Glossary

A


American Stock Exchange (AMEX)	Securities Exchange that handles approximately 20% of all securities trades within the US.
American-style option	An option contract that can be exercised at any time before the expiration date. Stock Options are American Style.
Arbitrage	Where the simultaneous purchase and disposal of a combination of financial instruments is such that a guaranteed profit is made automatically.
Ask	The price that you buy at and the price that market makers and floor brokers are willing to sell at. The Ask stands for what the market makers and floor traders ask you to pay for the stock (or options or other instrument).
ATM (At the Money)	Where the option exercise price is the same as the asset price.
At the Opening Order	An order that specifies execution at the market opening or else it is cancelled.
Automatic Exercise	The automatic exercise of an ITM (in the money) option by the clearing firm at expiration

B


Backspread	A spread where more options (calls or puts) are bought than sold. (the opposite of a Ratio Spread).
Bear Call Ladder	A strategy using calls where the trader sells a lower strike call, buys a higher strike call and another higher strike call.
Bear Call Spread	A bearish net credit strategy using calls where the trader buys a higher strike call and sells a lower strike call. The higher strike call will be cheaper, hence the net credit. Bear Call spreads have limited risk and reward and are more profitable as the underlying asset price falls.
Bear Put Ladder	A spread using puts where the trader sells a lower strike put, buys a higher strike put and another higher strike put.
Bear Put Spread	A net debit spread only using puts where the trader buys a higher strike put and sells a lower strike put. The higher strike put will be more expensive, hence the net debit. Bear Put spreads have limited risk and reward and are more profitable as the underlying asset falls.
Bid	The price the trader sells at and the price that market makers and floor traders are willing to buy at. [the Bid stands for the price at which the market maker will bid for your stock (or options, or other instrument)]
Bid - Ask Spread	The difference between the bid and asked prices. Generally you will buy at the Ask and Sell at the Bid. The Ask is always higher than the Bid.
Blow off Top	A large rise in price followed by a quick drop. Often accompanied with high volume. Usually a technical indicator for the end of a bullish trend.
Bond	A debt financial instrument used by Governments and corporate entities in order to raise capital. The bond obliges the organization to pay its holders a fixed rate of return (coupon) and repay the principal of the debt at maturity. These bonds are traded (the CBOT is one of the major Bond Exchanges) and their values are directly correlated with interest rates and interest rate speculation by the markets. The lower interest rates are projected to be, the more valuable the bond will be.
Breakeven	The point(s) at which a risk profile of a trade equals zero.
Breakout	Where a price chart emerges upwards beyond previous price resistance.
Broker	A person who charges commission for executing a transaction (buy or sell) order.
Bull	Someone who expects the market to rise.
Bull Call Ladder	A spread only using calls where the trader buys a lower strike call, sells a higher strike call and another higher strike call.
Bull Call Spread	Long term bullish strategy involving buying low strike calls and selling same number of higher strike calls with the same expiration date.
Bull Market	A rising market over a period of time (usually a few years).
Bull Put Ladder	A spread using puts where the trader buys a lower strike put, sells a higher strike put and another higher strike put.
Bull Put Spread	Short term bullish strategy involving buying lower strike puts and selling higher strike puts with the same expiration date.
Butterfly Spread	3-legged direction-neutral low volatility strategies involving either all call legs or all put legs. Suitable for rangebound stocks.
Buy on close	An order stipulating to buy the security at the close of the trading session.
Buy on open	An order stipulating to buy the security at the opening of the trading session.
Buy Stop	A buy order where the price stipulated is higher than the current price. The rationale here is when the buyer believes that if the security breaks a certain resistance then the security will continue to rise.
Buy-Write	A bullish strategy involving buying a stock and selling near term ATM or OTM call options to generate regular income. See Covered Call.

C


CAC 40 Index	The Paris Bourse index based on 40 stocks.
Calendar Spread	2-legged option trade involving buying a long term option and selling a shorter term option with the same strike price. A Calendar Spread must involve either all call or all put legs, you cannot mix calls and puts together for this strategy.
Call Option	The right, not the obligation to buy an underlying security at a fixed price before a predetermined date.
Call Premium	The price of a call option.
Call Ratio Backspread	Bullish strategy involving selling 1 or 2 lower strike calls and buying 2 or 3 higher strike calls.
Capital Gain	The profit realised from buying and selling an asset
Capital Loss	The loss taken from buying and selling an asset unprofitably.
Chicago Board Options Exchange (CBOE)	The largest options exchange in the world.
Chicago Board of Trade (CBOT)	The oldest commodity exchange in the US. Known for listings in T-bonds, notes and a variety of commodities.
Chicago Mercantile Exchange (CME)	An exchange in which many types of futures contracts are traded in an open outcry system.
Class of options	Options of the same type, style and underlying security.
Clearing House	A separate institution to establish timely payment and delivery of securities.
Close	The last price quoted for the day.
Closing Purchase	A transaction which closes an open short position.
Collar	A low risk bullish strategy involving buying a stock, buying near the money puts and selling out of the money calls.
Closing Sale	A transaction which closes an open long position.
Commission	A charge made by the broker for arranging the transaction.
Commodity	A tangible good that is traded on an exchange. Eg oil, grains, metals.
Commodity Futures Trading Commission (CFTC)	An institution charged with ensuring the efficient operation of the futures markets.
Condor	See Condors
Consumer Price Index (CPI)	An index measuring the change in prices of consumer prices. An important inflation indicator.
Contract	A unit of trading for an option or future.
Correction	A post rise decline in a stock price or market.
Covered Call	A bullish strategy involving buying or owning a stock and selling near term ATM or OTM calls to generate regular income. See "Buy-Write".
Covered Put	A bearish strategy involving shorting stock and shorting a near term put option to create regular income. Considered a high risk strategy.
Covered Short Straddle	A bullish strategy involving buying (or owning a stock), selling near term puts and calls at the same strike price and expiration date. This is a risky strategy, involving almost certain exercise of the put or call and a significant downside risk if the stock price falls.
Covered Short Strangle	A bullish strategy involving buying (or owning a stock), selling near term OTM puts and OTM calls at the same expiration date. This is a risky strategy, involving significant downside risk if the stock price falls.
Credit Spread	Where the simultaneous buying and selling of options creates a net credit into your account (ie you receive more for the ones you sell than those you buy).

D


Day Order	An order good for the day only.
Day Trade	The acquisition and disposal of an asset in the same day.
Day Trading	A trading style where positions are closed by the end of every day.
Debit Spread	Where the simultaneous buying and selling of options creates a net debit from your account (ie you pay more for the ones you buy than those you sell).
Deep In the Money (DITM) Calls	Where the price of the underlying security is far greater than the Call Strike Price.
Deep In the Money (DITM) Puts	Where the price of the underlying security is far less than the Put Strike Price.
Delayed time quotes	Quotes which are delayed from real time.
Delta	The amount by which an option premium moves divided by the dollar for dollar movement in the underlying asset.
Delta Hedge	A strategy designed to protect the investor against directional price changes in the underlying asset by engineering the overall position delta to zero.
Delta Neutral	Where a spread position is engineered so that the overall position delta is zero.
Derivative	A financial instrument whose value is "derived" in some way from the value of an underlying asset source.
Diagonal Spread	2-legged option trade involving buying a long term option and selling a shorter term option with a higher strike price. A Calendar Spread must involve either all call or all put legs, you cannot mix calls and puts together for this strategy.
Discount Brokers	Low commission brokers who simply place orders, and do not provide advisory services.
Divergence	Where 2 or more indicators move in different directions indicating different outcomes.
Dividend	A payment made by an organization to its owners (shareholders), hopefully from profits.
Dow Jones Industrial Average (DJIA)	An index of 30 blue chip stocks traded on the New York Stock Exchange (NYSE). This index is often considered a bellwether of overall market sentiment.
Downside Risk	The potential risk of a trade if prices decline.

E


End of Day	The close of the trading day when prices settle.
EPS	Earnings per share. The amount of profits of an organization divided by the number of outstanding shares.
Equity Options	Same as Stock Options
European Style Option	An option which cannot be exercised before the expiration date.
Exchange	Where an asset or derivative is traded.
Exchange Rate	The price at which one currency can be converted into another currency.
Execution	The process of completing an order to trade a security.
Exercise	The activation of the right to buy or sell the underlying security.
Exercise (Strike) Price	The price at which an asset can be bought or sold by the buyer of a call or put option.
Expiration	The date at which the option's ability to be exercised ceases.
Expiration Date	The last day on which an option can be exercised.
Extrinsic Value (Time Value)	The price of an option less its intrinsic value. Out of the Money Options are entire made up of Extrinsic (or Time) Value.

F


Fair Market Value	An asset's value under normal circumstances.
Fair Value	The theoretical value calculation of an option using a pricing technique such as Black-Scholes options pricing formula.
Fibonacci Retracement	Where prices on a chart move off their latest tops or bottoms in swings of 38%, 50% or 62% from their previous bottoms or tops before resuming their original trend direction. 50% is the most common and easiest to spot.
Fill	An order which has been executed.
Fill Order	An order which must be filled immediately or cancelled.
Fill or Kill	An order where a precise number of contracts must be filled or the order is cancelled.
Floor Broker	A member of an exchange who is paid to execute orders.
Floor Trader	An exchange member who trades on the floor of the exchange for their own account.
Fundamental Analysis	Analysis of a stock security which is based on the ability of the organization to generate profits for its shareholders. Such analysis embraces earnings, PE Ratios, EPS, Net Assets, Liabilities, Customers etc.
Futures Contracts	Agreement to buy or sell an underlying security at a predetermined date at an agreed price. The difference between futures and options is that with options the buyer has the Right, not the obligation. With futures, both parties are obliged to fulfil their part of the bargain.

G


Gamma	The speed by which Delta changes compared with the speed by which the underlying asset is moving.
Gap	Where the opening bar of a price chart opens and stays beyond (lower or higher) than the spread of the previous bar. Gaps can be lower or higher.
Good till Cancelled Order (GTC)	An order which continues until either it is filled or cancelled specifically by the trader.
Guts	A volatility strategy involving buying In the Money (ITM) Calls and ITM Puts. High volatility is required, after the position is opened, to make this a profitable strategy.

H


Hedge	A term for reducing the risk of one position by taking other positions with options, futures or other derivatives.
Historic Volatility	A measure of the price fluctuation of an asset averaged out over a period of time. A typical and popular period would be 21-23 trading days.

I


Index	A group of assets (often in a similar class of sector or market capitalisation) which can be traded as a single security.
Index Options	Options on the indexes of stocks or other securities.
Interest Rates	The rate at which borrowed money is charged by the lender, usually annualised into a percentage figure.
In the Money (ITM)	Where you can exercise an option for a profit.
In the Money (ITM) Calls	ITM Calls are where the current stock price is greater than the Call Strike Price.
In the Money (ITM) Puts	ITM Puts are where the current stock price is less than the Put Strike Price.
Intrinsic Value	The amount by which an option is in the money.
Iron Butterfly	See Iron Butterflies

J


Japanese Candlesticks	A popular method of visually depicting price bars where the open, high, low, close are shown explicitly.Upward moving price bars are hollow (or green if different colours are used).Downward moving price bars are filled (or red).Different looking bars and different clusters of price bars can lead to different interpretations of future price movements.

K

L


LEAPs	Long-term Equity AnticiPation Securities.These are long term stock options with expirations up to 3 years in the future. LEAPs are available in Calls and Puts and are American-style traded options.
Leg	One side or component of a spread
Leg in / Leg out	Legging into a spread entails the completion of just one component part of a spread with the intention of completing the other component parts at more favourable prices later on.Legging out of a spread entails the opposite whereby you exit your spread one component part at a time with the intention of doing so at more favourable prices as the underlying security moves in the anticipated direction.
LIFFE	London International Financial Futures and Options Exchange.
Limit Order	An order to buy at a set price which is at or below the current price of the security.An order to sell at a set price which is at or above the current price of the security.
Liquidity	The speed and ease with which an asset can be traded. Cash has the most liquidity of all assets whereas property (real estate) is one of the most illiquid assets.
Long	Being long means that you are a buyer of a security.
Long Call	Buying a call option.
Long Call Butterfly	A 3-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike call, selling 2 middle strike calls with the same strike price and buying a higher strike call.
Long Call Condor	A 4-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike call, selling 2 middle strike calls with different strike prices and buying a higher strike call.
Long Call Synthetic Straddle	A 2-leg direction-neutral, strategy, requiring high volatility, involving buying 2 ATM calls for every 100 shares (US stock options) sold, thereby replicating the risk profile of a Long Straddle.
Long Combo	A bullish strategy involving selling OTM puts and buying OTM calls in order to partially replicate a long stock position.
Long Iron Butterfly	A direction neutral strategy constructed by combining a Bull Put Spread with a Bear Call Spread or by combining a narrow Short Strangle with a wider Long Strangle.
Long Put	A bearish strategy, buying put options.
Long Put Butterfly	A 3-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike put, selling 2 middle strike puts with the same strike price and buying a higher strike put.
Long Put Condor	A 4-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike put, selling 2 middle strike puts with different strike prices and buying a higher strike put.
Long Put Synthetic Straddle	A 2-leg direction-neutral, strategy, requiring high volatility, involving buying 2 ATM puts for every 100 shares (US stock options) bought, thereby replicating the risk profile of a Long Straddle.
Long Stock	Buying shares.
Long Synthetic Future	Buying calls and selling the same amount of puts with the same strike and expiration date, effectively forming the same risk profile of buying a stock but with almost no cost.

M


MACD (Moving Average Convergence Divergence)	Measures the difference between 2 moving averages and is a measure of momentum. As the moving averages drift apart then momentum is increasing and vice versa. Best viewed as a bar chart. Divergence between MACD and price action can indicate a change of trend is imminent.
Margin	An amount paid by the account holder (either in cash or "marginable securities" which is held by the brokerage against non cash or high risk investments, or where the brokerage has lent the account holder the means to undertake a particular trade.
Margin Account	An account where the brokerage lends the customer part of the net debit required to make a trade.
Margin Call	Where the brokerage calls the account holder in order for them to pay more funds into their account to maintain the trade.Note that strategies that involve some form of unlimited risk often require a level of margin to be determined by the brokerage.
Margin Requirements	The amount of cash or marginable securities (eg blue chip stocks) which an account holder must have in his account in order to write uncovered (or naked) options.
Mark to Market	The daily adjustment of margin accounts to reflect profits and losses in such a way that losses are not allowed to accumulate.
Market Capitalisation	The number of outstanding shares multiplied by the value per share.
Market if Touched (MIT) Order	An order that becomes a market order if the price specified is reached.
Market Maker	A trader or trading firm that buys and sells securities in a market in order to facilitate trading. Market makers make a two sided (bid and ask) market.
Market on Close Order	An order that requires the broker to achieve the best price at the close or in the last 5 minutes of trading.
Market on Open Order	An order that must be executed at the opening of trading.
Market Order	Trading securities immediately at the best market prices in order to guarantee execution.
Market Price	The most recent transaction price.
Modified Call Butterfly	A neutral to bullish strategy similar to a Long Call Butterfly except that the OTM bought calls have a strike price nearer to the central strike price of the sold calls.
Modified Put Butterfly	A neutral to bullish strategy similar to a Long Put Butterfly except that the ITM bought puts have a strike price nearer to the central strike price of the sold puts.
Momentum	Where a market direction (up or down) is established.
Momentum Indicators	Technical Analysis indicators using price movement and volume in order to determine market direction.
Momentum Traders	Traders who use momentum as their primary tool to invest.
Moving Average	The average of a security's (or index's) latest prices for a specific period of time (eg 50 days). Another technical analysis tool.
Mutual Fund	An open-ended investment fund that pools investors' contributions to invest in securities such as stocks and bonds.

N


Naked	Selling naked options refers to a sold options contract with no hedge position in place. Such a position leaves the option seller (writer) exposed to unlimited risk.
NASDAQ	National Association of Securities Dealers Automated Quotations system.This is a computerised system providing brokers and dealers with securities price quotes.
Near the Money (NTM)	Where the underlying asset price is close to the Strike Price of an option.
New York Stock Exchange (NYSE)	The largest stock exchange in the US.
Note	A short term debt instrument - they normally mature in or less than 5 years.

O


OEX	Standard & Poor's 100 Stock Index.
Offer	The lowest price at which someone is willing to sell.Also can refer to the "Ask" of a "Bid-Ask" spread. See "Ask".
On the Money (At the Money)	See "ATM" or "At the Money".
Open Interest	The total number of options or futures contracts that are not closed or delivered on a particular day.
Open Outcry	Verbal system of floor trading still used at many exchanges (eg the CME and CBOT).
Opening	The beginning of the trading session at an exchange.
Opportunity Cost	The risk of an investment expressed as a comparison with another competing investment.
Option	A security which gives the buyer the right, not the obligation to buy (call) or sell (put) an underlying asset at a fixed price before a predetermined date.
Option Premium	The price of an option.
Option Writer	The seller of an option (usually naked).
Out of the Money (OTM)	Where the option has no intrinsic value and where you cannot exercise an option for a profit.
Out of the Money (OTM) Calls	OTM Calls are where the current stock price is less than the Call Strike Price.
Out of the Money (OTM) Puts	OTM Puts are where the current stock price is greater than the Put Strike Price.

P


Par	The nominal value of a bond that is paid back to the bondholder at maturity.
Position Delta	The sum of all positive and negative deltas within a hedged trade position.
Premium	The price of an option.
Price Bar	The visual representation of a securities price fluctuations for a set period of time. Price bars can be for as little as 1 minute (or less) and as much as one year (or more).
Price Earnings Ratio	The price of a stock divided by the Earning per share for that stock.The same figure can be calculated by dividing the market capitalisation of a stock by the profit of that company.
Principal	The purchase price of a bond
Put Calendar	A neutral to bullish strategy involving buying longer expiration puts and selling shorter expiration puts with the same strike price.
Put Diagonal	A neutral to bullish strategy involving buying longer expiration puts and selling shorter expiration puts with a higher strike price.
Put Option	The right, not the obligation to sell an underlying security at a fixed price before a predetermined date.
Put Ratio Backspread	Bearish strategy involving selling 1 or 2 higher strike puts and buying 2 or 3 lower strike puts.

Q


Quote	The price being bid or offered by a market maker for a security.

R


Ratio Backspread	A strategy using all puts or all calls whereby the trader buys OTM options in a ratio of 3:2 or 2:1 to the ITM options he sells. In this way the trader is always long in more options than those he is short in.
Ratio Call Spread	A bearish strategy that involves the trader being short in more options than those he is long in, at a ratio of 3:2 or 2:1. In this way the trader will have an unlimited risk profile with only limited profit potential.
Ratio Put Spread	A bullish strategy that involves the trader being short in more options than those he is long in, at a ratio of 3:2 or 2:1. In this way the trader will have an unlimited risk profile with only limited profit potential.
Real Time	Data which is updated and received tick by tick.
Relative Strength	A technical indicator comparing a security's price action as compared to that of an index or another stock.
Relative Strength Index (RSI)	A technical indicator which is an oscillator that combines price action with volume. Best to use with trending stocks and can be used to indicate potential tops and bottoms.
Resistance	A price threshold on a price chart which is thought to be difficult for the price to burst up through because of past price movements.
Return	The income profit on an investment, often expressed as a percentage.
Reversal Stop (or Stop and Reverse) Order	A stop order which, when activated, reverses the current position from long to short (or vice versa).
Rho	The sensitivity of an option price to interest rates. Typically, call options increase in value as interest rates rise and puts decrease in value as interest rates rise.
Risk	The potential loss of a trade.
Risk Free Rate	The Interest chargeable on Treasury Bills (T-Bills) is generally known as the Risk Free Rate and it is this rate which is used as a component part of the theoretical valuation of options model.
Risk Profile	The graphic depiction of a trade, showing the potential risk, reward and breakeven points as the underlying security price deviates within a range of prices.

S


Seat	Membership in a stock or futures exchange.
Securities and Exchange Commission (SEC)	Organization which regulates the securities markets in order to protect investors.
Security	An instrument which can be traded - eg stocks, bonds etc.
Selling Short	Selling a security which you don't actually own beforehand. You will eventually have to buy it back, hopefully at a reduced price, thus making profit.
Series (options)	Option contracts of the same class (underlying asset), same Strike price and same Expiration date.
Shares	Units of ownership in a company or organization.
Short	Selling a security which you don't actually own.
Short Call	A bearish strategy involving the short selling of call options.
Short Call Butterfly	A 3-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike call, buying 2 middle strike calls with the same strike price and buying a higher strike call.
Short Call Condor	A 4-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike call, buying 2 middle strike calls with different strike prices and buying a higher strike call.
Short Call Synthetic Straddle	A 2-leg direction-neutral, strategy, requiring low volatility, involving selling 2 ATM calls for every 100 shares (US stock options) bought, thereby replicating the risk profile of a Short Straddle.
Short Combo	A bearish strategy involving buying OTM puts and selling OTM calls in order to partially replicate a short stock position.
Short Guts	A low volatility strategy involving selling In the Money (ITM) Calls and ITM Puts. Low volatility is required, after the position is opened, to make this a profitable strategy.
Short Iron Butterfly	A direction neutral strategy constructed by combining a Bull Call Spread with a Bear Put Spread or by combining a narrow Long Strangle with a wider Short Strangle.
Short Put	A bullish strategy, selling put options usually OTM (with a strike price below the current stock price).
Short Put Butterfly	A 3-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike put, buying 2 middle strike puts with the same strike price and selling a higher strike put.
Short Put Condor	A 4-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike put, buying 2 middle strike puts with different strike prices and selling a higher strike put.
Short Put Synthetic Straddle	A 2-leg direction-neutral, strategy, requiring low volatility, involving selling 2 ATM puts for every 100 shares (US stock options) sold, thereby replicating the risk profile of a Short Straddle.
Short Stock	Selling shares short.
Short Straddle	A low volatility direction neutral trade that involves simultaneously selling a call and put at the same strike price and with the same expiration date. Requires the underlying asset to be rangebound to make the trade profitable.
Short Strangle	A low volatility direction neutral trade that involves simultaneously selling a call and put at different strike prices (the put strike being lower than the call strike - ie both OTM) and with the same expiration date. Requires the underlying asset to be rangebound in order to make the trade profitable.
Short Synthetic Future	Selling calls and buying the same amount of puts with the same strike and expiration date, effectively forming the same risk profile of shorting a stock but with no net credit.
Short Selling	Selling a security which you don't actually own beforehand. You will eventually have to buy it back, hopefully at a reduced price, thus making profit.
Sigma	Sigma is generally a term used to represent volatility. It is generally represented as a percentage. The term "one sigma level" refers to the actual change in the underlying asset price.
Small-cap Stocks	Smaller (and sometimes newer) companies which are associated with high risk and high potential rewards. Can be illiquid to trade with large bid-ask spreads.
Speculator	A trader who aims to make profit by correctly assessing the direction of price movement of the security. Generally distinguished from investors in that speculators are associated with short term directional trading.
Spread	The difference between the bid and ask of a traded security.A trading strategy which involves more than one leg to create a (hedged) position.A price spread is the difference between the high and the low of a price bar.
Standard & Poor's (S&P)	A company that rates stocks and bonds and produces and tracks the S&P indices.
Stochastic	A technical indicator, which is an oscillator based on the relationship of the open, high, low, close of price bars.
Stock	A share of a company's stock is a unit of ownership in that company.
Stock Exchange or Stock Market	An organised market where buyers and sellers are brought together to trade stocks.
Stock Split	Where a company increases the amount of outstanding stock, thus increasing the number of shares, reducing the value per share. Generally a sign that the stock has been rising and management's way of assisting the liquidity in the stock.
Stop Orders	Buy Stops: where the order price is specified above the current value of the security. Sell Stops: where the order price is specified below the current value of the security.
Straddle	A neutral trade that involves simultaneously buying a call and put at the same Strike price and with the same Expiration date. Requires the underlying asset to move in an explosive nature (in either direction) in order to make the trade profitable.
Strangle	A neutral trade that involves simultaneously buying a call and put at different Strike prices (the Put Strike being lower than the Call Strike - ie both OTM) and with the same Expiration date. Requires the underlying asset to move in an explosive nature (in either direction) in order to make the trade profitable.
Strap	A neutral to bullish trade that involves simultaneously buying two calls and a put with the same strike price and expiration date. Requires the underlying asset to move in an explosive nature (preferably upwards) in order to make the trade profitable.
Strike Price (Exercise Price)	The price at which an asset can be bought or sold by the buyer of a call or put option.
Strip	A neutral to bearish trade that involves simultaneously buying two puts and a call with the same strike price and expiration date. Requires the underlying asset to move in an explosive nature (preferably downwards) in order to make the trade profitable.
Support	A price threshold on a price chart which is thought to be difficult for the price to fall down through because of past price movements.
Synthetic Call	Buying a share and a put, or going long a future and a put, replicating the risk profile shape of a Long Call.
Synthetic Put	Buying a call and shorting a stock or future, replicating the risk profile shape of a Long Put.
Synthetic Long Stock	Buying a call and shorting a put.
Synthetic Short Call	Shorting a put and shorting a stock or future.
Synthetic Short Put	Shorting a call and buying a stock or future.
Synthetic Short Stock	Shorting a call and buying a put.
Synthetic Straddle	Combining stocks (or futures) with options to create a delta neutral trade.

T


Technical Analysis	Using charts and charting techniques and indicators (such as prices, volume, moving averages, stochastics etc) to evaluate future likely price movement.
Theoretical Value (options)	The fair value calculation of an option using a pricing technique such as Black-Scholes options pricing formula.
Theta (decay)	The sensitivity of an option price to the variable of time. Remember that options only have a finite life (until Expiration), therefore theta is an extremely important sensitivity to consider.
Tick	The least amount of price movement recorded in a security. Currently the lowest being 1/32, however moves to decimalisation will eliminate the fractions structure.
Time Premium	The non Intrinsic component of the price of an option.
Time Value (Extrinsic Value)	The price of an option less its intrinsic value. Out of the Money Options are entire made up of Extrinsic (or Time) Value.
Treasury Bill (T-Bill)	A short term government debt security with a maturity of no more than 1 year. The interest charged on these instruments is known as the Risk Free Rate.
Treasury Bond (T-Bond)	A fixed interest US government debt security with 10 years or more to maturity.
Treasury Note (T-Note)	A fixed interest US government debt security with between 1 to 10 years to maturity.
Triple Witching Day	The third Friday in March, June, September and December when US stock options, index options and futures contracts all expire at the same time. The effect of this is often increased volume and volatility as traders look to close short and long positions.
Type	The classification of an option - either a Call or a Put.

U


Uncovered Option	A short position where the writer does not have the underlying security (or call option) to hedge the unlimited risk position of his naked position.
Underlying Asset / Instrument / Security	An asset which is subject to purchase or disposal upon exercise.
Upside	The potential for a price to increase.

V


Vega	The sensitivity of an option price to volatility. Typically, options increase in value during periods of high volatility.
Volatility	The measure of the fluctuation in the price movement in an security over a period of time. Volatility is one of the most important components in the theoretical valuation of an option price.Historical Volatility: the standard deviation of the underlying security (closing) price movement over a period of time (typically 21-23 days)Implied Volatility: the calculated component derived from the option price when using the Black-Scholes Option Pricing model. Where there is a significant discrepancy between Implied and Historical Volatility then there is the opportunity for the trader to take advantage of this.
Volatility Skew	Whereby deep OTM options tend to have higher Implied Volatilities than ATM options. Where there are discrepancies, this, again gives the trader the opportunity to make trades whose profits are determined by volatility action as opposed to directional price action.
Volume	The number of underlying securities traded on their particular part of the exchange.Where price direction and volume bars are aligned in the same direction then this is a bullish sign (ie it means that prices are rising with increased volume or that prices are falling with decreased volume).Where price direction diverges from volume bars then this is a bearish sign (ie prices rising with falling volume or prices falling with rising volume).

W


Whipsaw	Where a price swing ensures a losing scenario for both sides of a position.
Witching Day	When 2 or more classes of options and futures contracts expire.
Writer	Someone who sells an option.

X

Y


Yield	The rate of return of an investment, expressed as a percentage.

Z


Zeta	An option price's sensitivity to Implied Volatility.