Online trading options definition of terms

Bull Call Ladder Spread. List Of Volatile Strategies. Reverse Iron Butterfly Spread. Buy to Open Order. More about Barrier Options. Also known as a Time Put Spread. Volatility and Implied Volatility. More on American Style. Expiration Date: The date on which a contract expires and effectively ceases to exist.

Binomial Pricing Model for examples. Sell to Open Order. Reverse Iron Albatross Spread. Read more about Delta Neutral Trading. Stop Limit Order: See Limit Stop Order. Buy to Close Order. This can be used to hedge existing positions in stocks or other financial instruments. Risk to Reward Ratio.

List of Bearish Strategies. Black Scholes Pricing Model. Expiry: See Expiration Date. Types of Options Spreads. Short Bear Ratio Spread. Short Call Calendar Spread. List of Bullish Strategies. Bear Put Ladder Spread.

Sell to Close Order. Short Bull Ratio Spread. Holder: The owner of options contracts. Also referred to as a time spread. ROI: See Return on Investment. More about Binary Options.

Cox, Ross and Rubinstein in 1979. Approval Levels: See Trading Levels. Short Put Calendar Spread. Reverse Iron Condor Spread. Time Spread: See Calendar Spread. Call: See Call Option. If you own options contracts, then you hold a long position on them.

List of Neutral Strategies. In the stock market, stocks are typically traded in 100 shares lots. The letters inside the brackets are called a stock ticker symbol. In the futures and forex markets, a trader can always go short. Rising prices and going long, and falling prices and going short, are also sometimes referred to as being bullish or bearish. The alternative is that the stock drops. When you go long, your profit potential is unlimited, since the price of the asset can rise indefinitely. The terms long and short refer to whether a trade was entered by buying first or selling first. Until you do so, you do not know what your profit or loss of money on your position is. Most stocks are shortable in the stock market as well, but not all of them.

In the stock market, stocks are typically traded in in 100 shares lots. Traders can go short in most financial markets. They realize a profit if the price they buy it for is lower than the price they sold it at. Day traders keep risk and profits well controlled, typically exacting profits from small moves over and again. This type of scenario is preferred when going long. Your risk is limited to the stock going to zero. In the financial markets, you can buy and then sell or sell then buy.

When a day trader is in a long trade, they bought an asset, and are hoping that the price will go up. Closing buy transactions reduce short positions and closing sell transactions reduce long positions. Call options have positive deltas, while put options have negative deltas. Generally, a convertible bond or convertible preferred stock is convertible into the underlying stock of the same corporation. No physical entity, either stock or commodity, is received or delivered. Referring to an option or future that is settled in cash when exercised or assigned. Generally used in connection with covered call writing, this is the cushion against loss of money, in case of a price decline by the underlying security, that is afforded by the written call option.

Either puts or calls may be used for the method. Describing an opinion or outlook in which one expects a rise in price, either by the general market or by an individual security. Three striking prices are involved, with the lower two being utilized in one spread and the higher two in the opposite spread. See also Expiration Time and Automatic Exercise. See also Standard Deviation and Volatility. Normally, a term used to describe the worth of an option or futures contract as determined by a mathematical model. Either puts or calls may be used. An option contract that may be exercised at any time between the date of purchase and the expiration date. It generally pertains to the result at the expiration date of the options involved in the method.

See also Covered Call Write. The process of providing a market for a security. Also sometimes used to indicate intrinsic value. For stock options expiring prior to February 15, 2015, this date is the Saturday immediately following the third Friday of the expiration month. See also Covered Call. Discretion can be limited, as in the case of a limit order that gives the floor broker.

For futures, the process of transferring the physical commodity from the seller of the futures contract to the buyer. The day on which an option contract becomes void. This is as opposed to an analysis made at expiration of the options used in the method. See also Intrinsic Value and Model. The exercise or assignment of an option contract before its expiration date. For option strategies, describing analyses made during the course of changing security prices and during the passage of time. See also Expiration Date. The expiration dates applicable to various classes of options.

The price at which a buyer is willing to buy an option or stock. This is not really a covered position. Options on shares of an individual common stock. In either case, stock is delivered. This method is also known as a covered combination. For listed options, the exercise price is the same as the Striking Price. An option method that makes its maximum profit when the underlying stock declines and has its maximum risk if the stock rises in price. The method can be implemented with either puts or calls. The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

An option method that has both limited risk and limited profit potential, constructed by combining a bull spread and a bear spread. To buy back as a closing transaction an option that was initially written. See also Float, Divisor. The term used to describe the method in which an investor owns the underlying security and also writes a straddle on that security. The rate at which the shares of the bond or preferred stock are convertible into the common is called the conversion ratio. The stocks with the largest market values have the heaviest weighting in the index.

An expense, or money paid out from an account. The times are Eastern Time. The process of satisfying an equity call assignment or an equity put exercise. One spread is established using put options and the other is established using calls. It is the price at which the call holder may exercise to buy the underlying security or the put holder may exercise to sell the underlying security. The Cboe Options Exchange; the first national exchange to trade listed stock options.

The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option. An option method in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. An adjective describing an opinion or outlook that expects a decline in price, either by the general market or by an underlying stock, or both. The interest expense on a debit balance created by establishing a position. An option contract that may be exercised only during a specified period of time just prior to its expiration. Listed options may be used to offset part of the risk assumed by the trader who is facilitating the large block order. See also Opening Transaction. See also Intrinsic Value and Parity.

An expiration cycle relates to the dates on which options on a particular underlying security expire. See also Ratio Spread and Delta. See also Bear Spread. The options have the same terms. Generally referring to an index, it indicates that the index is composed of a sufficient number of stocks or of stocks in a variety of industry groups. Generally used by option writers, the DTC facilitates and guarantees delivery of underlying securities if assignment is made against securities held in DTC. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call.

An Option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. An option with a lower striking price is bought and one with a higher striking price is sold, both generally having the same expiration date. See also Risk Arbitrage. If Friday is a holiday, the last trading day will be the preceding Thursday. In either case, an option with a higher striking price is purchased and one with a lower striking price is sold, both options generally having the same expiration date. Any position involving both put and call options that is not a straddle. The loan value of marginable securities; generally used to finance the writing of uncovered options. See also Bull Spread.

Freedom given to the floor broker by an investor to use his judgment regarding the execution of an order. To take securities from an individual or firm and transfer them to another individual or firm. January cycle, the February cycle or the March cycle. Average Up: to buy more at a higher price. See also Reversal Arbitrage. The price at which a seller is offering to sell an option or stock. See Limit Order and Market Not Held Order. See also Hedge Ratio. Exchange traded equity or index options, where the investor can specify within certain limits, the terms of the options, such as exercise price, expiration date, exercise type, and settlement calculation.

The process in which professional traders simultaneously buy and sell the same or equivalent securities for a riskless profit. The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract. The Beta is not the same as volatility. It is initially an arbitrary number that reduces the index value to a small, workable number. The method can be established with either puts or calls; there are four different ways of combining options to construct the same basic position. The time of day by which all exercise notices must be received on the expiration date. An option is trading at a discount if it is trading for less than its intrinsic value. See also Technical Analysis. The number of shares outstanding of a particular common stock.

Typical types of diagonal spreads are diagonal bull spreads, diagonal bear spreads, and diagonal butterfly spreads. An option method that achieves its maximum potential if the underlying security rises far enough, and has its maximum risk if the security falls far enough. Money received in an account. For stock options expiring on or after February 15, 2015, this date is the third Friday of the expiration month. The limit on the number of contracts which a holder can exercise in a fixed period of time. Therefore, there can be no early assignment with this type of option. Any spread in which the purchased options have a longer maturity than do the written options as well as having different striking prices.

Normally, this refers to bids and offers made for large blocks of securities, such as those traded by institutions.