Glossary of Options Terminology

8/9/2019 Glossary of Options Terminology

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A

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

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

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

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

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

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

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

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

Automatic Exercise - A protection procedure whereby the Options Clearing Corporation

attempts to protect the holder of an expiring in-the-money option by automaticallyexercising the option on behalf of the holder.

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

Trading.

B

Backspread - see Reverse Strategy. Read More About Backspreads.

Barrier Options -Exotic options which comes into existence or goes out of existence

when certain prices has been reached. Read More About Barrier Options Here!Bearish - An opinion that expects a decline in price, either by the general market or byan underlying stock, or both.

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

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

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

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

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

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

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

Black-Scholes Model - A mathematical formula designed to price an option as afunction of certain variables-generally stock price, striking price, volatility, time to

expiration, dividends to be paid, and the current risk-free interest rate. Read More AboutBlack-Scholes model.

Box Spread - A complex 4 legged options trading strategy meant to take advantage ofdiscrepanies in options prices for a risk-free arbitrage.Learn More About Box Spreads.

Break - Even Point-the stock price (or prices) at which a particular strategy neithermakes nor loses money. It generally pertains to the result at the expiration date of theoptions involved in the strategy. A "dynamic" break-even point is one that changes astime passes.

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

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

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

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

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

Read the Tutorial on Bull Call Spread.

Bull Spread - an option strategy that achieves its maximum potential if the underlyingsecurity rises far enough, and has its maximum risk if the security falls far enough. Anoption with a lower striking price is bought and one with a higher striking price is sold,both generally having the same expiration date. Either puts or calls may be used for thestrategy. Option Strategy Library.
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Bull Trap - Any technically unconfirmed move to the upside that encourages investors tobe bullish. Usually precedes important declines and often fools those who do not waitform confirmation by other indicators.

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

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

C

Call -see Call Option.

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

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

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

Call Ratio Spread - A credit options trading strategy with the ability to profit when a

stock goes up, down or sideways through shorting more out of the money calls than inthe money calls are bought. Read the tutorial on Call Ratio Spread.

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

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

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

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

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

Call Options -Options which gives the holder the right to buy the underlying security ata specified price for a certain, fixed period of time. Read All About Call Options .
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Capitalization - The total amount of securities issued by a corporation. This mayinclude: bonds, debentures, preferred stock, common stock and surplus.

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

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

CBOE VIX - See VIX.

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

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

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

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

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

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

Contingent Order - An order to buy stock and sell a covered call option that is given asone order to the trading desk of a brokerage firm. Also called a "net order." This is a "notheld" order.Types Of Options Orders Explained.

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

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

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

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

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

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

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

Cover - to buy back as a closing transaction an option that was initially written.
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Covered Call Write - a strategy in which one writes call options while simultaneouslyowning an equal number of shares of the underlying stock. Read All About Covered CallsHere!

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

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

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

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

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

D

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

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

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

Trading Styles.

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

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

Decay - See Time Decay

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

Delta - the amount by which an options price will change for a corresponding change inprice by the underlying entity. Call options have positive deltas, while put options havenegative deltas. Technically, the delta is an instantaneous measure of the options pricechange, so that the delta will be altered for even fractional changes by the underlyingentity. Consequently, the terms "up delta" and "down delta" may be applicable. Theydescribe the options change after a full 1-point change in price by the underlyingsecurity-either up or down. The "up delta" may be larger than the "down delta" for a calloption, while the reverse is true for put options. For more detailed explanation on Deltaand other option greeks, please go to Options Delta.
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European Exercise - A feature of an option that stipulates that the option may only beexercised at its expiration. Therefore, there can be no early assignment with this type ofoption. Read The Tutorial On European Style Options.

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

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

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

Expected Return - A rather complex mathematical analysis involving statisticaldistribution of stock prices, it is the return which an investor might expect to make on an

investment if he were to make exactly the same investment many times throughouthistory.

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

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

Time.

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

F

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

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

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

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

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

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

Gamma Neutral - A position which has zero or near zero gamma value resulting in the

delta value of the position staying stagnant no matter how its underlying stock moves.Read All About Gamma Neutral.

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

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

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

Greeks - A set of mathematical criteria involved in the calculation of stock option prices.

Please read more about Option Greeks.Grocession - A prolonged period of 0 to 2% growth in GDP that will feel like a recession.

H

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

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

Hedge Ratio Here!Historical Volatility - Volatility of past price movement of the underlying asset. Alsoknown as Realised Volatility.

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

Time Spread.

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

Time Spread.

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

I

Implied Volatility - A measure of the volatility of the underlying stock, it is determinedby using prices currently existing in the market at the time, rather than using historicaldata on the price changes of the underlying stock. Read more about Implied Volatility.
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Incremental Return Concept - A strategy of covered call writing in which the investoris striving to earn an additional return from option writing against a stock position whichhe is targeted to sell-possibly at substantially higher prices.

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

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

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

The Money Options here.

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

L

Last Trading Day - The third Friday of the expiration month. Options cease trading at3:00 PM Eastern Time on the last trading day.

Leg - (Verb) A risk oriented method of establishing a two-sided position. Rather thanentering into a simultaneous transaction to establish the position (a spread, for example),the trader first executes one side of the position, hoping to execute the other side at alater time and a better price. The risk materializes from the fact that a better price maynever be available, and a worse price must eventually be accepted.(Noun) In an option strategy involving many kinds of options, each option type is knownas a leg.

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

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

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

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

Limit - See Trading Limit.

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

Liquid / Liquidity - The ease at which a purchase or sale can be made withoutdisrupting existing market prices. Read About What Affects Stock Option Liquidity Here!
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11/19

Naked Option - see Uncovered Option.

Narrow Based - Generally referring to an index, it indicates that the index is composedof only a few stocks, generally in a specific industry group. Narrow-based indices are NOTsubject to favorable treatment for naked option writers.

Neutral - Describing an opinion that is neither bearish or bullish. Neutral optionstrategies are generally designed to perform best if there is little or no net change in the

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

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

O

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

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

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

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

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

Optionable Stocks - Stocks with tradable options.

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

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

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

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

Trading.

Options Clearing Corporation (OCC) - The issuer of all listed option contracts that aretrading on the national option exchanges.
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12/19

Options Margin - See "Margin (Options)".

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

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

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

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

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

The Money Options.

Over-the-Counter Option (OTC) - An option traded over-the-counter, as opposed to a

listed stock option. The OTC option has a direct link between buyer and seller, has nosecondary market, and has no standardization of striking prices and expiration dates.

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

P

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

Physical Option - An option whose underlying security is a physical commodity that isnot stock or futures. The physical commodity itself typically a currency or Treasury debtissue-underlies that option contract.

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

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

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

Position Trading - The use of options trading strategies in order to profit from theunique opportunities presented by stock options, such as time decay, volatility and evenarbitrage to make safe, fixed, albeit lower profit. Read more about Options TradingStyles.
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Premium -The total price of an option contract is made up of the sum of the intrinsicvalue and the time value premium. Even though most people refer to the price of anoption contract as the "Premium", it is actually an inaccurate expression. The Premium ofan option contract is the part of the price that is not intrinsic. Please read more aboutHow Stock Options Are Priced.

Premium Over Parity - See Extrinsic Value.

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

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

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

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

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

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

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

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

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

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

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

Put Call Ratio -The ratio of the number of open put options against the number of opencall options. The higher the resulting number, the more put options are bought or shortedon the underlying asset. For daily total equity put call ratio, please visit Option Trader'sHQ. Read more about Put Call Ratio.
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Put Ratio Backspread - A credit options trading strategy with unlimited profit todownside and limited profit to upside through buying more out of the money puts than inthe money puts are shorted. Read the tutorial on Call Ratio Backspread.

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

Q

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

Quarterlies / Quarterly Options - Options with quarterly expiration cycle. Read moreabout Quarterly Options.

R

Ratio Backspread - Credit volatile options trading strategy that opens up one leg forunlimited profit through selling a smaller amount of in the money options against thepurchase of at the money or out of the money options of the same type. Read the

Tutorial on Ratio Backspreads.

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

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

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

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

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

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

Resistance - A term in technical analysis indicating a price area higher than the current

stock price where an abundance of supply exists for the stock, and therefore the stockmay have trouble rising through the price.

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

Return On Investment (ROI) - The percentage profit that one makes, or might make,on his investment.
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Return If Exercised - The return that a covered call writer would make if the underlyingstock were called away.

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

Reversal -The transformation of a short stock position into a position which is long the

stock using options, without closing the original short stock position, through the use ofsynthetic positions. Read more about reversals and synthetic positions.

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

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

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

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

Roll Down - Close out options at one strike and simultaneously open other options at alower strike.

Roll Forward - Close out options at a near-term expiration date and open options at alonger-term expiration date.

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

Roll Up - Close out options at a lower strike and open options at a higher strike.

Rotation - A trading procedure on the option exchanges whereby bids and offers, butnot necessarily trades, are made sequentially for each series of options on an underlyingstock.

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

S

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

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

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

Selling Climax - Exceptionally heavy volume created when panic-stricken investorsdump stocks.Often this marks the end of a bear market and is a spot to buy.
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Series - An option contracts on the same underlying stock having the same strikingprice, expiration date, and unit of trading.

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

Short (to be short) -To Short means to Sell To Open. That means to write or sell an

options contract to a buyer. This gives you the obligation to fulfill the exercise of theoption should the buyer decides to do so.

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

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

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

Short Covering - The process of buying back stock that has already been sold short.Spread - An options position consisting of more than one type of options on a singleunderlying asset. Read the full tutorial on Options Spreads.

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

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

Static Hedging - A hedging technique where a hedging trade is established and held

without needing to rebalance.Stock Options - Options contracts with shares as the underlying asset. Read All AboutStock Options.

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

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

Stop Limit Order - Similar to a stop order, the stop-limit order becomes a limit order,rather than a market order, when the security trades at the price specified on the stop.

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

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

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

Strap Straddle - A Straddle with more call options than put options. Read the fulltutorial on Strap Straddle.
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Strategy - With respect to option investments, a preconceived, logical plan of positionselection and follow-up action.

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

Strike Price -The price at which the buyer of a call can purchase the stock during thelife of the option or the price at which the buyer of a put can sell the stock during the life

of the option. Read More About Strike Prices.Structured Warrants- An alternative to stock options which works almost exactly likestock options and traded in markets such as the Singapore market. See how StructuredWarrants Are Traded In The Singapore Market.

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

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

Synthetic Position - A combination of stocks and/or options that return the same payoff

characteristics of another stock or option position.Synthetic Put - A security which some brokerage firms offer to their customers. Thebroker sells stock short and buys a call, while the customer receives the synthetic put.

This is not a listed security, but a secondary market is available as long as there is asecondary market in the calls.

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

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

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

T

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

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

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

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

Theta - One of the 5 option greeks. Theta determines the rate of time decay of an optioncontract's premium. For more details on how Theta works and how it is calculated, pleasevisit Option Greeks.
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Ticker Symbol - Symbol representing the shares and options of a company's sharestraded in the stock market. MSFT is the ticker symbol for Micrsoft shares while MSQFB isthe ticker symbol for Microsoft's June29Call options.

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

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

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

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

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

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

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

Triple Witching - Prior to 2001. The third Friday of March, June, September, andDecember, when stock options, index futures and options on index futures expire. After2001, the introduction of Single Stock Futures transformed Triple Witching into QuadrupleWitching as single stock futures expire on the third Friday of every quarterly month aswell.

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

U

Uncovered Option - A written option is considered to be uncovered if the investor doesnot have a corresponding position in the underlying security.

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

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

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

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

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

Glossary of Options Terminology