids and offers were made or first transactions were completed. |
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Term
|
Definition
| The theoretical cost of using your capital for one investment versus another. |
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Term
|
Definition
| A security that represents the right, but not the obligation, to buy or sell a specified amount of an underlying security (stock, bond, futures contract, etc.) at a specified price within a specified time. |
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Term
|
Definition
| The buyer of either a call or put option. |
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Term
|
Definition
| This is the price of an option. |
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Term
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Definition
| The seller of either a call or put option. |
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Term
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Definition
| A tool that lets you see all the available options for an underlying stock, including their prices and other trading data. |
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Term
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Definition
| All the calls or all the puts on an underlying security. |
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Term
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Definition
| All the calls or puts on an underlying stock with identical terms, including expiration month and strike price. |
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Term
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Definition
| A ticket or voucher representing long or short securities and options. |
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Term
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Definition
| The volume of orders being bought or sold on the exchanges. |
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Term
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Definition
| An option whose exercise price has no intrinsic value. When a call's strike price is above the underlying stock price, or a put's strike price is below the stock price. |
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Term
| Out-of-the-Money Option (OTM) |
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Definition
| A call option is out-of-the-money if its exercise or strike price is above the current market price of the underlying security. A put option is out-of-the-money if its exercise or strike price is below the current market price of the underlying securi ty. |
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Term
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Definition
| A term used to describe a security or option whose current price is not justified. |
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Term
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Definition
| The stated or "nominal" value of a bond (typically $1,000) that is paid to the bondholder at maturity. |
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Term
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Definition
| An order to buy or sell a security which expires if not filled by the end of the day. |
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Term
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Definition
| The theoretical risk of a trade in a specific time frame. |
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Term
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Definition
| The price movement required for a security to go from one "full point" level to another (i.e. stock goes up or down $1). |
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Term
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Definition
| Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds, , one point means 1% of par value. Commodities differ from market to market. |
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Term
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Definition
| The total of a trader's open contracts. |
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Term
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Definition
| The sum of all positive and negative deltas in a hedged position. |
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Term
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Definition
| The maximum number of open contracts in a single underlying instrument. |
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Term
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Definition
| The amount of cash that an option buyer pays to an option seller. The price you pay if you are an options buyer, or the amount you receive if you're an options writer. |
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Term
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Definition
| Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intra-day trading price. |
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Term
| Price / Earnings Ratio (PE) |
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Definition
| A technical analysis tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. PE is calculated by dividing the current market price of a stock by the earnin gs per share. |
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Term
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Definition
| The initial purchase price of a bond on which interest is earned. |
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Term
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Definition
| Probability of Profit is the probability that the predicted stock price falls within the option trade's profit zones. The predicted stock price distribution is computed by projecting the stock price randomly into the future using the SV. The prediction stops at the expiration of the earlist expiring option leg. |
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Term
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Definition
| You purchase a put on stock you already own. |
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Term
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Definition
| An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date w hile the put option seller (or writer) hopes that the price of the shares will rise, remain stable, or drop by an amount less than their profit on the premium by the specified date. |
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Term
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Definition
| An order that must be filled as soon as it reaches the trading floor at the price specified, or be canceled immediately. |
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Term
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Definition
| The price being offered or bid by a market maker or broker-dealer for a particular security. |
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Term
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Definition
| Refers to the price at which the last sale and purchase of a particular security or commodity took place. |
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Term
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Definition
| A delta neutral spread where an uneven amount of contracts are bought and sold with a ratio less than 2 to 3. Optimally no net credit or net debit occurs. |
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Term
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Definition
| A bearish or stable strategy in which a trader buys 2 higher strike calls and sell1 lower strike call. This strategy offers limited risk and unlimited profit potential. |
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Term
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Definition
| A bullish or stable strategy ion which a trader buys 1 higher strike put and sells two lower strike puts. This strategy offers limited risk and unlimited profit potential. |
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Term
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Definition
| A stock's price movement over the past year as compared to a market index. |
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Term
| Relative Strength Index (RSI) |
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Definition
| An indicator used to identify price tops and bottoms. |
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Term
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Definition
| A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as stop and reverse. |
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Term
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Definition
| The mathematical relationship between the maximum potential risk and maximum potential reward of a trade. |
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Term
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Definition
| A graphic determination of risk on a trade. This would include the profit and loss of a trade at any given point for any given time frame. |
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Term
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Definition
| A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both. Variations of this include rolling up, rolling down, rolling out and diagonal rolling. |
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Term
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Definition
| Procedure by which a long or short position is offset by an opposite transaction. |
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Term
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Definition
| A market with a consistent but short-lived rise or drop in market activity due to predictable changes in climate or calendar. |
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Term
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Definition
| If you sell an option, whether opening a new position or closing an existing position, you're a seller. |
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Term
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Definition
| The practice of borrowing a stock, future or option from a broker and selling it because the investor forecasts that the price of a stock is going down. |
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Term
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Definition
| All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price. |
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Term
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Definition
| The selling of a security, contract or commodity not owned by the seller.. |
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Term
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Definition
| When you have written an option. You may have a short position, or be short. |
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Term
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Definition
| The sale of shares or futures that a seller does not currently own. The seller borrows them (usually from a broker) and sells them with the intent to replace what s/he has sold through later repurchase in the market at a lower price. |
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Term
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Definition
| Up-and-comer companies that offer big rewards and higher risks. They tend to cost less than mid-caps and have lower liquidity. However, small amounts of media coverage can prompt big gains. |
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Term
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Definition
| A sharp price rise in one or two days indicating the time for an immediate sale. |
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Term
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Definition
| The difference between the bid and the ask prices of a security. Also may refer to an options strategy that calls for you to hold two or more simultaneous positions. |
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Term
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Definition
| A type of contingency order, often erroneously known as a 'stop-loss' order, placed with a broker that becomes a market order when the stock trades, or is bid or offered, at or through a specified price. See also Stop-limit order |
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Term
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Definition
| A type of contingency order placed with a broker that becomes a limit order when the stock trades, or is bid or offered, at or through a specific price. |
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Term
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Definition
| Buy stops are orders that are placed at a specified price over the current price of the market. Sell stops are orders that are placed with a specified price below the current price. |
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Term
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Definition
| A position consisting of a long (short) call and a long (short) put, where both options have the same strike price and expiration date. |
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Term
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Definition
| A position consisting of a long (short) call and a long (short) put where both options have the same underlying, the same expiration date, but different strike prices. Most strangles involve OTM options. |
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Term
| Strike Price (Exercise Price) |
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Definition
| A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put) over the specified period. |
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Term
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Definition
| A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. |
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Term
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Definition
| The measurement of price movement between extreme highs and lows. |
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Term
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Definition
| A long put and a long stock or future. |
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Term
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Definition
| A long call and a short stock or future. |
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Term
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Definition
| A short put and a long call. |
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Term
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Definition
| A short put and a short stock or future. |
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Term
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Definition
| A short call and a long stock or future. |
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Term
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Definition
| A short call and a long put. |
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Term
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Definition
| Futures and options combined to create a delta neutral trade. |
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Term
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Definition
| A long (short) call together with a short (long) put. Both options have the same underlying, the same strike price and the same expiration date. |
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Term
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Definition
| A method of evaluating securities and commodities by analyzing statistics generated by market activity, such as past prices, volume, momentum and stochastics. |
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Term
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Definition
| The characteristics of your option, including strike price, exercise style and expiration date. |
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Term
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Definition
| An option value generated by a mathematical option's pricing model to determine what an option is really worth. |
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Term
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Definition
| The Greek measurement of the time decay of an option. |
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Term
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Definition
| A minimum upward or downward movement in the price of a security. For example, bonds trade in 32nds, while most stocks trade in eighths. |
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Term
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Definition
| The amount of time premium movement within a certain time frame on an option due to the passage of time in relation to the expiration of the option itself. |
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Term
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Definition
| The additional value of an option due to the volatility of the market and the time remaining until expiration. |
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Term
| Time Value (Extrinsic Value) |
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Definition
| The amount that the current market price of a right, warrant or option exceeds its intrinsic value. |
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Term
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Definition
| These are short-term government securities with maturities of no more than one year. |
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Term
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Definition
| A fixed-interest U.S. government debt security with a maturity of 10 years or more.. |
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Term
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Definition
| A fixed-interest U.S. government debt security with a maturity of between one and ten years. |
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Term
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Definition
| The third Friday in March, June, September and December when U.S. options, index options and futures contracts all expire simultaneously often resulting in massive trades. |
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Term
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Definition
| The classification of an option contract as either a put or a call. |
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Term
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Definition
| A short option position, also called a "naked" option, in which the writer does not own shares of underlying stock. This is a much riskier strategy than a covered option. |
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Term
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Definition
| A trading instrument subject to purchase upon exercise. |
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Term
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Definition
| A security selling below the value the market value analysts believe it is worth. |
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Term
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Definition
| The potential for prices to move up. |
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Term
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Definition
| The upper price at which a trade breaks-even. |
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Term
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Definition
| A delta that can change due to the change of an underlying asset or a change in time expiration of an option. |
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Term
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Definition
| The amount by which the price of an option changes when the volatility changes. Also referred to as volatility. |
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Term
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Definition
| Most commonly used to describe the purchase of one option and writing of another where both are of the same type and of same expiration month, but have different strike prices. Example: buying 1 XYZ May 60 call and writing 1 XYZ May 65 call. See also Bull (or bullish) spread and Bear (or bearish) spread |
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Term
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Definition
| A measure of the amount by which an underlying is expected to fluctuate in a given period of time. Volatility is a primary determinant in the valuation of options premiums and time value. There are two basic kinds of volatility, implied and historical (statistical). Implied volatility is calculated by using an option pricing model (Black-Scholes for stocks and indices and Black for futures). Historical volatility is calculated by using the standard deviation of underlying asset price changes from clos e to close trading going back 21 to 23 days. |
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Term
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Definition
| Losing money on both sides of a price swing. |
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Term
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Definition
| Refers to an unusually large spread between the bid and asked prices. |
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Term
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Definition
| A day on which two or more classes of options and futures expire. |
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Term
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Definition
| An individual who sells an option. If you sell an option to open a position, you're a writer. |
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Term
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Definition
| The rate of return on an investment. |
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