Adjustments
An adjustment is a change to the terms of an options contract due to a corporate action such as a merger, stock split, dividend, acquisition, spin-off, or similar event. These changes can affect critical elements like the strike price, deliverable, expiration date, and multiplier. When a stock split, for instance, occurs (say, a 3-for-2 split), an adjusted option would represent 150 shares instead of the usual 100. Consequently, the premium needs adjusting too; purchasing one call (now covering 150 shares) at $4 would cost $600 due to the altered share quantity.
All Or None Order:
American-style option
American-style options provide the holder the right to exercise the option at any time before its expiration date. This flexibility permits the holder to execute the option between purchase and expiration, allowing strategic decisions based on market movements.
Arbitrage
Arbitrage involves taking advantage of price variations for the same asset or similar assets in different markets at the same time. It essentially entails purchasing an asset at a lower price in one market and selling it at a higher price in another market, potentially generating a risk-free profit.
Ask / Ask price
Asset
An asset is any resource owned by an individual or entity that is expected to provide future economic benefits. It has value that can be converted as cash or used to generate income. Examples include cash, accounts receivable, inventory, real estate properties, and securities (such as stocks and bonds).
Assigned (an exercise)
Assignment
An assignment is a notification issued by the OCC to a clearing member informing that an options contract holder has exercised their rights. When this happens, the option writer (the party who sold the option) is obligated to fulfill the terms of the contract by delivering the underlying asset and receiving the exercise price.
Assignment Notice
Assignment Notice is a formal notification sent to the seller of an option contract that the buyer has chosen to exercise their right to buy or sell the underlying asset at the agreed-upon strike price.
At-the-market order (also “market order”)
An at-the-market order (also known as a market order) is an order to buy or sell a security at the best available price in the market. This means the order will be executed immediately, regardless of the specific price, unlike limit orders that specify a desired price.
At-the-money / At-the-money option
Automatic exercise
Autotrading
Averaging down
Averaging down is an investment strategy where an investor buys additional shares of a stock or an option at a lower price than the average price they previously paid. This strategy aims to lower their overall average cost per share and potentially maximize profits when the price of the asset recovers.
Back Month
Backspread
Barrier Option
A barrier option is a type of derivative contract whose existence and terms are contingent upon the price movement of the underlying asset. It includes specific predefined conditions, known as barriers, that determine whether the option becomes active (knock-in) or nullified (knock-out).
Basket Option
BATS
BATS, also known as Cboe BZX Options Exchange, is a fully electronic options exchange operated by Cboe Global Markets, Inc. It is a leading exchange in the United States, offering a wide range of options contracts on stocks, ETFs, and other underlying assets.
Bear Market
Bear Put Ladder Spread
Bear spread (call)
A bear call spread involves a two-legged options strategy that combines writing (selling) one call option with a lower strike price and simultaneously purchasing another call option with a higher strike price. Selling 1 XYZ June 60 call and acquiring 1 XYZ June 65 call would be an example of a bear call spread.
Bear spread (put)
A bear put spread involves buying a put option with a higher strike price and simultaneously selling a put option with a lower strike price, all on the same underlying asset and with the same expiration date. Purchasing 1 XYZ June 60 put and selling 1 XYZ June 55 put would be an example of a bear put spread.
Bear Trap
A bear trap is a market scenario that initially signals or appears to confirm a bearish trend or market downturn, luring traders or investors into believing that the market will continue moving downwards. However, contrary to expectations, the market reverses course and moves upward instead, catching those who entered bearish positions off guard.
Bearish
Bearish debit spread
Beta
Bid price
The bid price refers to the highest price at which a buyer in the market is currently willing to purchase a particular security, such as a stock, bond, or option.
Bid/Ask quote
Bid/Ask spread:
Thes Bid/Ask spread is the difference between the highest price a buyer is willing to pay for an option contract (bid price) and the lowest price a seller is willing to accept (ask price). This spread highlights the discrepancy or gap between the buying and selling prices in the market.
Binomial Options Pricing Model
The Binomial Options Pricing Model (BOPM), also known as the Cox-Ross-Rubinstein model, is a well-established and widely used numerical method for pricing options. This model offers a discrete-time framework for valuing options, particularly American-style options, by breaking down the time to expiration into smaller intervals.
Black-Scholes formula
The Black-Scholes formula is a mathematical model used to calculate the theoretical fair price of an option contract. It considers the current stock price, strike price, time until option expiration, prevailing interest rates, dividends (if any), and the volatility of the underlying security of the account. This formula was a groundbreaking contribution, pioneering a new method for valuing options and derivatives. In recognition of its innovation, two of its creators, Fischer Black and Myron Scholes, were awarded the Nobel Prize in Economic Sciences in 1997.
Blackout Period
A blackout period is a specific timeframe during which employees holding stock options are prohibited from buying, selling, or exercising those options.
Bollinger Bands:
BOX
The BOX Options Exchange (BOX) is an equity options trading platform in the United States. It is an electronic trading platform that facilitates the trading of various options contracts.
Box spread
Breakeven point:
The breakeven point for an options strategy is the stock price at which the strategy will neither generate a profit nor incur a loss.
Breakout
In the world of financial markets, breakout refers to a significant price movement where a security breaks through a previously established resistance level or support level. This movement is often accompanied by increased trading volume and signifies a potential shift in the prevailing market sentiment.
Broker
A broker is an individual or firm that acts as an intermediary or agent who facilitates securities transactions on behalf of the clients or customers.
Broker Commissions
Bull (or bullish) spread
A bull spread is an options trading strategy that seeks to profit from a rise in the price of the underlying asset. It involves using two or more options contracts with the same expiration date but different strike prices.
Bull Condor Spread
A complex options trading strategy utilized by traders with a bullish outlook on an underlying security but anticipate moderate price movement within a specific range.
Bull Market
A bull market is a period of sustained upward movement in the overall market, characterized by rising asset prices, increased investor confidence, and an optimistic outlook.
Bull spread (call)
A bull call spread is an options strategy that involves simultaneously buying a call option with a lower strike price (the long leg) and writing a call option with a higher strike price (the short leg), both on the same underlying asset and with the same expiration date. Acquiring 1 XYZ June 60 call and selling 1 XYZ June 65 call would be an example of a bull call spread.
Bull spread (put)
A bull put spread is an options strategy that involves simultaneously writing (selling) a put option with a higher strike price (the short leg) and buying a put option with a lower strike price (the long leg), both on the same underlying asset and with the same expiration date. Selling 1 XYZ June 60 put and purchasing 1 XYZ June 55 put would be an example of a bull put spread.
Bull Trap
Bullish
Bullish credit spread
Bullish debit spread
Butterfly spread
Buy to close
Buy to open
Buy-write
A buy-write is an options trading strategy combining a long stock position with the simultaneous writing of call options on the same underlying asset and with the same expiration date. It is essentially a covered call position, offering investors a way to generate income from their holdings while limiting downside risk. An example of a buy-write strategy is purchasing 500 shares of XYZ stock and selling 5 XYZ June 60 calls simultaneously.
C2
C2 is one of the options exchanges operated by the Chicago Board Options Exchange (Cboe). It was designed to complement the offerings of its parent exchange, providing a platform for trading various options products.
Calendar spread
A calendar spread is an options strategy involving simultaneously buying and selling options of the same type (call or put) and strike price, but with different expiration dates. Typically, you buy a longer-term (far-term) option, giving you the right to exercise at a later date and sell a shorter-term (near-term) option, granting the buyer the right (or obligation) to exercise sooner.
Calendar Straddle
A Calendar Straddle is an advanced options strategy designed to potentially profit from an underlying security maintaining a neutral stance while benefiting from potential changes in volatility or movement in the future.
Call
A call option is a type of financial contract that provides the holder (buyer) the right, but not the obligation, to purchase a specific underlying asset at a predetermined price (known as the strike price) within a specified timeframe.
Call option
Call ratio backspread
A call ratio backspread is an options trading strategy that combines a directional trade with a hedging component, offering limited risk and potentially unlimited reward.
Called away
Capital
Capital refers to the financial assets or resources possessed by an individual, company, or entity that hold value and contribute to their wealth or economic well-being. It represents the wealth used to generate income or for investment purposes.
Capital Gains
Profits earned from selling an investment (such as stocks, bonds, or real estate) at a higher price than the original purchase price. Capital gains are a key source of return for investors and come in two main types: short-term (held for less than a year) and long-term (held for a year or more), often taxed differently. Some mutual funds specifically aim to achieve long-term capital gains for their investors through focused investment strategies.
Capital Gains Tax
Capital gains tax is a type of tax levied on the profits earned from the sale or disposal of certain assets, such as stocks, bonds, real estate, precious metals, or other investments that have appreciated in value.
Carry / Carrying cost
Refers to the expenses associated with holding or carrying a financial asset or investment position over a certain period.
Cash Settled Option
A cash-settled option is a type of derivative contract where, upon exercise or expiration, the profit or loss is settled in cash rather than through the exchange of the underlying asset.
Cash settlement amount
This refers to the net amount received or paid when an index option is exercised and settled in cash instead of physical delivery of the underlying index. It is the difference between exercise price and exercise settlement value.
Chain
A formatted table displaying comprehensive information about specific options contracts for an underlying asset. It typically includes details like strike price, expiration date, bid/ask prices, open interest, and implied volatility. Options chains are valuable tools for traders to analyze potential profits and losses, compare different options, and make informed trading decisions.
Charm
Chicago Board of Trade (CBOT)
The CBOT, founded in 1848, boasts a rich history and holds the coveted title of the oldest derivatives exchange globally. The CBOT specializes in trading standardized contracts known as futures and futures-options, offering an avenue for managing risk and speculation across various asset classes.
Chicago Board Options Exchange (CBOE)
Chicago Mercantile Exchange (CME)
The CME, or Chicago Mercantile Exchange, is a financial heavyweight in the world of futures and options trading. Think of it as a giant marketplace where people can buy and sell contracts that agree on a future price for various assets.
Chooser Option
Class of options
Clearinghouse
A clearinghouse is an entity, often associated with an exchange, that ensures the smooth execution of trades by guaranteeing the fulfillment of contracts. It acts as an intermediary between buyers and sellers, essentially becoming the buyer for every seller and the seller for every buyer. This setup ensures the completion of transactions and minimizes the risk of default. For instance, in the world of listed equity options, the OCC serves as the clearinghouse. It steps in to guarantee the performance of options contracts, maintaining stability and trust within the market by managing the obligations of both parties involved in a trade.
Close
The specific time at the end of a trading day when a market officially ceases trading and final prices for all assets are calculated. Closing prices are crucial for determining valuations, settling open positions, and influencing market sentiment for the next trading session. While closing times may vary depending on the market and asset class, they mark a key point in the trading cycle for investors and traders to assess their daily gains or losses.
Close / Closing transaction
Closeout date
Closing Order
Closing price
Refers to the last price at which a trade occurred for that security during a particular trading day.
Closing sale (sell to close)
Closing Transaction
Collateral
Collateral refers to assets pledged by a borrower to secure a loan. These assets serve as a guarantee to the lender that the loan will be repaid, even if the borrower defaults.
Combination Order
A combination order, in trading, refers to a single order that combines or groups together multiple individual orders for different securities or contracts. This type of order allows traders to execute multiple transactions simultaneously with specific conditions or criteria.
Commodity Option
A type of option where the underlying asset is either a physical commodity (like oil, gold, or wheat) or a futures contract for that commodity. Commodity options are commonly used for hedging existing positions or speculating on future price movements. For example, a farmer might buy a call option on corn futures to secure a minimum selling price for their upcoming harvest.
Compound
A type of option where the underlying asset is not a traditional asset like a stock or commodity, but another contract like another option, a futures contract, or certain swaps.
Confirmation statement
A confirmation statement is a document issued by a brokerage firm to a customer following the initiation or closure of an options position. This statement provides detailed information about the transaction, including the number of contracts bought or sold and the specific prices at which these transactions were executed. It serves as a proof of trading activity and ensures transparency.
Consensus estimate
Contingency order
An instruction placed by an investor to execute a transaction in one security based on specific conditions related to the price movement of another security. For example, writing a call option (e.g., XYZ June 60 call) at a specified price (e.g., $2.00) based on a condition related to the price of the underlying stock (e.g., XYZ stock being at or below $59).
Contingent Order
A type of order that allows a trader to define specific conditions under which their existing position will be automatically closed. These conditions, often linked to price movements or market events, act as triggers that activate the order and execute the exit once met. Common examples include stop-loss, take-profit, and trailing stop-loss orders.
Contract
Contract refers to a specific agreement or instrument created by the Options Clearing Corporation (OCC). This contract represents the right, but not the obligation, to either buy (in the case of a call option) or sell (in the case of a put option) a particular underlying asset at a predetermined price within a specified period.
Contract Neutral Hedging
Contract neutral hedging is a strategy used by traders to hedge their existing positions in an underlying security by purchasing options in quantities that correspond to the number of units of the security they hold.
Contract Range
Contract size
The contract size in options trading refers to the standardized quantity of the underlying asset that is covered by a single options contract. For equity options, the standard contract size typically represents 100 shares of the underlying stock which applies to both puts and calls.
Contrarian theory
Control or Restricted Loan
A specialized margin loan where the borrower uses control or restricted securities as collateral to borrow from a broker.
Control Persons, Insiders or Affiliates
Convexity
Cost-to-Carry
Cover
Signifies the offsetting transaction you take to close out a short position you previously established.
Covered
Covered put / Covered cash-secured put
A covered put or covered cash-secured put is an options trading strategy where a put option is written (sold) while having enough cash set aside in the trading account to cover the potential purchase of the underlying stock if the put option is exercised.
Covered straddle
Credit
Credit spread
Currency Option
A type of option contract that gives the holder the right (but not the obligation) to buy or sell a specific currency at a predetermined price by a certain date. Currency options are used for various purposes, including speculating on exchange rate movements, hedging existing currency positions, and generating income through option premiums. Common currency pairs traded with options include EUR/USD and USD/JPY.
Curvature
Cycle
Cycle refers to the expiration dates associated with various series of options. Options contracts within a cycle typically have expiration months falling into one of three cycles: January Cycle includes expiration months of JAJO (January, April, July, & October), February Cycle includes expiration months of FMAN (February, May, August, & November), and March Cycle includes expiration months of MJSD (March, June, September, & December).
Day order
Day trade
Day trader
A stock or options trader who actively buys and sells securities within the same trading day. Day traders often look for short-term profit opportunities by exploiting market movements or implementing specific trading strategies.
Day Trading
An active trading style characterized by initiating and exiting positions within a single trading session, primarily focusing on stocks, options, or other short-term instruments. Driven by motivations like capitalizing on intraday inefficiencies or executing specific trading strategies, day traders face high-frequency trading, volatility, and psychological pressure, requiring rigorous risk management and discipline.
Debit
Decay
Deep discount broker
A type of broker who charges very low fees for trading stocks and other securities. Their primary focus is to offer minimalistic services, often stripped-down from additional features, research tools, or advisory services, in exchange for very low commission fees.
Deep in the money
Deep out of the money
Delivery
Refers to fulfilling the terms of an options contract after receiving notification of assignment. It pertains to the obligations that arise when an option is exercised, resulting in the transfer of the underlying asset or its cash equivalent based on the type of option and the position held.
Delta
Delta hedging
An options trading strategy employed by traders to manage their exposure to price movements in the underlying asset. It involves adjusting the quantity of the underlying asset, typically stocks, to offset the changes in the value of an options portfolio concerning price movements in the underlying asset.
Delta Neutral Hedging
Delta neutral hedging is a risk management strategy employed by traders to minimize the impact of small price movements in the underlying asset. It involves adjusting positions to maintain a delta-neutral position, where the overall delta of the combined positions is balanced or hedged.
Delta Neutral Trading
Delta neutral trading is a strategy used by traders to construct positions that are relatively immune to small price movements in the underlying asset while profiting from substantial price swings in either direction.
Delta Value
Depository Trust & Clearing Corporation
A prominent financial services company that primarily focuses on providing clearing and settlement services within the financial markets. DTCC plays a crucial role in maintaining the integrity and stability of financial markets by providing clearing, settlement, and other related services, fostering transparency, efficiency, and risk mitigation in securities transactions.
Derivative / Derivative security
A derivative or derivative security is a financial instrument whose value is derived from, or dependent on, the value of an underlying asset or group of assets. This underlying asset could be a stock, bond, commodity, currency, market index, or even another derivative.
Diagonal spread
A trading strategy involving buying a call or put option (longer expiration) while simultaneously selling a similar option of the same type with a higher strike price and a shorter expiration. For example, buying one call option with a strike price of $60 expiring in May and simultaneously writing one call option with a strike price of $65 expiring in March.
Diagonal spread
A type of options strategy that involves both buying and selling calls or puts with different strike prices and expiration dates.
Directional Outlook
Directional Risk
Directional risk is the potential for losing money if the price moves in the opposite direction you expected. For example, selling calls exposes you to the risk of the stock price going up, which means you might have to buy it back at a higher price, incurring a loss. Remember, this risk can affect your entire portfolio, so managing it wisely is crucial.
Discount
Discount broker
A discount broker is a brokerage firm that offers trading services at lower commission rates compared to traditional or full-service brokers. While discount brokers provide fewer additional services, such as investment research or personalized advice, they focus on executing trades at reduced costs.
Discount Option
Discretion
Discretion in trading refers to the authority granted by an investor to a broker or account executive to use their judgment and make decisions regarding the execution of an order. It can vary in terms of limitations and the level of freedom given to the broker.
Diversification
A strategy of holding various investments like stocks, bonds, or even options in different companies and industries. This strategy may help mitigate risk because if one investment falls, the other investment that may be doing better may help balance it out and potentially mitigate losses. Diversification may also reduce overall profits.
Dividend
Double top
Downside Protection
Downside protection refers to strategies or mechanisms utilized by investors and traders to mitigate potential losses resulting from a decline in the value or price of an underlying asset. This protection is often sought after to limit the downside risk in an investment or trading position.
Downtrend
Dynamic Position
An actively managed investment position that undergoes frequent adjustments through buying, selling, or rebalancing of holdings to optimize its alignment with a specific investment objective, such as income generation, risk mitigation, or exploiting market inefficiencies.
Early Assignment
EDGX
Cboe EDGX Options Exchange is part of the Cboe Options Exchange family operated by Cboe Global Markets. EDGX Options is a platform specifically focused on providing options trading services. EDGX Options, alongside other Cboe exchanges, contributes to the overall liquidity and functionality of the options market, offering a platform for traders and investors to execute options trades efficiently and transparently.
Efficient Market Hypothesis (EMH):
The Efficient Market Hypothesis (EMH) posits that asset prices efficiently reflect all publicly available information, leading to random future price movements. It proposes three levels of efficiency: the weak form suggests technical analysis is ineffective due to rapid price adjustments; the semi-strong form implies that even fundamental analysis cannot consistently outperform the market; and the strong form postulates that even insider information is already incorporated into prices, preventing above-average profits. While highly influential, EMH faces numerous criticisms for potential market inefficiencies, behavioral biases, and information asymmetries. Understanding the various facets of EMH and its limitations is crucial for informed investment decisions and strategic portfolio management.
Employee Stock Options
Employee stock options are a type of compensation granted to employees, offering the right to purchase company shares at a pre-determined price by a specific date. These options incentivize employee commitment and align their interests with company performance. Different types of options exist, such as ISOs with tax benefits, NSOs subject to income tax, and RSUs vesting over time, each with its own characteristics and tax implications.
Equity
Equity option
An equity option is a type of financial derivative that gives the holder the right, but not the obligation, to buy or sell a specified number of shares of an individual stock or an exchange-traded fund (ETF) at a predetermined price (strike price) within a specified period (until expiration).
Equivalent strategy
An equivalent strategy, in options trading, refers to a combination of options or positions that offer an identical risk-reward profile to another strategy. For example, a long call spread and a short put spread on the same stock at the same price can both achieve similar potential gains and losses. Knowing this flexibility gives you more options to manage your investments!
Estimated Exercise Cost
The estimated exercise cost represents the anticipated total cost associated with exercising a stock option, calculated by multiplying the grant price by the number of options exercised. While this provides an initial guideline, the actual exercise cost at execution may differ due to market fluctuations, potential commissions and fees, and relevant tax implications.
Estimated Gross Sale Proceeds
Estimated New Cash Proceeds
Estimated New Cash Proceeds represent the projected final cash received after executing an exercise and sell order for stock options. This post-deduction estimate accounts for costs like commissions, fees, and relevant tax liabilities, particularly for non-qualified options.
Estimated Share Proceeds
Estimated Share Proceeds represent the projected value of the underlying asset acquired through an exercise and hold order for stock options. While this provides an initial forecast, the actual share proceeds may differ at execution due to market fluctuations, potential deductions for exercise costs (commissions, fees), and relevant tax liabilities, particularly for non-qualified options.
Estimated Taxable Income
The estimated taxable income represents an approximation of the income subject to ordinary income tax resulting from an exercise and sell or an exercise and hold order for non-qualified stock options. This estimate provides an overview of the projected taxable income after executing such orders.
Estimated Total Cost
Estimated Total Cost represents the projected total deduction from proceeds incurred upon executing an exercise and hold order for non-qualified stock options. This typically comprises the sum of the estimated exercise cost and the estimated tax liability, calculated based on the difference between the exercise price and the fair market value of the underlying asset at exercise.
Estimated Total Options Outstanding Value
The estimated total options outstanding value represents an approximation of the aggregate value attributed to the entirety of stock options that have not been exercised. This estimation includes vested and unvested stock options.
Estimated Total Tax Withholding
Estimated Total Tax Withholding represents the projected upfront deduction from proceeds in the form of income tax withheld upon executing an exercise and sell/hold order for non-qualified stock options. This typically entails calculations based on the difference between the exercise price and the fair market value at exercise, in conjunction with applicable tax rates and withholding regulations.
Estimated Value of Options Outstanding
Estimated Value of Vested Options/Exercisable
Estimated Value of Vested Options/Exercisable represents the projected total value of all vested and immediately exercisable stock options across all your grants. This calculation typically involves multiplying the total number of such options by the spread, defined as the difference between the current market price of the underlying asset and the respective strike prices of the options.
Estimated Vested Options/Exercisable
The estimated vested options or exercisable options refer to an estimation of the number of stock options from the original grant that have vested and are available for exercise based on the specified vesting schedule or conditions.
European-style option
European-style options offer the right to exercise (buy or sell the underlying asset) only during a pre-defined early exercise period, typically starting several weeks before the expiration date. Understanding the timing constraints and potential strategic implications of this window compared to American-style options is crucial for options valuation, timing decisions, and overall portfolio management strategies.
Even Money
Ex-date / Ex-dividend date
The ex-date, or ex-dividend date, determines the eligibility for dividend payments. Shareholders on the record date (one day before the ex-date) are entitled to the dividend, which reduces the stock price by the dividend amount on the ex-date. Similar adjustments occur for splits and distributions, with the ex-date marking the effective date of the split ratio or distribution adjustment. Understanding ex-dates is crucial for accurate valuation, strategic investment timing, and managing dividend capture strategies.
Exchange
An exchange serves as a pivotal marketplace where financial instruments, such as stocks, bonds, commodities, options, and other securities, are bought and sold.
Exchange traded funds (ETFs)
Execution
Execution refers to the successful completion of a buy or sell order on an exchange. While traditionally associated with the bustling activity of exchange floors, modern execution occurs electronically through sophisticated matching algorithms.
Exercise
Exercise and Hold
Exercise and Sell
Exercise by exception processing
Exercise Cost
Exercise Date
Exercise Date refers to the specific date chosen by the option holder to execute a stock option and acquire the underlying shares at the predetermined strike price. While flexibility exists within the allowable timeframe (e.g., vesting schedules, expiration dates), selecting the optimal exercise date requires careful consideration of market conditions, potential tax implications, and alignment with individual financial goals.
Exercise Limit
Exercise limits, imposed by exchanges, regulators, or the option issuer, restrict the number of option contracts a holder can exercise within a specific timeframe. This differs from position limits, which restrict the total number of contracts held.
Exercise Order Date
Exercise price
Exercise settlement amount
The exercise settlement amount refers to the financial result or difference between the exercise price stipulated in the option contract and the exercise settlement value of the underlying index at the time the index option is exercised.
Expectational Analysis
Pioneered by Bernie Schaeffer, Expectational Analysis takes a multi-faceted approach to predicting stock price movements. It goes beyond traditional technical and fundamental analysis by incorporating investor sentiment and expectations, measured through tools like options data, surveys, and news sentiment analysis. This can offer valuable insights, like identifying contrarian opportunities or managing emotional biases, but it also comes with limitations like subjectivity and potential market inefficiencies.
Expiration calendar
An expiration calendar provides a comprehensive overview of upcoming expiry dates for various option classes across different asset classes.
Expiration date
The expiration date of an option marks the point at which the option contract becomes invalid and ceases to exist. After this date, the option holder loses the right to buy or sell the underlying asset as per the terms of the contract.
Expiration Friday
Expiration month
Expire Worthless
Options that expire worthless have no intrinsic value remaining at the expiration date, meaning the holder loses the initial premium paid. This typically occurs when contracts are ATM or OTM at expiration, as they lack sufficient intrinsic value to incentivize exercise compared to the cost of purchasing the underlying asset directly.
Extrinsic Value
Fair Market Value
Fair Market Value (FMV) is a critical metric, especially in the context of stock options. It represents the price at which an asset would change hands between a willing buyer and a willing seller when both have reasonable knowledge of the relevant facts and are not under any compulsion to act.
Fair Market Value at Exercise
Fair Value
Fiduciary Call
A fiduciary call is an options trading strategy designed to reduce the cost of exercising a call option. It achieves this by combining a long call option with the investment of an equivalent amount in a risk-free asset, such as a fixed-income security or money market instrument.
Fill
Fill-or-kill order (FOK)
Financial Instrument
A financial instrument is any asset or contract that holds a monetary value and can be traded or transferred between parties. It encompasses a broad range of items, including stocks, bonds, derivatives (like options and futures), currencies, commodities, and various other securities. These instruments serve as a means for investors and entities to manage risk, invest capital, and generate returns within the financial markets. They often represent ownership interests, debt obligations, or rights to specific monetary values.
FINRA (Financial Industry Regulatory Authority)
FINRA acts as the independent watchdog for the U.S. securities industry. They set the rules for brokers, keep a close eye on their activities through exams, and step in to resolve disputes when needed. By ensuring fair and transparent markets, FINRA plays a crucial role in building trust and stability in the financial system, ultimately benefiting both investors and businesses.
First-Order Option Greeks
Flat price risk
Flat price risk simply means being exposed to the overall, absolute change in the price of a single asset. In other words, your profit or loss will depend solely on whether the price of that asset goes up or down, regardless of anything else happening in the market.
Float
Floor broker
A floor broker is a professional trader present on the floor of an exchange, responsible for executing buy and sell orders on behalf of clients. They facilitate trading by interacting directly on the trading floor, executing orders at the best available prices in the market. This role involves quick decision-making and fast execution of orders, aiming to achieve the best possible outcomes for their clients within the bustling environment of the exchange floor.
Floor trader
Foreign currency option
A foreign currency option provides the holder with the right, but not the obligation, to buy (call option) or sell (put option) a predetermined amount of foreign currency at a fixed price within a specified timeframe.
Forward price
Free market price
Free market price is the equilibrium price established by buyers and sellers in a market operating without external constraints. Driven by the invisible hand of supply and demand, this price continuously adjusts to reflect the current availability of goods or services and the willingness of buyers to pay. Unlike controlled prices, it dynamically responds to market changes, aiming for efficient allocation of resources.
Front Month
Full fungibility
This refers to the unrestricted ability to buy and sell option contracts on an exchange at any time. This means any specific option contract is perfectly interchangeable with any other of the same series (same underlying asset, strike price, and expiration date).
Full-service broker
A full-service broker offers a wide array of financial services, including investment advice, research reports, market analysis, and various investment products. They provide personalized guidance and tailored investment strategies, along with the execution of buying and selling securities.
Fundamental analysis
Fundamental beta
Fungibility
The interchangeability of assets due to standardization, plays a crucial role in options markets. While exchange-listed options generally exhibit a high degree of fungibility due to standardized terms and settlement procedures, factors like exercise settlement dates and potential variations in terms across different exchanges can influence the level of interchangeability. Multiple-listed/multiple-traded options, representing classes of options listed and traded on more than one national exchange, further enhance market liquidity and price discovery through wider market reach and increased competition.
Future Contract
A standardized agreement traded on exchanges to buy or sell a specific quantity and quality of an asset (commodities, currencies, financial instruments) at a defined future date.
Futures Option
A futures option is an agreement that grants the holder the right, but not the obligation, to buy or sell a futures contract at a specified price (strike price) on or before the expiration date. The underlying asset in this case is a futures contract rather than the actual physical asset. Futures options give investors the opportunity to hedge against price fluctuations in the futures market or speculate on potential future price movements.
Immediate-or-cancel order (IOC)
Implied volatility
In-the-money / In-the-money option
An in-the-money option refers to an option that currently holds intrinsic value. For call options, this means the stock price is above the strike price, allowing the option holder to buy the stock cheaper than its current market price. Conversely, for put options, it indicates the stock price is below the strike price, allowing the option holder to sell the stock for more than its current market price.
Incentive Stock Options (ISO)
Incentive Stock Options (ISOs) are a type of company stock option granted to employees, often as a part of their compensation package. These options offer certain tax advantages compared to other types of stock options, like Non-Qualified Stock Options (NQSOs).
Index
Index fund
An index fund aims to replicate the performance of a specific market index, like the S&P 500 or the Nasdaq Composite, by holding the same stocks in the same proportions as the index. This passive investment strategy often offers lower fees due to minimal active management.
Index option
Individual volatility
Initial public offering (IPO)
Institution
Refers to a formal, established entity that plays a role in the financial system. While investment management companies like banks, pension funds, mutual funds, and insurance companies are prominent examples, institutions encompass a broader range of players.
Institutional investors
Organizations that manage large pools of capital on behalf of others, playing a crucial role in the financial system. This includes banks, insurance companies, pension funds, mutual funds, endowments, and various investment companies like hedge funds or venture capital firms. Their primary function is to invest and generate returns for their beneficiaries, which can range from individual policyholders to retirees to charitable causes. However, beyond investing, they also contribute to market stability, liquidity, and responsible corporate governance through their investment practices and engagement with companies.
Internet broker
A financial services provider offering online trading platforms and tools for individual investors. They typically emphasize low commission rates, similar to deep discount brokers, along with convenient access to various assets like stocks, options, ETFs, and mutual funds. Some internet brokers go beyond pure trading, offering educational resources, research tools, and diverse account options.
Intrinsic value
The inherent value of an option determined by its potential to be exercised profitably. It represents the minimum profit an option holder can guarantee by exercising the option immediately and buying or selling the underlying asset at the strike price.
ISE
ISE stands for the International Securities Exchange, a fully electronic options exchange in the United States. It was acquired by Nasdaq and operates as Nasdaq ISE, LLC. The ISE is known for its electronic trading platform, catering to various options traders and providing a marketplace for options contracts.
ISE Gemini
Issuer’s Stock
Lambda
Last sale price
The price of a security at the most recent transaction, reflecting the latest market interaction between buyers and sellers. It serves as a crucial reference point for market sentiment, supply and demand dynamics, and often triggers various order execution mechanisms.
Last trading day
LEAPS
LEAPS, or Long Term Equity Anticipation Securities, are options contracts with extended expiration dates, typically extending beyond one year. They function similarly to standard options but offer a longer time frame for investors to capitalize on potential price movements in the underlying asset.
LEAPS® (Long-term Equity AnticiPation Securities) / Long-dated options
LEAPS® are a type of call and put option with expiration dates exceeding nine months from listing, offering investors flexible long-term exposure to an underlying asset with potential leverage benefits. They typically have two expiration series at any time, with one expiring in January of the current year and the other in January of the following year.
Leg
A term denoting one side of a position involving two or more components. Legs are commonly used in various multi-leg strategies, including spreads, straddles, and complex structures like butterflies and condors.
Legging
The process of entering or exiting a multi-leg strategy (e.g., spreads, straddles) by executing each individual leg (e.g., buying or selling a specific call or put) separately. Traders might choose to leg in/out for various reasons: timing the market, managing risk, or capitalizing on specific market movements.
Legging In
Refers to the strategy of entering into a multi-leg options position in stages or separately, rather than establishing all parts of the position simultaneously. It involves executing one side of the trade first and adding the other parts later.
Legging Out
Level II Quotes
Real-time bid-ask spreads offered by market makers on an exchange, providing granular depth of market information beyond just the best available buy and sell prices. Level II displays not only the price at which market makers are willing to buy or sell, but also the quantity of shares they are willing to trade at that price, their identity, and potentially the type of orders they are placing.
Leverage
Limit order
Limit Stop Order
A conditional order that combines aspects of both stop orders and limit orders to provide more control over trade execution. It instructs your broker to close a position if the market price reaches a specified stop price, but only if the order can be filled at a specified limit price or better.
Limited risk
Liquidity / Liquid market
Listed option
Listed options are standardized contracts traded on organized exchanges like the CBOE (Chicago Board Options Exchange). They have set specifications regarding the underlying asset, expiration date, strike price, and contract size. In contrast, over-the-counter (OTC) options are customized contracts tailored to specific needs, traded directly between two parties, allowing more flexibility in terms but often lacking the liquidity and standardization of listed options.
Lockup Agreements
Legal contracts restricting company insiders, including employees, friends and family, and venture capitalists, from selling their shares for a predetermined period of time, typically following an IPO or other significant event.
Lognormal distribution
Long
Long
Long Call
An options trading strategy used when an investor anticipates a bullish movement in the price of an underlying asset. It involves buying a call option, which gives the holder the right (but not the obligation) to buy the underlying asset at a predetermined price (strike price) within a specific timeframe (expiration date).
Long Gut
Long option position
Long Position
Holding a financial instrument in anticipation of it increasing in value. This term applies to various instruments, including stocks, bonds, options contracts, futures contracts, and even certain swaps.
Long Put
An options trading strategy employed when an investor holds a bearish outlook on an underlying security. It involves purchasing a put option, granting the holder the right (but not the obligation) to sell the underlying asset at a predetermined price (strike price) within a specified timeframe (expiration date).
Long stock position
A position in which an investor owns shares of a company, expecting to benefit from potential price appreciation, dividend income (for eligible stocks), or voting rights (for common stock). Long positions are often associated with longer investment horizons and carry risks from market volatility, economic factors, and company performance.
Long Strangle
Look Back Option
A special type of option where the holder exercises the option at the most favorable price (highest for calls, lowest for puts) achieved by the underlying asset during the entire life of the option, not just the ending price.
Margin call
Mark-to-market
Market Capitalization
Market maker
A market maker is an individual or a firm that facilitates trading in financial securities by providing buy and sell prices for securities. They do so by standing ready to buy or sell a particular security at publicly quoted prices, ensuring liquidity in the market.
Market maker system (competing)
Serves as a mechanism to ensure liquidity, efficiency, and fair trading in options markets. This system involves multiple market makers competing with each other to provide continuous bid and ask prices for specific options. Competition among market makers promotes price discovery, leading to more accurate and efficient pricing.
Market Place
A venue that brings together buyers and sellers of various goods and services to facilitate trading and price discovery.
Market quote
Real-time information displaying the current best buying (ask) and selling (bid) prices for a security in the marketplace. These quotes, typically originating from exchange trading floors or electronic platforms, provide crucial data for informed trading decisions. Market quotes typically include the security symbol, time stamp, bid price, ask price, and potentially volume or other relevant information like implied volatility for options.
Market Recap
Market Stop Order
An order to automatically close a position at the market price when a specific price (stop price) is touched or breached. This can be used to limit losses on existing long or short positions by triggering a market order to sell when the price falls below the stop price (for short positions) or buy when the price rises above the stop price (for long positions).
Market timing
The practice of making investment decisions based on predictive methods in the hope of buying and selling securities at optimal times to achieve better returns than simply buying and holding. This often involves utilizing technical or fundamental analysis, economic forecasts, or sentiment indicators to anticipate significant price movements in the market or individual securities.
Market-not-held order
A type of market order where the investor grants the broker (or electronic platform) discretion over the timing and/or price of execution. This can be beneficial for seeking a better price than the current best bid/ask, minimizing market impact, or accommodating specific timing needs.
Market-on-close order (MOC)
MCRY
Mean
MIAX
The Miami Options Exchange (MIAX Options) is a fully electronic options trading platform focused on providing efficient and innovative solutions to market participants. It leverages its award-winning technology platform to offer fast execution, low latency, and robust risk management features.
Model
Money market fund
A money market fund is a type of mutual fund that primarily invests in short-term, low-risk securities. These funds are designed to provide investors with a relatively safe and liquid investment option while aiming to preserve the principal value of their investment.
Moneyness
A critical concept in options trading that defines the relationship between the strike price of an option and the current price of the underlying security. It categorizes options as in the money (ITM): having positive intrinsic value and immediate profit potential, at the money (ATM): having no intrinsic value, and out of the money (OTM): having negative intrinsic value and requiring a significant price movement to become profitable.
Morphing
A sophisticated complex trading technique involving the transformation of one synthetic position into another using a single order. This allows traders to dynamically adjust their strategy based on market movements or new information, without the need to exit and re-enter the market separately. Morphing can offer increased efficiency, cost savings, and improved risk management but requires a good understanding of options and synthetic positions.
Moving average
MPRL
MPRL stands for MIAX PEARL, LLC, an options exchange platform within the Miami Options Exchange (MIAX) ecosystem. MPRL focuses on offering competitive fees and innovative pricing structures for specific options contracts.
Multiple-listed / multiple-traded option
A multiple-listed or multiple-traded option refers to an options contract that is available for trading on more than one national options exchange. These exchanges can include major options markets like the Chicago Board Options Exchange (CBOE), NYSE Arca Options, Nasdaq Options Market, among others.
Multiplier
Multiply listed options
Multiply listed options refer to options contracts that are available for trading on multiple options exchanges. These exchanges can include major options markets like the Chicago Board Options Exchange (CBOE), NYSE Arca Options, Nasdaq Options Market, and others.
Mutual fund inflows/outflows
Naked or uncovered option
An uncovered or naked option refers to a short options position where the writer (seller) of the option does not have an offsetting position that provides protection or collateral against potential losses if the option is exercised.
Nasdaq
Nasdaq-100 Trust (QQQ, or “cubes”)
Nasdaq-100 Trust Volatility Index (QQV)
Nasdaq-100 Trust Volatility Index (QQV) serves as an indicator reflecting investor sentiment regarding the expected future volatility of the QQQ, an exchange-traded fund (ETF) tracking the Nasdaq-100 Index.
NAV Effect
Near The Money Option:
Net credit
Net credit refers to any activity that adds money to an account, increasing its available balance. This can come from various sources, such as depositing cash, receiving earnings like interest or dividends, completing successful transactions that result in sales proceeds, or even receiving refunds.
Net debit
Net debit refers to any activity that removes money from an account, decreasing its available balance. This can happen for various reasons, such as taking out cash, making purchases, incurring fees, or repaying loans.
Neutral
In the context of stocks or the broader market, being neutral suggests a stance where an investor or analyst believes that there will be limited or no significant movement in the stock price or market direction.
Neutral Market
Neutral Outlook
Neutral spread
A neutral spread in options trading is a specific strategy designed to capitalize on minimal movement in the price of the underlying stock or asset. Traders use this strategy when they expect the stock to remain relatively stable or trade within a narrow price range.
Neutral strategy
A neutral strategy in options trading (or with stock and option positions) is designed to profit or benefit from a market or stock price that remains relatively unchanged or trades within a specific range. Examples include range-bound strategies like covered calls or calendar spreads, volatility arbitrage by exploiting price discrepancies between related options, or cash-secured puts for income generation and downside protection.
Neutral Trading Strategies
Neutral trading strategies offer ingenious ways to profit from a financial instrument remaining relatively flat or experiencing minimal price movement. From options spreads capitalizing on directional ambiguity to arbitrage techniques exploiting price discrepancies, a diverse toolbox exists to cater to different risk-reward preferences and market conditions.
Ninety-ten (90/10) strategy
The 90/10 strategy is a conservative investment approach favored for its focus on capital preservation and income generation. Typically, 90% of the portfolio is allocated to low-risk, yield-generating assets like T-bills, money market funds, or blue-chip dividend stocks. This provides a stable foundation and consistent income through interest or dividends. The remaining 10% is invested in call options on equities or other protected investment strategies. This small allocation offers potential for limited upside gains from the options while minimizing risk due to the large buffer provided by the 90% allocation. The specific asset choices and option strategies within the 90/10 framework can be adjusted based on individual risk tolerance, prevailing interest rates, and market conditions. This flexibility, along with its focus on risk management, makes the 90/10 strategy a popular choice for conservative investors seeking income and some potential for growth while protecting their capital.
No-load mutual fund
A no-load mutual fund refers to an investment fund where shares are sold directly to investors without charging a sales commission or front-end load. These funds are marketed and distributed directly by the fund company, bypassing the need for a sales intermediary.
NOBO
Nasdaq BX, Inc., operates NOBO, a rapidly growing alternative platform for trading U.S. Treasury securities. As a competitor to the established BrokerTec platform, NOBO leverages modern technology and offers a seamless trading experience for market participants. By providing an additional avenue for Treasury trades, NOBO fosters competition, potentially leading to lower fees and improved market efficiency. Furthermore, its user-friendly platform and focus on transparency may attract investors seeking a streamlined and efficient way to buy and sell Treasuries. With its increasing participation and growing recognition, NOBO is playing a significant role in shaping the landscape of the U.S. Treasury market.
Nominal price (or “nominal quotation”)
A nominal price or nominal quotation in the context of futures or options refers to a price quote calculated for a specific period when no actual trading has taken place. This quotation is an estimate or approximation derived from averaging the bid and ask prices of the financial instrument.
Non-equity option
A non-equity option refers to an options contract where the underlying asset is anything other than common stock. These options derive their value from assets other than shares of a company. Examples include currency options (e.g., EUR/USD), commodity options (e.g., gold futures), and interest rate options (e.g., bond options). They offer diverse risk-reward profiles depending on the underlying asset and market conditions.
Non-qualified Stock Options
Normal Distribution
Not-held order
A not-held order is a type of trading order in the financial markets that grants the executing broker or trader a degree of discretion in executing the order. With a not-held order, the broker is released from certain obligations and has some flexibility in executing the trade.
NSDQ
NSDQ typically stands for the Nasdaq Options Market, LLC. The Nasdaq Options Market is a part of Nasdaq, Inc. and operates as a designated options market for trading various options contracts.
NYSE
NYSE Amex
NYSE Amex Options, now known as NYSE American Options, is a part of the New York Stock Exchange (NYSE) and operates as an options trading platform. It provides a marketplace for trading options contracts on various underlying assets.
NYSE Arca
One Cancel Other Order
One Sided Market
One Trigger Other Order
The One Trigger Other (OTO) order, also known as One-Triggers-the-Other, is a combination order type utilized in trading to link two separate orders on a particular asset, typically in the stock market or other financial markets.
One-cancels-other order (OCO)
Online Broker
Online brokers revolutionized trading by allowing individuals to buy and sell securities through user-friendly digital platforms. These platforms offer access to various markets, diverse research tools, and advanced order types, all directly from your computer or mobile device.
Open interest
Open Interest Configuration
Open outcry
Open outcry was a traditional trading method where market makers and floor brokers representing public orders competed on exchange floors to buy and sell financial instruments. Bids and offers were communicated loudly and openly, often accompanied by a specific language of hand signals, within designated trading pits. This dynamic auction-like system facilitated direct interaction between participants, providing liquidity and contributing to price discovery.
Opening Order
An instruction placed by an investor or trader to establish a new position in a financial asset, such as stocks, options, or futures contracts.
Opening price
The opening price is the first price at which a stock or option trades on a given day. It marks the initial benchmark for daily trading activity and holds significant importance, especially for short-term traders and technical analysis.
Opening sale (sell to open)
Opening transaction
Opening transactions in trading refer to creating or adding to a market position. In options trading, it specifically involves acquiring new option contracts, either through buying calls or puts. An opening purchase transaction adds long options to your portfolio, while an opening sale adds short options. These transactions directly affect the total open interest of the specific option contract, increasing it when you buy and decreasing it when you sell.
Opportunity cost
Opportunity cost in option pricing refers to the potential profit investors sacrifice by choosing to buy an option instead of putting their money into another investment.
Option
Option contract
An option contract grants the buyer the right, but not the obligation, to buy or sell a specific financial asset (underlying asset) at a predetermined price (strike price) by a certain date (expiration date) in exchange for a fee (option premium). Options come in two main types: calls, granting the right to buy, and puts, granting the right to sell.
Option in the Money Amount
Option Pain
Option pain, also known as max pain, refers to the theoretical price of an underlying security that would cause the highest combined losses for traders holding options contracts about to expire worthless. While calculating this point is complex, understanding its potential implications can be valuable for informed options trading decisions.
Option period
Option price
The option price, also known as the option premium, is the fee paid by the buyer for the right to buy or sell a security at a predetermined price in the future. This price comprises two key components: intrinsic value, reflecting the immediate benefit of exercising the option, and time value, representing the potential future value based on remaining time until expiration.
Option pricing curve
An option pricing curve, also known as an options pricing graph or a theoretical value graph, is a graphical representation illustrating the estimated theoretical values of an option at a specific point in time across various prices of the underlying asset or stock.
Option pricing model
Black-Scholes option pricing model is a renowned mathematical formula used to estimate the theoretical price of European-style options. Developed by Fischer Black, Myron Scholes, and Robert Merton, this model revolutionized options pricing and has been fundamental in financial markets.
Option spread
An option spread is a trading strategy involving the simultaneous purchase and sale of two different options on the same underlying security. This can be done with calls or puts, at different strike prices, and results in a net premium paid or received depending on the spread type.
Option writer
An option writer is the seller of an option contract, responsible for fulfilling the terms if the buyer exercises their right. This involves receiving the premium upfront but also carrying the obligation to buy or sell the underlying asset at the agreed-upon price and date if the option is exercised. Writing options can be motivated by the potential to earn premium and express market views, but it also carries significant risks, including unlimited losses, margin requirements, and assignment risk.
Option writing
Option writing involves selling options contracts to other investors in an opening transaction. This grants the writer the upfront premium regardless of whether the option is exercised.
Optionable stock
An optionable stock is a publicly traded stock for which there are listed options contracts available for trading on an exchange. This means investors can buy and sell options contracts that give them the right, but not the obligation, to buy or sell shares of that stock at a predetermined price by a specific date. Optionable stocks generally meet specific criteria for liquidity, market capitalization, and investor interest.
Optionee
An individual who has been granted stock options by a company as part of their compensation or incentive plan and currently holds those options.
Options Broker
Options Clearing Corporation (OCC)
Options Exchange
Options exchanges are the regulated marketplaces where buyers and sellers come together to trade options contracts. These platforms ensure fair and transparent price discovery through their trading platforms, while exchange members like broker-dealers and market makers contribute to liquidity and orderly trading.
Options specialized broker
Options specialized brokers are firms dedicated to supporting options traders of all levels. They possess deep expertise in options pricing, strategies, and research, offering unique services like advanced analysis tools, educational resources, and automated trading platforms.
Options Symbol
Also known as an options ticker, is a unique string of characters that represents a specific options contract and provides essential information about that contract.
Options Trader
Options trader is an investor who actively participates in buying and/or selling options contracts within financial markets.
Options Trading
Options trading involves buying or selling contracts that grant the right, but not the obligation, to buy or sell an underlying asset at a specific price by a certain date.
Order
Oscillators
Oscillators in trading are technical indicators used to assess the momentum or strength of price movements in a stock, asset, or market. These indicators operate based on the premise that price movements tend to alternate between periods of upward and downward trends, creating cycles of highs and lows.
OTC option
OTC options, traded directly between two parties instead of on an exchange, offer greater flexibility in terms of customized features and potentially higher returns compared to standardized exchange-traded options. However, this flexibility comes with increased counterparty risk and potentially lower liquidity, especially for less common assets or complex structures.
Out of the money
An out-of-the-money option has no immediate financial benefit from exercise because its strike price is above the current market price for calls or below for puts. While they lack intrinsic value, out-of-the-money options retain time value, which can potentially increase if the underlying asset price moves significantly before expiration.
Out-of-the-money / Out-of-the-money option
Outlook
Over-the-counter / Over-the-counter market
The over-the-counter (OTC) market is a decentralized trading network where various financial instruments, including stocks, bonds, derivatives, currencies, and commodities, are traded directly between market participants through a network of brokers or dealers. Unlike traditional exchanges, the OTC market lacks a physical location and operates electronically, offering flexibility and access to less liquid or specialized assets.
Overbought/oversold
Overwrite
Overwriting involves selling call options against existing long stock positions. This strategy allows investors to collect the option premium and potentially benefit from upward price movement in the underlying asset. However, it also caps potential gains if the stock price rises significantly above the strike price and carries the risk of forced selling through assignment if the option is exercised. Overwriting can be used to generate income, hedge existing holdings, or express a neutral to slightly bullish market view.
Owner
Refers to an individual or entity that holds a long position resulting from initiating an opening purchase transaction for a call or put option and maintains that position within their brokerage account.
Parity
Payoff diagram
Also known as a profit and loss diagram or risk graph, is a graphical representation used by traders and investors to visualize the potential profit or loss of an options strategy at different prices of the underlying security.
PHLX
Physical delivery option
Physical delivery options offer the right to receive or deliver the actual underlying asset, typically commodities like oil or gold, upon exercise. Unlike cash-settled options, physical delivery involves specific contractual terms defining the asset quality, delivery location, and timeline.
Physical Option
Physical options involve contracts granting the right to buy or sell a specific quantity of a physical commodity (e.g., gold, wheat, oil) at a predetermined price and date. Unlike cash-settled options, physical options result in the delivery of the underlying asset upon exercise.
Physical Settlement
Physical settlement is the common settlement style for stock options in many markets, meaning that shares of the underlying stock change hands upon option exercise. However, cash-settled options for equities also exist, and other types of equity options may have different settlement mechanisms.
Physically Settled Option
Pin risk
Pin risk lurks for option writers when the underlying asset price hovers around the strike price at expiration. This creates uncertainty whether short options will be assigned or expire, potentially leaving you with unwanted long or short positions depending on last-minute price movements. On the following Monday, you might face unexpected exposure to the underlying asset, jeopardizing your risk management strategies and exposing you to potentially significant losses.
Plan Number
The plan number is a unique identifier assigned by your company to its specific stock option plan. This plan will have one plan number that remains consistent throughout its existence. In contrast, each individual award of stock options within the plan will have its own unique grant ID.
Portfolio
A portfolio represents the collective holdings of financial instruments, encompassing stocks, bonds, funds, and potentially even alternative assets like real estate or private equity. Its composition is tailored to individual investment goals, risk tolerance, and desired risk-return profile.
Position
In trading and investing, a position refers to the overall holding or combination of securities that an investor or trader currently owns or has committed to via various financial instruments like options and stocks.
Position Trader
Position traders are not solely focused on exploiting options for time decay and volatility. While these factors can play a role, their primary focus is on identifying trends and capitalizing on them by holding positions, often options positions, for extended periods. They typically employ fundamental and technical analysis to inform their decisions and are less concerned with short-term market fluctuations. Position traders focus on various trends, like secular, cyclical, or momentum.
Position trading
Premium
Preview Exercise Button
Pricer
Pricing Model
Pricing models are mathematical tools used to estimate the theoretical value of option contracts. While models like Black-Scholes and Binomial methods are familiar examples, a range of models exist each considering various factors like underlying asset price, time to expiration, volatility, and interest rates to generate valuations.
Primary market
Prior Business Day’s Close
Profit/loss graph
A profit/loss graph, also known as a risk graph or payoff diagram, is a visual representation used by investors and traders to illustrate the potential profit or loss at expiration for a specific investment or trading strategy.
Protected Strategy
Protected strategies utilize multiple legs with options contracts to limit potential losses while maintaining some upside potential. For instance, a protected short sale combines a short stock position with a long call option, capping the downside risk if the stock price unexpectedly rises.
Protective Call
A protective call is a strategy used to limit potential losses on a short stock position by purchasing call options on the same stock.
Protective Put
A protective put is a strategy used to limit potential losses on a long stock position.
Public Offering
Put Call Parity
Put-call parity is a fundamental concept in options pricing that establishes a theoretical relationship between the prices of European put and call options with the same strike price and expiration date, on the same underlying asset. It ensures market efficiency and prevents arbitrage opportunities where traders could exploit price discrepancies for risk-free profit.
Put option
A put option is a type of financial contract that grants the owner (holder) the right, but not the obligation, to sell a specified quantity of an underlying asset (usually stocks) at a predetermined price (strike price) within a specified period (until expiration) to the option seller (writer).
Put ratio backspread
A options trading strategy that involves selling one in-the-money put with a strike price slightly above the current market price and buying two out-of-the-money puts with lower strike prices. This provides downside protection as you receive a premium upfront by selling the in-the-money put, and your potential profit is unlimited if the stock price falls sharply. However, remember that time decay and volatility can affect the outcome.
Put Ratio Spread
A put ratio spread is an advanced options strategy used by traders with the anticipation of a neutral or moderately bullish stance on an underlying security.
Put Writing (or “Put Selling”)
Put writing, also known as put selling, is an options trading strategy where an investor (the put writer or seller) grants the buyer the right, but not the obligation, to sell a specific quantity of an underlying asset (usually stocks) at a predetermined price (strike price) at any time before the option expires. The writer has the obligation to buy the underlying asset at the strike price if the buyer chooses to exercise the option. In return for accepting this obligation, the put writer receives an upfront premium from the buyer.
Put/call ratio
Ratio spread
A ratio spread is an options trading strategy that involves purchasing a specific number of options contracts (either calls or puts) while simultaneously writing a greater number of the same type of options contracts, which are typically out-of-the-money compared to the purchased options.
Ratio write
A ratio write is an investment strategy where an investor purchases a certain number of shares of a particular stock and then writes a greater number of call options than the number of shares they own. This strategy is a type of ratio spread, specifically involving writing call options in a ratio higher than one-to-one concerning the underlying shares owned.
Real-time Price
Realized gains and losses
Realized gains and losses represent the profit or loss on an investment when you sell it. This is calculated by subtracting the original purchase price (opening transaction cost) from the selling price (closing transaction price). A positive difference is a realized gain, meaning you made money, while a negative difference is a realized loss, meaning you lost money.
Registered Sale of Securities
Registration Statement
A Registration Statement is a legally required document filed with the Securities and Exchange Commission (SEC) by any company offering securities for public sale. It acts as a comprehensive prospectus, providing potential investors with essential information about the company, its operations, financials, management, and associated risks.
Regression channels
Relative Strength Index (RSI)
Resistance
In technical analysis, resistance refers to a price area where an upward trend is expected to pause or reverse due to increased selling pressure. This area can be a specific price level, a zone, or even a trendline established by historical data.
Resistance Level
Restricted Securities
Restricted securities are stocks, warrants, or other securities that cannot be freely traded on public markets due to restrictions imposed by the Securities and Exchange Commission (SEC) or by contractual agreements. These transactions might occur through corporate mergers, exercising stock options, receiving bonus shares, or as compensation for services rendered.
Restricted Stock Award
Return if called
Return On Investment
Reversal / Reverse conversion
Reversal / reverse conversion is an advanced options strategy where professional traders combine a short put, long call, and short stock (or covered call) with the same strike price and expiration. This strategy aims to lock in nearly riskless profits by capturing gains from stock price movements in either direction.
Reverse Iron Albatross Spread
The Reverse Iron Albatross Spread is an advanced options strategy designed to profit from a volatile market. It combines elements of a bull put spread and a bear put spread, but using puts instead of calls, and covering a wider range of strike prices.
Rho
Risk Graph
A risk graph is a visual tool used to illustrate the potential profit or loss (risk) for a given position in relation to a specific variable (reward). This variable can be the price of an underlying asset, the remaining time until an option expires, or other relevant factors depending on the type of position.
Risk Reversal
A risk reversal is a straightforward yet powerful hedging strategy involving buying a put option and selling a call option on the same underlying asset with the same expiration date. This effectively offers downside protection while generating some income from the sold call option. It can be used to hedge both long and short positions, with different strike prices chosen depending on the desired level of protection and risk tolerance.
Risk to Reward Ratio
Rolling
Rolling in options trading refers to simultaneously closing an existing option position and opening a new one with different characteristics. Traders roll for various reasons, including adjusting risk/reward, capitalizing on market movements, or managing expiration.
Rolling Down
Rolling down, a strategy in options trading, involves simultaneously closing an existing option position and opening a new one with a lower strike price but the same expiration date. This can be done to lock in some profit in a falling market, reduce risk of expiration or potential loss, or maintain exposure while adjusting to market changes.
Rolling Forward
Rolling forward, an options strategy, involves closing an existing option position and simultaneously opening a similar one with the same strike price but a later expiration date. This is done to extend your investment horizon, delay closing a profitable position, or adjust your strategy.
Rolling out
Rolling out an option involves replacing an existing contract with a new one of the same class (call or put) and strike price, but with a later expiration date. This strategy is often used by traders to buy more time, manage risk, or capitalize on changing market conditions.
Rolling up
Rydex Nova/Ursa Ratio
The Rydex Nova/Ursa Ratio is calculated by dividing the total assets in the bullish Nova fund (targeting 1.5x S&P 500 performance) by the total assets in the bearish Ursa fund (tracking the S&P 500 inversely). This ratio offers a snapshot of investor sentiment towards the broader market. While not a perfect predictor, historically, a ratio below 0.4 has often coincided with market bottoms, and a surge above 1.3 has sometimes signaled corrections.
Rydex OTC/Arktos Ratio
The Rydex OTC/Arktos Ratio, calculated by dividing the assets in the Nasdaq 100-mirroring OTC fund by those in the inverse-tracking Arktos fund, offers a valuable gauge of investor sentiment towards the technology sector. While not a perfect predictor, it provides insights often associated with market movements. Historically, a ratio below 0.5 has sometimes signaled tech sector bottoms, while exceeding 1.5 could precede corrections.
Seasoned Issues
Refer to shares that have been actively traded in the market for a significant period, often implying a track record of trading history and stability. These stocks have established themselves in the market and are recognized for their reliability and consistent trade volumes.
SEC
The Securities and Exchange Commission (SEC) is a vital agency within the federal government of the United States responsible for overseeing and regulating the securities industry, including securities exchanges, brokers, investment advisors, and various market participants.
Second-Order Greeks
Also known as second-order derivatives, are measures that quantify how much the sensitivities of options (represented by the first-order Greeks) change in response to movements in the underlying variables. Popular examples include Gamma, which measures the change in Delta with respect to underlying price, and Vanna, which measures the change in Delta with respect to volatility. These metrics provide deeper insights into option behavior and risk under dynamic market conditions.
Secondary market
The secondary market is where previously issued securities are bought and sold, acting as the engine for investor activity beyond the initial purchase. It enables investors to trade existing stocks, bonds, options, and other financial instruments, providing vital functions like liquidity, price discovery, and risk management.
Sector index
A sector index tracks the performance of a specific industry or market segment, providing valuable insights for investors beyond overall market trends.
Secured put / Cash-secured put
Also known as a cash-secured put, is an options trading strategy where an investor sells or writes a put option while simultaneously setting aside enough cash (or holding an equivalent amount in Treasury bills or other highly liquid assets) to cover the potential purchase of the underlying stock if the put option is exercised.
Sell To Close Order
A Sell To Close Order is an instruction you give to your broker to sell options contracts that you already own, effectively closing your long position in those contracts.
Sell To Open Order
Series of options
Series of options
Refers to a collection of options contracts that have the same underlying security, expiration date, and strike price but differ in their exercise price or expiration date.
Settlement
Settlement in the context of equity options refers to the execution process following the exercise of an options contract, specifically involving the transfer of the underlying stock from one brokerage account to another.
Settlement price
The settlement price acts as a standardized reference point for valuing securities at the end of a trading session. This facilitates accurate calculations of changes in account equity, margin requirements, and other calculations.
Share Proceeds
Refer to the number of shares an individual holds after exercising stock options, considering various deductions such as exercise costs, commissions, fees, and taxes. It represents the net number of shares obtained after accounting for the associated expenses and taxes resulting from the exercise of options.
Shares
Shelf Registered Stock (S-3 or S-8)
Shelf registration allows a company to register securities with the Securities and Exchange Commission (SEC) to be sold to the public over a period of time, often streamlining the process for subsequent offerings. Shelf registration is commonly filed under SEC forms like S-3 (for public companies) or S-8 (for employee benefit plans). S-3 is used for registering securities for public offerings by well-established companies, while S-8 is used for registering securities issued in employee benefit plans.
Short
Short Call
A short call is a basic options strategy employed when an investor has a bearish outlook on an underlying security.
Short Gut
Short option position
A short option position is established when an options trader or writer sells an options contract but does not own the underlying asset (stocks, commodities, etc.).
Short Position
In simple terms, a short position means you have borrowed or sold a financial instrument (e.g., stocks, bonds, options) with the intention of buying it back later at a lower price.
Short Put
Short Put Calendar Spread
An advanced options strategy designed to capitalize on volatile market movements, regardless of direction. It involves simultaneously selling a near-term put option and buying a longer-term put option with the same strike price on the same underlying security.
Short Selling
Short Strangle
A short strangle is an options trading strategy employed when an investor anticipates minimal movement or stability in the price of an underlying security.
Specialist / Specialist group / Specialist system
Specialists played a more prominent role in maintaining market order on traditional exchanges, where they physically stood on trading floors and facilitated buy and sell orders. Nowadays, specialist functions are often performed electronically by designated market makers (DMMs) on automated trading platforms.
Spin-off
Spread / Spread order
A spread, in the context of trading refers to a position or order strategy involving two or more options or futures contracts (legs) with different characteristics. Spreads capitalize on specific price movements or relationships between the underlying assets, often focusing on the relative value differences rather than individual price changes.
Spread Strategy
An options trading strategy that involves simultaneously buying and selling options contracts of the same class (calls or puts) on the same underlying security, but with different strike prices and/or expiration dates.
Standard deviation
Standardization
Standardization in options markets refers to the process of establishing consistent terms and conditions for contracts, ensuring that options of the same class are virtually identical and interchangeable. Options become fungible, meaning they can be easily traded or replaced with identical contracts, regardless of where they were originally purchased. This enhances liquidity and market efficiency. Standardization promotes transparency and price discovery, as investors can easily compare prices and make informed decisions across different exchanges.
Stock
Stock dividend
Stock Option
A financial contract that gives the buyer the right, but not the obligation, to buy or sell a specific number of shares of a publicly traded company at a predetermined price (strike price) by a certain date (expiration date).
Stock Option Plan
Stock Repair Strategy
The Stock Repair Strategy is a method employed by investors who have incurred losses due to a decline in the value of their held stock.
Stock Replacement Strategy
An options strategy aimed at replicating exposure to a desired stock, but with lower upfront capital compared to buying the shares outright. This is achieved by purchasing deep in the money call options on the underlying stock.
Stock split
A stock split is a corporate action where a company increases its number of outstanding shares by distributing additional shares to existing shareholders, proportionally based on their current holdings. In a stock split, a company increases the total number of its outstanding shares. For instance, in a 2-for-1 stock split, each existing shareholder receives an additional share for every share they already own. As a result, the total number of shares doubles.
Stock Swap
Stock’s Full Name and Symbol
Stop order
Stop-limit order
A stop-limit order is a conditional order placed with a broker that combines aspects of both stop and limit orders.
Straddle
A straddle is an options strategy that involves simultaneously buying or selling a call option and a put option with the same strike price, expiration date, and underlying stock.
Strike / Strike price
The strike price, also known as the exercise price, refers to the pre-agreed price at which the owner (holder) of an option can either buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.
Strike price interval
The strike price intervals determine the price differentials between consecutive strike prices available for trading on options contracts. While historically, there were standard rules for strike price intervals, these rules have evolved over time, especially for equity options.
Suitability
Support
Support Level
A price point at which a financial instrument, like a stock or a market index, has historically struggled to fall below. It represents a perceived lower boundary for the price of that asset, creating a level of price stability.
Swing Trader
A trader who focuses on identifying and capitalizing on short- to medium-term price movements in financial instruments like stocks, options, or currencies. Unlike day traders who hold positions for minutes or hours, swing traders typically hold positions for days to weeks, potentially even months.
Swing Trading
Synthetic long stock
A synthetic long stock position is created by combining options to replicate the profit and risk characteristics of owning the underlying stock.
Synthetic position
A synthetic position in trading involves combining different financial instruments to replicate the risk-reward profile of another single instrument or strategy. This method allows traders and investors to achieve similar outcomes or exposures without necessarily using the exact instrument they want to replicate.
Synthetic short call
A synthetic short call is achieved by combining positions to replicate the risk and reward profile of holding a short call option without directly engaging in the option itself.
Synthetic short stock
The synthetic short stock strategy goes all-in on a bearish market outlook by combining short call and long put position.
Synthetic Short Straddle
An intermediate-level options strategy designed to replicate the economic effect of a Short Straddle (selling a call and put option at the same strike price) using a combination of other options contracts.
Synthetic Straddle
An intermediate-level options strategy designed to replicate the economic effect of a Long Straddle (buying a call and put option at the same strike price) using a combination of other options contracts. T
Target exit point
A target exit point is a predefined price level at which an options trader plans to sell their holdings to realize a profit.
Technical analysis
Technical analysis involves analyzing historical market data to forecast future price movements and make trading decisions. It primarily focuses on studying price patterns, volume trends, and various indicators derived from market data.
Theoretical option pricing model
A mathematical formula used to estimate the fair value of an option contract based on known variables like underlying asset price, strike price, time to expiration, volatility, interest rates, and dividends (optional).
Theoretical value
Theta
Tick
A tick refers to the smallest possible price movement or increment allowed for a particular asset, including options. It represents the minimum price change permitted for the bid or ask price of an option.
Time decay
Time stop
A conditional order to automatically close a position if the price of the underlying asset does not reach a specified target level within a predetermined timeframe. This essentially sets a time limit for a trade to show progress in the desired direction, minimizing potential losses if the position remains stagnant or moves against you.
Time value
Today’s Close
Refers to the fair market value of a stock on a specific day, typically the market close, used for various calculations related to stock options, particularly in the context of exercising and holding stock options.
Total Stock Options Outstanding
Total Vested Stock Options/Exercisable
Trader
An individual or entity actively buying and selling financial instruments in a financial market for the purpose of generating profit or managing risk.
Trading capital
The amount of money an individual or firm allocates specifically for the purpose of engaging in financial trading activities. This represents a dedicated portion of their overall investment portfolio set aside for trading strategies like stock trading, options trading, or forex trading.
Trading Levels
Also known as approval levels is a system employed by brokers to categorize traders based on their risk tolerance, experience, knowledge, and financial capacity. This classification determines the types of trades, strategies, and financial instruments a trader is permitted to execute within their account. The primary purpose of trading levels is to protect traders from engaging in unsuitable investments or strategies that exceed their risk capacity, while also fulfilling regulatory and compliance requirements for the brokerage firm.
Trading Limit
Trading pit/Trading floor
Trading Plan
Trading Style
Trailing Stop Order
A conditional order type in which the stop price automatically trails the current market price of the underlying asset by a predetermined percentage or absolute amount.
Transaction costs
The aggregate expenses incurred when entering, holding, and exiting a financial position. These costs encompass various fees and charges associated with trading activities, impacting the net return on an investment.
Trend
A trend in financial markets refers to a consistent and identifiable direction in which the price of a specific asset or the overall market is moving. It represents a sustained pattern or tendency in price movement over a certain period.
Truncated risk
Type of options
Options can be classified based on various attributes, but primarily they fall into two main types: calls and puts.
Vanna
Vega
Vera
Vertical Debit Spread
A directional options strategy involving the simultaneous purchase of one option and the sale of another option, both with the same expiration month and the same type (call or put) but with different strike prices.
Vertical spread
Vested
It means earning the right to exercise your options and acquire ownership of the underlying shares.
Vested Stock Options/Exercisable
Vested stock options or exercisable options refer to the portion of stock options granted to an individual employee that has met the necessary conditions for ownership rights and is available for exercise.
Vesting
A crucial process associated with stock option grants, outlining the conditions under which employees gain ownership rights over these options.
Vesting Date
Vesting date refers to the specific date on which a portion or all of your options become exercisable. This effectively marks the transition from potential rights to actual ownership opportunities.
Vesting Schedule
A vesting schedule is a predetermined roadmap outlining the timeline and conditions under which your granted options become exercisable and transform from potential rewards to tangible assets. Essentially, it dictates when you earn the right to purchase the underlying shares at a pre-determined price.
Veta
VIX (also “CBOE Market Volatility Index”)
Volatile
It is when a financial instrument or an entire market experiences unexpected or dramatic price movements within a short period.
Volatile Market
A volatile market is characterized by continuous and unpredictable fluctuations in prices, resulting in a high level of instability and uncertainty. In such markets, the prices of financial assets can swing dramatically and frequently within short time frames.
Volatility
Refers to the degree of fluctuation in the price of a security, typically a stock. It essentially measures how much and how quickly the price changes over a given period.
Volatility Crunch
A volatility crunch occurs when implied volatility (IV), a measure of expected price movements of an asset, experiences a significant and rapid decline. This can happen across the entire market or for a specific underlying asset like a stock or index.
Volatility Skew
A phenomenon in options markets where implied volatility (IV) varies across different strike prices for options with the same underlying security and expiration date. This results in a graph of IV against strike prices that is not a straight line, but rather a curve, typically skewed to the right (positive skew).
Volatility Smile
Volume
Refers to the total number of options contracts traded within a specific timeframe, typically a day, week, or month. It reflects the level of activity and interest in a particular option or the underlying asset.
Vomma
