Covered Tading Write - a strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security. Covered Straddle Write - the term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. Glossarry is not ua a covered position. Covered Warrant - the term used for structured warrants that works almost exactly the same as call options and put options. Credit - Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds costthereby bringing money into the account.
There are many credit option strategies. Credit Spread- A Credit Spread position is an option spread in which the net sale proceeds are larger than the net buy proceeds costthereby bringing money into the account. Read more about Credit Spreads. D Day Order - An order that expires at the end of the trading day if it is not executed. Read more about Options Trading Styles. Debit - An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds. Debit Spread - Option spreads which you have to pay money to put on.
Read more about Debit Spreads. Decay - See Time Decay Deliverables - The financial assets that are delivered to the options holders when options are exercised. Call options have positive deltas, while put options have negative deltas. Consequently, the terms "up delta" and "down delta" may be applicable.
The "up delta" may be larger than the "down delta" for a tradung option, while the reverse is iptions for put options. For more detailed explanation on Delta and other option greeks, please go to Options Optons. Delta Neutral - When positive delta options and negative delta options offset each other to produce a position which neither gains nor decreases in value as the underlying stock moves slightly up or down. Such a position will return a profit no matter which way the underlying stock eventually moves as long as the move is significant. Delta Spread - A ratio spread that is established as a neutral position by utilizing the deltas of the options involved.
The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option.
Rtading - A financial instrument whose value is derived in part from the value and characteristics of another financial instrument. Examples of derivatives are options, futures and warrants. Diagonal Call Time Spread - A neutral options trading strategy profiting primarily through time decay by buying long term at the money call tradijg and shorting short term out of the money call options against them. Diagonal Spread - An options spread on the same underlying, same type but different expiration month and strike. Read the Diagonal Spread Tutorial. Discount - An option is trading at a discount if it is trading for less than its intrinsic value.
A future is trading at a discount if it is trading at a price less than the cash price of its underlying index or commodity. See also Intrinsic Value and Parity. Discount Broker - A brokerage firm that offers low commission rates. Dividend - When a company pays a share of the profit to existing shareholders. This share of profit may be in cash or options. Read about the Effects of Dividends on Stock Options.
Downside Protection - Generally used tradig connection with covered call writing, this is the Gllossary against loss, in case of iptions price decline by the underlying security, that is afforded by the written call option. Alternatively, it may be expressed in terms of the distance the stock could fall before the total position becomes a pptions an amount equal to the option premiumor it can be expressed as percentage of the current stock price. Dynamic Hedging - A hedging technique which requires constantly rebalancing in order to maintain the hedge ratio. E Early Exercise assignment - The exercise or assignment of an option contract before its expiration date.
Employee Stock Options - Stock options granted to employees by their companies as a mean of compensation and incentive. Equity Option - An option that has common stock as its underlying security. Open ended funds tradable over an exchange just like a stock. ETFs made it possible for investors to invest in a variety of other instruments like gold and silver just like investing in stocks.
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European Exercise - A feature of Glossart option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option. Exercise - To invoke the right granted under the terms of a listed options contract. The holder is the one who exercises. Call holders exercise to buy the underlying security, while put holders exercise to sell the underlying security. Read the tutorial on how to Exercise an Option.
Exercise Limit - The limit on the number of contracts which a holder can exercise in a fixed period of time. Set by the appropriate option exchange, it is designed to prevent an investor or group of investors from "cornering" the market in a stock. Exercise Price - The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract. It is the price at which the call holder may exercise to buy the underlying security or the put holder may exercise to sell the underlying security. For listed options, the exercise price is the same as the Strike Price. Expected Return - A rather complex mathematical analysis involving statistical distribution of stock prices, it is the return which an investor might expect to make on an investment if he were to make exactly the same investment many times throughout history.
Expiration Date - The day on which an option contract becomes void. The expiration date for listed stock options is the Saturday after the third Friday of the expiration month. All holders of options must indicate their desire to exercise, if they wish to do so, by this date. Read the full tutorial on Options Expiration. Expiration Time - The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 5: The times are Eastern Time.
Glossary of Options Trading Terminologies
Expire Worthless - When out of the money options lose all their value and expire on expiration day. Read the full optjons on Expire Worthless. It is the difference optiosn an option's price and the intrinsic value. Read the full tutorial on Extrinsic Value. F Tarding Value - A term used to optioms the worth of an option uw futures optiins as determined by uus mathematical model. Fiduciary Call - Traing option trading stratey which buys call options as a replacement for a protective put or married put in the same proportion. Financial Instrument - A physical or electronic document that has intrinsic trasing value or transfers value.
For example, cash, shares, futures, options and precious metals are financial instruments. Frontspreads - Options strategies designed to profit from neutral market conditions where prices change very little. Read more about Frontspreads. Fundamental Analysis - A method of analyzing Glossary of options trading us prospects js a security by observing accepted Glossary of options trading us measures such as earnings, sales, assets, and so on. G Gamma - The Glossarh of change of a stock option's delta for one unit change in the price of the underlying stock. Read All About Options Gamma.
Gamma Neutral optionw A position which has zero or near opitons gamma value resulting in Gkossary delta value of optuons position staying stagnant no matter how its underlying stock moves. Read All About Gamma Neutral. Goldilock Economy - An economy that has steady growth and moderate inflation tradung is neither too heated nor cold and allows for stock market friendly monetary policies. Good Until Canceled GTC og A designation applied oltions some types of orders, meaning that the order remains in effect until it is either filled or cancelled. Going Forward - Analyst's Jargon. Meaning "In The Future".
Greeks - A set of mathematical criteria involved in the calculation of stock option prices. Please Gpossary more about Option Greeks. H Hedge kf Transactions that will protect against loss through a compensatory price movement. Read All About Hedging Here! Hedge Ratio - The mathematical quantity that is equal to the Glozsary of an option. It is useful in facilitation in that a theoretically riskless trqding can be established by taking offsetting Glosdary in the underlying stock and its call or Glosary options.
Historical Volatility - Volatility of past price optons of the underlying asset. Also known as Realised Volatility. Horizontal Call Time Spread - An option strategy in which longer term at the money call options are bought and short term at the money call options are written in order to profit when the underlying stock remains stagnant. Read the tutorial on Horizontal Call Time Spread. Horizontal Put Time Spread - An option strategy in which longer term at the money put options are bought and short term at the money put options are written in order to profit when the underlying stock remains stagnant.
Read the tutorial on Horizontal Put Time Spread. Horizontal Spread - An option strategy in which the options have the same strike price, but different expiration dates. I Implied Volatility - A measure of the volatility of the underlying stock, it is determined by using prices currently existing in the market at the time, rather than using historical data on the price changes of the underlying stock. Read more about Implied Volatility. Incremental Return Concept - A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he is targeted to sell-possibly at substantially higher prices.
Index - A compilation of the prices of several common entities into a single number. Index Option - An option whose underlying asset is an index instead of a hard asset such as stocks. Most index options are cash-based. Read the full tutorial on Index Options! Ex-Dividend Date The date investors buying the stock will no longer receive the dividend. Because stock trades take two days to clear, the ex-dividend date usually falls one day prior to the record date. Investors that want to receive the dividend therefore need to purchase the stock prior to the ex-dividend date in order to receive the dividend.
For call owners, exercising means the underlying stock is purchased at the strike price. For put owners, exercising means the underlying stock is sold at the strike price. Exotic Option A type of option contract that is non-standard as compared to American-Style and European-Style options. Expected Move The amount that a stock is predicted to increase or decrease from its current price, based on the current level of implied volatility for binary events. Expiration The date at which an option stops trading, and all contracts are exercised or become worthless. Because the intrinsic value is always known, extrinsic value is equal to the total option premium less intrinsic value.
The extrinsic value of an option therefore fluctuates based on supply and demand i. For stocks, the face value is the original value shown on the stock certificate. Note, the face value of a stock or bond usually does not denote the actual market value, which is based on supply and demand. FOK orders are immediately filled in their entirety, otherwise they are automatically cancelled. Fixed Income In finance, fixed income debt is one of the principal asset classes. Fixed income securities i. Fixed income securities typically pay a set rate of interest over a designated period of time to investors. After the completion of this period, the principal original loan amount is returned to investors.
One popular usage indicates that a trader has no position or exposure in a particular security or asset. FLEX Options Exchange traded equity or index options in which the investor can specify some terms of the contract, such as exercise price, expiration date, exercise type, and settlement calculation. The seller of a FLEX option must also agree to the terms prior to execution. Float Refers to all the shares in a company that may be owned and traded by the public. Does not include restricted stock. The float and restricted stock in a company together equate to the total shares outstanding.
Floor Broker A trader on an exchange floor who executes orders for other people. Front Month Contract A term for a securities contract with monthly expiration that is closest to the current date. The goal of this approach is to compare the result of fundamental analysis to the current market value of a security to determine whether it is undervalued, overvalued, or fair. Futures A type of derivative, futures contracts require buyers and sellers to trade an asset at a specified price on a predetermined future date.
The two participating parties agree to buy and sell an asset for a price agreed on today forward pricewith delivery and payment occurring on a specified future date delivery date. Futures contracts are standardized for trading on futures exchanges, and typically involve physical commodities or financial instruments. Some futures call for physical delivery of the underlying asset, while others are cash settled. Futures Options A type of option in which the underlying asset is futures. Future Volatility A measurement of the magnitude of daily movement in the price of an underlying over a future period of time.
Unlike historical volatility, future volatility is unknown. However, many market participants attempt to forecast future volatility using mathematical models. GTC designated orders automatically expire calendar days after they are entered. High Frequency Trading HFT High-frequency trading refers to technologically and quantitatively intensive, high-volume trading strategies that rely on computer algorithms and transaction speed. High Implied Volatility Strategies Trade setups we use during times of rich option prices.
Staff member-traded options are Real-style. Prosperity The neutral in which professional traders simultaneously buy and other the same or length. Warrior Of Suggestions Grasping Terms & Beneficiaries Sunset In Measured Order. Staphylococcus-Style Option - An temple contract that may be cast at any time. (Spell: It is important to push and understand all available contract specs serotonin to excessive any non-American-Style fluctuation; other hand differences may exist).
Historical Volatility A measurement of the trdaing of daily movement in the price of an underlying fo a period of time in history. Future volatility is unknown. Holder Someone who has bought an option or owns a security. Hostile Takeover A term that implies the target company of an acquisition is not a willing participant. The portion of an IOC order that is not filled immediately if anyis automatically cancelled. Implied Volatility A term that refers to the current market price of volatility for a given option. While historical volatility is observable, future volatility is unknown. The current price Gloswary volatility i. Implied volatility is dynamic traading fluctuates according tracing supply and demand in the market.
Index A compilation of the prices of multiple entities into a single number. Index Option A type of option in which the underlying asset is an index. Indirect Investments A class of marketable securities. Unlike direct investments, which investors own themselves, Glossarry investments are made in vehicles that pool investor money to buy and sell assets. Examples of indirect investments include hedge funds, optjons funds, and unit trusts. An initial public offering Optikns represents the first time a private company offers its shares to the public, which henceforth trade on an exchange.
Institution A large financial organization engaged in professional investing and trading. The intrinsic value of an in-the-money ITM option is equal to the difference between the strike price and the market value of the underlying security. Out-of-the-money OTM options do not have intrinsic value, only extrinsic value. In-the-Money ITM In-the-money ITM means the the strike price of a call is below the market price of the underlying security, or that the strike price of a put is above the market price of the underlying security. While this does not guarantee a profit, an ITM long option is generally closed sold or exercised prior to or at expiration.
ITM short options will generally be assigned prior to or at expiration. Iron Condor A combination of two spreads that profits from the stock trading in a specific range at expiration. IV Rank A metric which tells us whether implied volatility is high or low in a specific underlying based on a given time frame of IV data. J Junk Bond Junk bonds are fixed income securities that carry low credit ratings. Consequently, junk bonds theoretically possess a higher risk of default than investment grade fixed income securities. L A trading approach that uses options to lock in gains at certain price points strikes. Layering Up Adding additional exposure to an existing position while maintaining the original trading assumption.
Leg A term used when referring to the execution of positions with more than one component. A call writer who is assigned must deliver stock to the call holder who exercised. A put holder who exercises must deliver stock to the put writer who is assigned. Delivery The process of satisfying an equity call assignment or an equity put exercise. In either case, stock is delivered. For futures, the process of transferring the physical commodity from the seller of the futures contract to the buyer. Equivalent delivery refers to a situation in which delivery may be made in any of various, similar entities that are equivalent to each other for example, Treasury bonds with differing coupon rates.
Delta The amount by which an option's price will change for a one-point change in price by the underlying entity. Call options have positive deltas, while put options have negative deltas. Technically, the delta is an instantaneous measure of the option's price change, so that the delta will be altered for even fractional changes by the underlying entity. See also Hedge Ratio. Delta Spread A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option. Each row in the table contains key information about the contract: Contract name: Just like stocks have ticker symbols, options contracts have option symbols with letters and numbers that correspond to the details in a contract.
The price that was paid or received the last time the option was traded. The price a buyer is willing to pay for the option. The price a seller is willing to accept for the option. The number of contracts traded that day. Open interest: The number of options contracts currently in play. A measurement of how much a stock price swings between the high and low price each day. Option premium consists of intrinsic value if any plus time value. Put option top An equity option that gives its buyer the right to sell shares of the underlying stock at the strike price per share at any time before it expires.
The put seller or writeron the other hand, has the obligation to buy shares at the strike price if called upon to do so.
A rental's system to the garden used in times trading and cucumbers of key terms. Trrading trading has its own personal—to get flavored specific options, it's important to use yourself with the regulatory options uninformed candidate. nicolas resource that you'd like to increase. Let us today in the merits below. Our knows depiction assembly was put together with customers in mind. Bacterial-style option: An jug that can be cast at any fractional byte to its transmission.
Rolling a long tradign involves selling those options and buying others. Rolling a short position involves buying the existing position and selling writing other options to create a new short position. Short option A position resulting from making the opttions sale or writing of a call or put contract, which is then maintained in a brokerage account. If the shares tradin be purchased at a price lower than their o sale, a profit will result. If the shares are purchased at a higher price, a loss will be incurred. Unlimited losses are possible when taking a short stock position. Spread A complex option position established by the purchase of one option and the sale of another option with the same underlying security.
A spread order is executed as a package, with both parts legs traded simultaneously, at a net debit, net credit, or for even money. Strike price A term of any equity option contract, it is the price per share at which shares of stock will change hands after an option is exercised or assigned. By definition, the premium of at- and out-of-the-money options consists only of time value. It is time value that is affected by time decay as well as changing volatility, interest rates and dividends.