A series of constant payments at uniform time intervals (for example, periodic interest payments on a bond).
The increase in value of an asset.
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.
An individual or company that takes advantage of momentary disparities in prices between markets which enables them to lock in profits because the selling price is
higher than the buying price.
- ATM IV
A quadratic curve fit is made between the IV values and the strike prices for all the call options for a stock for a given expiration month. Likewise a curve fit is done for the puts. The option IV assigned for that option series fit is the constant coefficient of the polynomial. This constant coefficient is the point in the quadratic curve fit where the slope is zero and the option polynomial "smile" is at a minimum.
This option series IV is usually very close to the IV of the close price of the stock because the weights in the polynomial curve fit emphasize the At the Money (ATM)
strikes. This option series IV is referred to as the ATM IV in the Optionetics option trade ranker tool.
An mathematical representation of the behavior of a specific sector or index of the market (for example, the Dow Jones Industrial Average).
A spread in which more options are purchased than sold and where all options have the same underlying and expiration date. Backspreads are usually delta neutral.
The testing of a strategy based on historical data to see if the results are consistent.
An investor who acts on the belief that a security or the market is falling or is expected to fall.
- Bear Call Spread
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.
- Bear Market
A declining stock market over a prolonged period of time usually caused by a weak economy and subsequent decreased corporate profits.
- Bear Put Spread
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;
The highest price at which a floor broker, trader or dealer is willing to buy a security or commodity for a specified time.
- Bid and Asked
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.
- Bid-asked Spread
The difference between bid and asked prices constitute the bid-asked spread.
- Blue Chips
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.
- Board Lot
The smallest quantity of shares traded on an exchange at standard commission rates.M
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.
A rise in the price of an underlying instrument above its resistance level or a drop below the support level.
An individual or firm which charges a commission for executing buy and sell orders.
An investor who believes that a market is rising or is expected to rise.
- Bull Call Spread
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.
- Bull Market
A rising stock market over a prolonged period of time usually caused by a strong economy and subsequent increased corporate profits.
- Bull Put Spread
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.
- Butterfly Spread
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.
- Buy IV Sell IV
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.
- Calendar Spread
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.
- Call Option
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.
- Call Premium
The amount a call option costs.
The amount of money an individual or business has available.
- Capital Gain
The profit realized when a capital asset is sold for a higher price than the purchase price.
- Capital Loss
The loss incurred when a capital asset is sold for a lower price than the purchase price.
Refers to the current value of a corporation's outstanding shares in dollars.
- Cash Account
An account in which the customer is required to pay in full for all purchased securities.
The difference between the current price and the price of the previous day of a security.
- Class of Options
Option contracts of the same type (call or put), style and underlying security.
The price of the last transaction for a particular security each day.
- Closing Purchase
A transaction to eliminate a short position.
- Closing Range
The high and low prices recorded during the period designated as the official close.
- Closing Sale
A transaction to eliminate a long position.
A service charge assessed by a broker and his/her investment company in return for arranging the purchase or sale of a security.
Any bulk good traded on an exchange (for example, metals, grains and meats).
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.
- Consumer Price Index (CPI)
A measure of price changes in consumer goods and services. This index is used to identify periods of economic inflation or deflation.
A unit of trading for a financial or commodity future, or option.
A sudden decline in the price of a security after a period of market strength.
- Covered Call
A short call option position against a long position in an underlying stock or futures.
- Covered Put
A short put option position against a short position in an underlying stock or futures.
- Credit Spread
The difference in value between 2 options, where the value of the short position exceeds the value of the long position.
- Cross Rate
The current exchange rate between differing currencies.
- Daily Range
The difference between the high and low price of a security in one trading day.
- Day Order
An order to buy or sell a security which expires if not filled by the end of the day.
- Day Trade
The purchase and sale of a position in the same day.
- Day Trading
An approach to trading in which the same position is entered and exited within one day.
- Debit Spread
The difference in value between 2 options, where the value of the long position exceeds the value of the short position.
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.
- Delayed Time
Quotes from a data service provider which are delayed up to 20 minutes from real time quotes.
The amount by which the price of an option changes for every dollar move in the underlying instrument.
An options strategy protecting an option against price changes in the option's underlying instrument by balancing the overall position delta to zero.
- Delta Neutral
A position arranged by selecting a calculated ratio of short and long positions that balance out to an overall position delta of zero.
- Delta Position
A measure of option or underlying securities delta.
Financial instruments based on the market value of an underlying asset.
When 2 or more averages or indices fail to show confirming trends.
A sum of money paid out to a shareholder from the stock's profits.
The potential for prices to decrease.
- Downside Risk
The potential risk one takes if prices decrease in directional trading.
- End of Day
The close of the trading day when market prices settle.
A price level in a sideways market equal-distance from the resistance and support levels.
- European Style Option
An option contract that can only be exercised on the expiration date.
An area where an asset, option, future, stock or derivative is bought and sold.
- Exchange Rate
The price at which one country's currency can be converted into another country's currency.
The process of completing an order to buy or sell securities.
Implementing an option's right to buy or sell the underlying security.
- Exercise Price
A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put).
- Expected Profit
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.
The date and time after which an option may no longer be exercised.
- Expiration Date
The last day on which an option may be exercised.
- Extrinsic Value
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.
Selling a rising price or buying a falling price.
- Fair Market Value
The value of an asset under normal conditions.
- Fair Values
The theoretical value of what an option should be worth usually generated by an option pricing model such as the Black-Scholes option pricing model.
An executed order.
- Fill Order
An order that must be filled or canceled immediately.
- Fill or Kill
Placing an order to buy or sell an exact number of units or none at all.
- Fundamental Analysis
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.
All contracts covering the purchase and sale of financial instruments or physical commodities for future delivery. These orders are transacted on a commodity
- Futures Contract
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.
The degree by which the delta changes with respect to changes in the underlying instrument's price.
A day in which the daily range is completely above or below the previous day's daily range.
- Going Ahead
Unethical brokerage activity whereby the broker trades first for his or her own account before filling the customer's order(s).
- Go Long
To buy securities, options or futures.
- Good Til' Canceled Order (GTC)
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it.
- Go Short
To sell securities, options or futures.
A strangle where the call and the put are in-the-money.
- Hammering the Market
The intense selling of stocks by speculators who think the market is about to drop because they think prices are inflated.
Reducing the risk of loss by taking a position through options or futures opposite to the current position they hold in the market.
- High (hi)
The highest price that was paid for a stock during a certain period.
- High IV
This is the highest ATM IV found over a historical time period for the stock. The period chosen is a 6 month period.
- High and Low
Refers to the high and low transactions prices that occur each trading day.
- High Flyer
A speculative high-priced stock that moves up and down sharply over a short period of time.
- High-tech Stock
Refers to the stock of companies involved in high-technology industries, such as computers, biotechnology, robotics, electronics, and semiconductors.
- Historic Volatility
A measurement of how much a contract's price has fluctuated over a period of time in the past; usually calculated by taking a standard deviation of price
changes over a time period.
One who purchases an option.
- Illiquid Market
Market which has no volume that subsequently creates a lot of slippage due to lack of trading volume.
An order which must be filled immediately or canceled.
An index is a group of stocks which can be traded as one portfolio, such as the NIFTY 50. Broad-based indexes cover a wide range of industries and companies and
narrow-based indexes cover stocks in one industry or economic sector.
- Index Options
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.
- Interest Rate
The charge for the privilege of borrowing money, usually expressed as an annual percentage rate.
If you were to exercise an option and it would general a profit at the time, it is known to be in the money.
- In-the-Money Option
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.
- Inverse Relationship
Two or more markets which act totally opposite of one another producing negative correlations.
Any purchase of an asset to increase future income.
- Iron Butterfly
The combination of a long (short) straddle and a short (long) strangle. All options must have the same underlying and have the same expiration.
One side of a spread.
- Limit Order
An order to buy a stock at or below a specified price or to sell a stock at or above a specified price.
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.
- Locked Market
A market where trading has been halted because prices have reached their daily trading limit.
The term used to describe the buying of a security, contract, commodity, or option.
- Low (lo)
This is the lowest price paid for a stock during a certain period.
- Low IV
This is the lowest ATM IV found over a historical time period for the stock. The period chosen is a 6 month period.
- Low Risk Investing
A trade which is hedged for purposes of limiting price loss as opposed to a directional trade where loss is unlimited.
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.
- Margin Account
A customer account in which a brokerage firm lends the customer part of the purchase price of a trade.
- Margin Call
A call from a broker signaling the need for a trader to deposit additional money into a margin account to maintain a trade.
- Margin Requirements (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes.
- Marked to Market (MTM)
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. In this way, losses are never allowed to accumulate.
A specific asset, security or commodity that is traded at an exchange.
- Market Order
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.
- Market Price
The most recent price at which a security transaction took place.
- Market Value
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.
- Max Loss
The maximum amount of losses possible from the option trade.
- Max Profit
The maximum amount of net profit possible from the option trade.
When a market continues in the same direction for a certain time frame, the market is said to have momentum.
- Momentum Indicator
A technical indicator utilizing price and volume statistics for predicting the strength or weakness of a current market.
- Momentum Trading
Investing with (or against) the momentum of the market in hopes of profiting from it.
- Moving Averages
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.
- Mutual Fund
An open end investment company that pools investors' money to invest in a variety of stocks, bonds, or other securities.
- Naked Option
An option written (sold) without an underlying hedge position.
- Naked Position
A securities position not hedged from market risk.
An option with a strike price close to the current price of the underlying tradable.
- Net Change
The daily change from time frame to time frame. For example, the change from the close of yesterday to the close of today.
- Net Profit
The overall profit of a trade.
The lowest price at which a person is willing to sell.
- Open Order
An order to buy or sell a security at a specified price, valid until executed or canceled.
- Open Trades
A current trades that is still held active in a customer's account.
The period at the beginning of the trading session at an exchange.
- Opening Price
The range of prices at which the first bids and offers were made or first transactions were completed.
- Opportunity Costs
The theoretical cost of using your capital for one investment versus another.
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.
- Option Holder
The buyer of either a call or put option.
- Option Premium
This is the price of an option.
- Option Writer
The seller of either a call or put option.
A ticket or voucher representing long or short securities and options.
An option whose exercise price has no intrinsic value.
- Out-of-the-Money Option (OTM)
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.
A term used to describe a security or option whose current price is not justified.
- Paper Trading
The ability to simulate a trade without actually putting up the money for the purpose of gaining additional trading experience.
The total of a trader's open contracts.
- Position Delta
The sum of all positive and negative deltas in a hedged position.
The amount of cash that an option buyer pays to an option seller
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.
- Put Option
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.
- Quoted Price
Refers to the price at which the last sale and purchase of a particular security or commodity took place.
- Ratio Backspread
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.
- Ratio Call Spread
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.
- Ratio Put Spread
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.
Data received from a quote service as the prices change.
- Relative Strength
A stock's price movement over the past year as compared to a market index.
- Relative Strength Index (RSI)
An indicator used to identify price tops and bottoms.
A price level the market has a hard time breaking through to the upside.
The income profit made on an investment.
- Risk Reward Ratio
The mathematical relationship between the maximum potential risk and maximum potential reward of a trade.
- Reversal Stop
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.
The potential financial loss inherent in the investment.
- Risk Graph
A graphic representation of risk and reward on a given trade as prices change.
A trading instrument such as stocks, bonds, and short-term investments.
- Selling Short
The practice of could 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.
- Series (Options)
All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price.
Certificates representing ownership of stock in a corporation or company.
The selling of a security, contract or commodity not owned by the seller..
- Short Premium
Expectation that a move of the underlying in either direction will result in a theoretical decrease of the value of an option.
- Short Selling
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.
A trader who hopes to profit from a directional move in the underlying instrument. The speculator has no interest in making or taking delivery.
A sharp price rise in one or two days indicating the time for an immediate sale.
The difference between the bid and the ask prices of a security.
- Stochastic Indicator
Based on the observation that as prices increase, closing prices tend to accumulate ever closer to the highs for the period.
A share of a company's stock translates into ownership of part the company.
- Stock Exchange or Stock Market
organized marketplace where buyers and sellers are brought together to buy and sell stocks.
- Stock Split
An increase in the number of a stock's shares that results in decreasing the par value of its stock.
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.
A position consisting of a long (short) call and a long (short) put, where both options have the same strike price and expiration date.
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.
- Strike Price (Exercise Price)
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.
A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction.
The measurement of price movement between extreme highs and lows.
- Synthetic Long Call
A long put and a long stock or future.
- Synthetic Long Put
A long call and a short stock or future.
- Synthetic Long Stock
A short put and a long call.
- Synthetic Short Call
A short put and a short stock or future.
- Synthetic Short Put
A short call and a long stock or future.
- Synthetic Short Stock
A short call and a long put.
- Synthetic Straddle
Futures and options combined to create a delta neutral trade.
- Synthetic Underlying
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.
- Technical Analysis
A method of evaluating securities and commodities by analyzing statistics generated by market activity, such as past prices, volume, momentum and stochastics.
- Theoretical value
An option value generated by a mathematical option's pricing model to determine what an option is really worth.
The Greek measurement of the time decay of an option.
- Time Decay
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.
- Time Premium
The additional value of an option due to the volatility of the market and the time remaining until expiration.
- Time Value (Extrinsic Value)
The amount that the current market price of a right, warrant or option exceeds its intrinsic value.
A client who buys and sells frequently with the objective of short-term profit.
- Trading Account
An account opened with a brokerage firm from which to place trades.
- Uncovered Option
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.
- Underlying Instrument
A trading instrument subject to purchase upon exercise.
A security selling below the value the market value analysts believe it is worth.
The potential for prices to move up.
- Upside break-even
The upper price at which a trade breaks-even.
- Variable Delta
A delta that can change due to the change of an underlying asset or a change in time expiration of an option.
The amount by which the price of an option changes when the volatility changes. Also referred to as volatility.
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 close to close trading going back 5 to 20 days.
- Volatility Skew
The theory that options that are deeply out-of-the-money tend to have higher implied volatility levels that at-the-money options. Volatility skew measures and accounts for the limitation found in most options pricing models and uses it to give the trader an edge in estimating an option's worth.
- Volume (Vol)
The amount of shares bought and sold on a stock exchange.
Losing money on both sides of a price swing.
- Wide Opening
Refers to an unusually large spread between the bid and asked prices.
An individual who sells an option.