Market A market with a consistent but short-lived rise or drop in market activity due to predictable changes in climate or calendar.
traditional term for membership in a stock exchange.
and Commodities Exchanges Organized exchanges where securities, options and futures contracts are traded.
and Exchange Commission (SEC) Commission created by Congress to regulate the securities markets and protect investors.
trading instrument such as stocks, bonds, and short-term investments.
Short The practice of could borrowing a stock, future or option from a broker and selling it because the investor forecasts that the price of a stock is going down.
(Options) All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price.
representing ownership of stock in a corporation or company.
selling of a security, contract or commodity not owned by the seller..
Premium Expectation that a move of the underlying in either direction will result in a theoretical decrease of the value of an option.
Selling The sale of shares or futures that a seller does not currently own. The seller borrows them (usually from a broker) and sells them with the intent to replace what s/he has sold through later repurchase in the market at a lower price.
Stocks Up-and-comer companies that offer big rewards and higher risks. They tend to cost less than mid-caps and have lower liquidity. However, small amounts of media coverage can prompt big gains.
mathematical technique that removes excess data in order to maintain a correct evaluation of the underlying trend.
trader on the exchange floor assigned to fill bids/orders in a specific stock out of his/her own account.
trader who hopes to profit from a directional move in the underlying instrument. The speculator has no interest in making or taking delivery.
sharp price rise in one or two days indicating the time for an immediate sale.
difference between the bid and the ask prices of a security.
trading strategy in which a trader offsets the purchase of one trading unit against another.
& Poor's Corporation (S&P) A company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes.
Indicator Based on the observation that as prices increase, closing prices tend to accumulate ever closer to the highs for the period.
share of a company's stock translates into ownership of part the company.
Exchange or Stock Market organized marketplace where buyers and sellers are brought together to buy and sell stocks.
Split An increase in the number of a stock's shares that results in decreasing the par value of its stock.
stops are orders that are placed at a specified price over the current price of the market. Sell stops are orders that are placed with a specified price below the current price.
position consisting of a long (short) call and a long (short) put, where both options have the same strike price and expiration date.
position consisting of a long (short) call and a long (short) put where both options have the same underlying, the same expiration date, but different strike prices. Most strangles involve OTM options.
Price (Exercise Price) A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put) over the specified period.
historical price level at which falling prices have stopped falling and either moved sideways or reversed direction.
measurement of price movement between extreme highs and lows.
Long Call A long put and a long stock or future.
Long Put A long call and a short stock or future.
Long Stock A short put and a long call.
Short Call A short put and a short stock or future.
Short Put A short call and a long stock or future.
Short Stock A short call and a long put.
Straddle Futures and options combined to create a delta neutral trade.
Underlying A long (short) call together with a short (long) put. Both options have the same underlying, the same strike price and the same expiration date.
Analysis A method of evaluating securities and commodities by analyzing statistics generated by market activity, such as past prices, volume, momentum and stochastics.
value An option value generated by a mathematical option's pricing model to determine what an option is really worth.
Greek measurement of the time decay of an option.
minimum upward or downward movement in the price of a security. For example, bonds trade in 32nds, while most stocks trade in eighths.
Decay The amount of time premium movement within a certain time frame on an option due to the passage of time in relation to the expiration of the option itself.
Premium The additional value of an option due to the volatility of the market and the time remaining until expiration.
Value (Extrinsic Value) The amount that the current market price of a right, warrant or option exceeds its intrinsic value.
client who buys and sells frequently with the objective of short-term profit.
Account An account opened with a brokerage firm from which to place trades.
Bill (T-Bill) These are short-term government securities with maturities of no more than one year.
Bond (T-Bond) A fixed-interest U.S. government debt security with a maturity of 10 years or more..
Note (T- Note) A fixed-interest U.S. government debt security with a maturity of between one and ten years.
Witching Day The third Friday in March, June, September and December when U.S. options, index options and futures contracts all expire simultaneously often resulting in massive trades.
classification of an option contract as either a put or a call.
Option A short option position, also called a "naked" option, in which the writer does not own shares of underlying stock. This is a much riskier strategy than a covered option.
Instrument A trading instrument subject to purchase upon exercise.
security selling below the value the market value analysts believe it is worth.
potential for prices to move up.
Upside break-even The
upper price at which a trade breaks-even.
Delta A delta that can change due to the change of an underlying asset or a change in time expiration of an option.
amount by which the price of an option changes when the volatility changes. Also referred to as volatility.
measure of the amount by which an underlying is expected
to fluctuate in a given period of time. Volatility
is a primary determinant in the valuation of options
premiums and time value. There are two basic kinds
of volatility, implied and historical
(statistical). Implied volatility is calculated by
using an option pricing model (Black-Scholes for stocks
and indices and Black for futures). Historical volatility
is calculated by using the standard deviation of underlying
asset price changes from clos
e to close trading going back 21 to 23 days.
theory that options that are deeply out-of-the-money
tend to have higher implied volatility levels that
at-the-money options. Volatility skew measures and
accounts for the limitation found in most options pricing
models and uses it to give the tra
der an edge in estimating an option's worth.
(Vol) The amount of shares bought and sold on a stock exchange.
Losing money on both sides of a price swing.
Opening Refers to an unusually large spread between the bid and asked prices.
5000 Equity Index A market index of approximately 6,500 U.S. based equities traded on the American Stock Exchange, the New York Stock Exchange and the NASDAQ stock market.
Day A day on which two or more classes of options and futures expire.
individual who sells an option.
Yellow Sheets A
daily publication of the National Quotation Bureau detailing bid and asked prices.
rate of return on an investment.
percentage change in an options price per 1% change in implied volatility.