Options Trading Glossary of Terms

A

Albatross Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Albatross Spread.

All Or None Order: Often abbreviated as AON, this is a type of order that must be either filled entirely or not at all.

American Style Option: A contract that gives the holder the flexibility of choosing to exercise their option at any point between buying the contract and the contract expiring. More on American Style.

Approval Levels: See Trading Levels.

Arbitrage: Taking advantage of price discrepancies by buying and selling to create a risk free trade.

Arbitrage Trading Strategies: Strategies that involve the use of arbitrage. Read more at Arbitrage Strategies.

Ask Price: The price it costs to buy an option.

Assignment: When the writer of a contract is required to fulfill their obligations under the terms of that contract – for example buying the underlying security if they have written calls or selling the underlying security if they have written puts. The writer will be issued with an assignment notice in such circumstances.

At the Money Option: An option where the price of the underlying security is the same as the strike price.

Automatic Exercise: The process by which in the money options are automatically exercised if they are in the money at the point of expiration.

Auto Trading: A trading method that involves using a third party to select your trades and having your broker automatically execute them. Read more on Auto Trading.

B

Basket Option: A type of option that is based on a group of underlying securities rather than just one.

Barrier Option: A type of option that can come into existence or go out of existence based on specific criteria is usually related to the price of the underlying security. More about Barrier Options.

Bear Butterfly Spread: This is an advanced strategy that can be used when the outlook of an underlying security is bearish. Learn how to use a Bear Butterfly Spread.

Bear Call Spread: A simple strategy, using calls, that can be used when the expectation is that the underlying security will decline in price. Learn how to use a Bear Call Spread.

Bearish: An expectation that an option, or any financial instrument, will decrease in price.

Bearish Trading Strategies: Strategies that can be used to profit from a downward move in the price of a financial instrument. List of Bearish Strategies.

Bear Market: When the overall market is in decline.

Bear Put Ladder Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Bear Put Ladder Spread.

Bear Put Spread: A simple strategy using puts that can be used when the expectation is that the underlying security will decline in price. Learn how to use a Bear Put Spread.

Bear Ratio Spread: This is a strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Bear Ratio Spread.

Bear Spread: A spread that is created to profit from bearish movements.

Bear Trap: An unconfirmed market movement which suggests a bear market, but is unconfirmed and ends up with the market moving upwards.

Bid Price: The price at which an option can be sold.

Bid Ask Spread: The difference between the bid price and the ask price of an option. An indicator of liquidity, and often referred to simply as the spread.

Binary Option: A type of option that pays a fixed return if it expires in the money or nothing if it expires at the money or out of the money. More about Binary Options.

Binomial Options Pricing Model: Can be abbreviated to BOPM; a pricing model that was developed by Cox, Ross and Rubinstein in 1979. Read more about the Binomial Pricing Model.

Black Scholes Options Pricing Model: A pricing model that is based on factors that include the strike price, the price of the underlying security, the length of time until expiration, and volatility. Read about the Black Scholes Pricing Model.

Box Spread: An advanced strategy that involves the use of arbitrage.

Break Even Point: The price or price range of the underlying security at which a strategy will break even, with no profits and no losses.

Breakout: When the price of a security moves above an existing resistance level or below an existing support level. The expectation is that the security will continue to move in the prevailing direction.

Broker: An individual or a company that executes orders to buy and sell financial instruments on behalf of clients.

Broker Commissions: The charge from a broker for executing orders on behalf of clients.

Bull Butterfly Spread: This is a strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Butterfly Spread.

Bull Call Ladder Spread: This is a strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Call Ladder Spread.

Bull Call Spread: A simple strategy, involving calls, which can be used when the expectation is that the underlying security will increase in price. Learn how to use a Bull Call Spread.

Bull Condor Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Bull Condor Spread.

Bullish: An expectation that an option, or any financial instrument, will increase in price.

Bullish Trading Strategies: Strategies that can be used to profit from an upward move in the price of a financial instrument. List of Bullish Strategies.

Bull Market: When the overall market is moving upwards.

Bull Put Spread: A simple strategy, involving puts, which can be used when the expectation is that the underlying security will increase in price. Learn how to use a Bull Put Spread.

Bull Spread: A spread that is created to profit from bullish movements.

Bull Trap: An unconfirmed market movement which suggests a bull market, but is unconfirmed and ends up with the market moving downward.

Butterfly Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Butterfly Spread.

Buy to Close Order: An order that is placed when you want to close an existing short position through buying contracts that you have previously written. Read more about the Buy to Close Order.

Buy To Open Order: An order that is placed when you want to open a new position through buying contracts. Read more about the Buy to Open Order.

C

Calendar Call Spread: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Also known as a Time Call Spread. Learn how to use a Calendar Call Spread.

Calendar Put Spread: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Also known as a Time Put Spread. Learn how to use a Calendar Put Spread.

Calendar Spread: A type of spread that is created using multiple contracts with different expiration dates. Also referred to as a time spread. Read more about Calendar Spreads.

Calendar Straddle: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Calendar Straddle.

Calendar Strangle: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Calendar Strangle.

Call: See Call Option. Call is often used instead of the full term.

Called Away: The process that takes place when the writer of calls is required to fulfill their obligation and sell the underlying security at the agreed strike price.

Call Option: A type of option which grants the holder the right, but not the obligation, to buy the relevant underlying security at an agreed strike price. Read more about Calls.

Call Ratio Backspread: An advanced strategy that can be used for profit in a volatile market, when there is a bullish outlook. Learn how to use a Call Ratio Backspread.

Call Ratio Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Call Ratio Spread.

Carrying Cost: The implied cost of using capital to purchase financial instruments based on interest incurred from borrowing that capital or interest lost from taking that capital from an interest bearing account.

Cash Settled Option: A type of option in which any profits due to the holder at the point of exercise or expiration are paid in cash rather than an underlying security being transacted. Read more about Cash Settled Options.

Chain: Tables that are used to show various information related to specific options. Read more about Chains.

Chooser Option: A type of option that allows the holder to choose whether it's a call or a put at some point during the term of the contract.

Close: The point at the end of a trading day when the market closes and final prices are calculated.

Closing Order: An order which is used to close an existing position. See Buy To Close Order or Sell To Close Order.

Combination Order: A type of order that combines multiple orders into one.

Commodity Option: A type of option where the underlying security is either a physical commodity or a commodity futures contract.

Compound: A type of option where the underlying security is another contract.

Condor Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Condor Spread.

Contingent Order: A type of order that allows for the trader to set specific parameters for exiting a position.

Contract Neutral Hedging: A technique for hedging that involves a trader buying as many options as units of the underlying security they own.

Contract Range: The range between the highest and lowest price that an option contract has been traded at.

Contract Size: The number of units of the underlying security that are covered by a contract. The typical contract size is 100. It should be noted that prices are displayed based on one unit of underlying security. So if an option is listed with an ask price of $2.00, and the contract size is 100, it would actually cost $200 to buy one contract covering 100 units of the underlying security.

Conversion & Reversal Arbitrage: An advanced strategy that involves the use of arbitrage. Read more on conversion & reversal arbitrage at Arbitrage Strategies.

Covered Call: This is a simple strategy that can be used to make a profit from existing stock holdings when they are neutral and they are protected against a short term drop in their price. Learn how to use a Covered Call.

Covered Put: This is an advanced trading strategy that can be used in conjunction with short selling stock to profit if the stock remains neutral; it also protects against a short term rise in their price. Learn how to use a Covered Put.

Credit: Money that is received into a trading account.

Credit Spread: A type of spread that is cash positive – i.e. you receive more for writing the options involved in the spread than you spend on buying the options involved in the spread. Read more about Credit Spreads.

Currency Option: A type of option where the underlying security is a specific currency.

D

Day Order: A type of order that is cancelled at the end of a trading day if it hasn't been filled.

Day Trader: A trader who enters and exits their trading positions within one trading day, often holding onto positions for just a few minutes or hours.

Day Trading: The style of trading used by day traders, where positions are entered and exited within the same trading day. Read more about Day Trading.

Debit: Money that is paid out from a trading account.

Debit Spread: A type of spread that is cash negative  i.e. you spend more on buying the options involved in the spread that you receive for writing the options involved in the spread.

Delta Neutral Hedging: A strategy that is used to protect an existing position from small movements in price. This can be used to hedge existing positions in stocks or other financial instruments. Read more about Delta Neutral Hedging.

Delta Neutral Trading: A strategy designed to create trading positions which will neither profit nor loss if there are small movements in the price of the underlying stock, but will return profits if the price of the underlying security moves significantly in either direction. Read more about Delta Neutral Trading.

Delta Value: One of the Greeks, the delta value measures the theoretical effect of changes in the price of the underlying security on the price of the option. Also referred to as Options Delta.

Derivative: A financial instrument which derives its value primarily from the value of another financial instrument. Options are a type of derivative.

Diagonal Spread: A type of spread that is created by using multiple contracts with different expiration dates and different strike prices. Read more about Diagonal Spreads.

Directional Risk: The risk of loss from the price of a security moving in an unfavorable direction. For example, if you write calls you exposed to the directional risk of the underlying security possibly increasing in price.

Directional Outlook: The expectation of which direction, if any, that the price of a security will move in. For example, if you are expecting a security to increase in price you have a bullish outlook.

Discount Broker: A type of broker that carries out transactions at a low price, but generally offers little in the way of additional services. For more information please read Full Service Brokers vs Discount Brokers.

Discount Option: An option that is trading for less than its intrinsic value.

Dividend: A payment that can be made by a company to its shareholders, representing their share of profits.

Dynamic Position: A position which is constantly adjusted as required to serve its purpose.

E

Early Assignment: When the writer of contracts is required to fulfill their obligations under the terms of those contracts prior to the expiration date; early assignment happens when contracts are exercised early.

Early Exercise: When an American style is exercised prior to the expiration date.

Employee Stock Options: A type of option that is based on stock in a company and issued to employees of that company: typically as a form of remuneration, bonus, or incentive. Read more about Employee Stock Options.

European Style Option: An options contract that can only be exercised at the point of expiration and not before. Read more about European Style Options.

Exercise: The process by which the holder of a contract uses their right under the terms of that contract to either buy or sell the relevant underlying security at the stated strike price. Learn more about Exercising an Option.

Exercise Limit: A limit on the number that can be exercised that may be imposed on the holder.

Exercise Price: See Strike Price

Expiration Date: The date on which a contract expires and effectively ceases to exist. Options must be exercised on or before this date, or they will expire worthless.

Expire Worthless: When a contract reaches the expiration date and has no value i.e. it's either at the money or out of the money at the point of expiration.

Expiry: See Expiration Date.

Extrinsic Value: The component of a price that is affected by factors other than the price of the underlying security, such as time left until expiration. Read more on the following page: Price of Options.

F

Fiduciary Call: A strategy that is designed to effectively cover the costs of exercising a call. Read more about Fiduciary Calls.

Fill or Kill Order: Often abbreviated to FOK, this is a type of order that must be either completely filled with immediate effect or cancelled.

Financial Instrument: A real or virtual asset that has an inherent monetary value and/or transfers monetary value. Stocks, shares, options, currencies, futures, and commodities are all forms of financial instruments.

Fundamental Analysis: A style of analyzing the value of a financial instrument by studying certain specific factors that relate to the true value of that security. Studying the financial reports of a company would be a way to carry out fundamental analysis on stock in that company.

Futures Option: A type of option where the underlying security is a future contract.

Full Service Broker: A type of broker that offers expert advice and professional guidance in addition to executing orders for a client; they typically charges higher fees and commissions.

G

Gamma Neutral Hedging: A hedging technique that involves creating positions where the overall gamma value is as close to zero as possible so that the delta value of the positions should remain static whether or not the price of the underlying security moves up or down. Read more about Gamma Neutral Hedging.

Gamma Value: One of the Greeks, the gamma value measures the theoretical effect of changes in the price of the underlying security on the delta value of that option. Also referred to as Options Gamma.

Going Long: Taking a long position on a financial instrument with the expectation that it will increase in price over time. Buying a contract is going long on that option.

Going Short: Taking a short position on a financial instrument with the expectation that it will decrease in price. Writing a contract is going short on that option.

Good Until Cancelled: Often abbreviated to GTC, this is a type of order that stays active until it is either filled or cancelled.

Greeks: A series of values that can be used to measure the sensitivity of an option to changes in market conditions and the theoretical changes in the price of an option caused by specific factors such as the price of the underlying security, volatility, and time left until expiry. Read more about the Greeks.

H

Hedge / Hedging: An investment technique used to reduce the risk of holding a specific investment. Options are commonly used as hedging tools: protecting another's existing position or a position in another financial instrument such as stock.

Historical Volatility: Often abbreviated to HV, a measure of the volatility of the price a financial instrument over a specified period of time in the past.

Holder: The owner of options contracts.

Horizontal Spread: A type of spread that's created using multiple contracts with different expiration dates, but with the same strike price. Read more about Horizontal Spreads.

I

Immediate or Cancel Order: Often abbreviated to IOC, this is a type of order that must be partially or completely filled immediately or cancelled. If the order is only partially completed, the balance of the order is cancelled.

Implied Volatility: Often abbreviated to IV, it's a measure of the estimated volatility of the price a financial instrument at the current time. Read more about Volatility and Implied Volatility.

Index Option: A type of option where the underlying security is an index, such as the S & P 500.

In the Money Option: An option where the price of the underlying security is in a favorable position, relative to the strike price, for the holder: meaning it has intrinsic value. A call is in the money when the price of the underlying security is higher than the strike price and a put is in the money when the price of the underlying security is lower than the strike price.

Intrinsic Value: The component of a price that's affected by the profit that is effectively built into a contract when it's in the money – i.e. the amount of theoretical profit that could be realized by exercising the option.

Iron Albatross Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Albatross Spread.

Iron Butterfly Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Butterfly Spread.

Iron Condor Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use an Iron Condor Spread.

L

LEAPS: The acronym for Long Term Equity Anticipation Securities. These are contracts that expire several months, or longer, in the future.

Leg: When an options position is made up of a combination of multiple positions, each of the individual positions is known as a leg.

Legging: The process of entering or exiting a position that is made up of a combination of multiple positions by transacting each position individually. Read more about Legging.

Legging In: See Legging; the process of entering a position using legging.

Legging Out: See Legging; the process of exiting a position using legging.

Level II Quotes: Also known as Level 2 Quotes. Real time quotes that are provided by exchanges detailing the exact bid ask spreads being offered by market makers. Typically used by very active traders to get the best possible prices at any given time.

Leverage: The use of specific financial instruments, such as options, to get a greater potential return on invested capital, or the use of borrowed capital to achieve potentially greater profits. Read more about Leverage.

Limit Order: A type of order used to buy or sell financial instruments at a specified maximum or minimum price respectively.

Limit Stop Order: Also known as a stop limit order, an order to close a position when a certain price is reached, if the order can be filled within a specified limit.

Liquidity: A measure of the ease with which a financial instrument can be bought or sold without impacting the price, or the ease with which a financial instrument can be converted to cash.

Listed Option: A type of option that is listed on an exchange, with fixed strike prices and expiration dates.

Long: You are long on a financial instrument if you own that instrument and/or you stand to gain from it increasing in price.

Long Call: This is a simple strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Long Call.

Long Gut: This is a simple strategy that can be used when price of the underlying security is volatile and expected to move significantly, but the direction of the move is unclear. Learn how to use a Long Gut.

Long Position: The position of being long on a financial instrument. If you own options contracts, then you hold a long position on them.

Long Put: This is a simple strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Long Put.

Long Straddle: This is a simple strategy that can be used when the price of the underlying security is volatile. Learn how to use a Long Straddle.

Long Strangle: This is a simple strategy that can be used when price of the underlying security is volatile and expected to move significantly, but the direction of the move is unclear. Learn how to use a Long Strangle.

Long Term Equity Anticipation Securities: See LEAPS

Look Back Option: A type of option that allows the holder to exercise the option at the best price that underlying security reached during the life of the option. Read more about Look Back Options.

M

Margin: Margin has multiple meanings depending on the context that it's being used in. Margin related to buying stocks is the process of borrowing capital from a broker to buy stocks. Margin related to options trading is the amount of cash required to be held in a trading account when writing contracts. Read more about Margin.

Market Makers: Professional, high volume traders that are generally employees of financial institutions and are responsible for ensuring there's adequate depth and liquidity within the market in order for it to run efficiently. Read more about Market Makers.

Market On Close Order: Often abbreviated to MOC, this is a type of order that is filled at the end of a trading day.

Market Order: A type of order used to buy or sell financial instruments at the current market price. A market order will always be filled providing there's a corresponding seller or buyer.

Market Stop Order: Also known as a stop market order, an order to close a position at market price when a certain price is reached.

Married Puts: A hedging strategy that uses stocks and options. Read more about Married Puts.

Max Pain / Max Option Pain: See Option Pain.

Model: See Pricing Model

Moneyness: A method used to measure the relationship of the strike price of an option to the current price of the underlying security. Read more about Moneyness.

Morphing: The changing of one position into another position with just one order, typically used with synthetic positions.

N

Naked Option: Also known as an uncovered option, this is where the writer of a contract doesn'tt have a corresponding position in the underlying security to protect them against unfavorable price movements. For example, writing calls without owning enough of the underlying security is writing naked options or taking a naked position.

Near The Money Option: An option where the price of the underlying security is very close to the strike price.

Neutral Market: When the overall market is relatively stable it's either bullish or bearish.

Neutral Outlook: An expectation that the market, or a specific financial instrument, will remain relatively stable in price.

Neutral Trading Strategies: Strategies that can be used to profit from the price of a financial instrument not moving, or moving only slightly. List of Neutral Strategies.

O

One Sided Market: A market where the buyers significantly outnumber the sellers or the sellers significantly outnumber the buyers.

One Cancel Other Order: Often abbreviated to OCO, this is a type of combination order where one order is cancelled when the other one is filled.

One Trigger Other Order: Often abbreviated to OTO, this is a type of combination order where one order is automatically executed when the other one is filled.

Online Broker: A broker that enables you to enter your orders using an online trading platform.

Opening Order: An order that is used to open a new position. See Buy To Open Order or Sell To Open Order.

Open Interest: A measurement of the total number of open positions relating to a particular option. Read more about Open Interest.

Optionable Stock: Stock that has options based on it.

Option / Options Contract: The right to buy or sell a specified underlying security at a fixed strike price within a specified period of time.

Option Pain: The theoretical price of an underlying security that will result in the highest number of traders losing the highest amount of money due to options contracts expiring out of the money. Also known as Max Pain. Read more about Option Pain.

Options Broker: An individual or a company that executes orders to buy and sell options contracts on behalf of clients. List of the Best Brokers.

Options Trader: Any investor that buys and/or sells options contracts.

Options Trading: The process of buying and/or selling options contracts as a form of investment, to make short term profits, or to hedge existing positions.

Options Symbol: Effectively the name of an option; a string of characters that defines specific options contracts.

Out of the Money Option: An option where the price of the underlying security is in an unfavorable position, relative to the strike price, for the holder: meaning it has no intrinsic value. A call is out of the money when the price of the underlying security is lower than the strike price and a put is out of the money when the price of the underlying security is higher than the strike price.

Outlook: An expectation on which direction, if any, the market or a specific underlying security will move.

Over The Counter Option: A type of option that is only sold over the counter (OTC) and not on the public exchanges. They are typically highly customized options with specific parameters.

P

Physical Option: An option where the underlying security is a physical asset that is neither stock nor futures contracts.

Physically Settled Option: A type of option in which the underlying security changes hands between the holder and the writer of the options when it's exercised.

Portfolio: The combined holdings of any financial instruments owned by an individual, group, or financial institution.

Position Trader: A trader who uses the unique opportunities that options offer to profit from factors such as time decay and volatility.

Position Trading: The style of trading used by position traders, who are usually very experienced traders, to take advantage of the opportunities for profit that are created by the mechanics of options trading. Read more about Position Trading.

Premium: A term that can be used to describe the whole price of an option or the extrinsic value of an option. Read more about Premium.

Premium Value: See Extrinsic Value

Pricing Model: A mathematical formula that is used to value or price an option contract based on specific factors. See Black Scholes Pricing Model or Binomial Pricing Model for examples.

Pricer: A specific type of chain that displays the five main Greeks in addition to other standard information.

Protective Call: A strategy that is used to protect profits in a short stock position. Learn how to use a Protective Call.

Protective Put: A strategy that is used to protect profits in a long stock position. Learn how to use a Protective Put.

Put: A type of option which grants the holder the right, but not the obligation, to sell the relevant underlying security at an agreed strike price. Read more about Put Options.

Put Call Parity: A concept related to pricing that's based on avoiding arbitrage by ensuring the extrinsic values of related calls and when puts are equal, or close to equal in value.

Put Ratio Backspread: An advanced strategy that can be used for profit in a volatile market, when there's a bearish outlook. Learn how to use a Put Ratio Backspread.

Put Ratio Spread: This is an advanced strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Put Ratio Spread.

Q

Quadruple Witching: The third Friday in the months of March, June, September, and December are the days when stock options, index options, stock futures, and index futures all reach their expiration point; this usually leads to high trading volume and increased volatility.

Quarterly Option: A type of option that uses a quarterly expiration cycle.

R

Ratio Spread: A type of spread that is created using multiple contracts of differing amounts. This typically involves writing a higher amount of options than is being bought, but the ratio can be either way around. Read more about Ratio Spreads.

Realize a Profit: The process of taking profits when closing an existing a position. Profit that exists in an open position is unrealized profit.

Realize a Loss: The process of incurring losses when closing an existing position. Losses that exist in an open position are unrealized losses.

Resistance Level: A price point, higher than its current price, that a financial instrument has not risen above over a given period of time.

Return On Investment: Often abbreviated to ROI, this is the percentage of profit that's made, or could be made, on an investment.

Reverse Iron Albatross Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Albatross Spread.

Reverse Iron Butterfly Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Butterfly Spread.

Reverse Iron Condor Spread: An advanced strategy that can be used to make returns from a volatile market. Learn how to use a Reverse Iron Condor Spread.

Rho Value: One of the Greeks, the rho value measures the theoretical effect of changes in interest rates on the price of the option. Also referred to as Options Rho.

Risk Graph: A graph used to illustrate the risk to reward ratio of a position. Read more about Risk Graphs.

Risk Reversal: A simple strategy that's typically used for the purposes of hedging. Read more about Risk Reversal.

Risk to Reward Ratio: An indication of how much risk is involved in a position in relation to the potential rewards or profits. Read more about Risk to Reward Ratio.

ROI: See Return on Investment.

Rolling Down: The process of closing an existing position and opening a comparable position at the same time, but with a lower strike price.

Rolling Forward: The process of closing an existing position and opening a comparable position at the same time, but extending the time left until expiry.

Rolling: A trading technique used to close an existing position and open a similar one at the same time, with slightly different terms. Read more about Rolling.

Rolling Up: The process of closing an existing position and opening a comparable position at the same time, but with a higher strike price.

S

Sell To Close Order: An order that's placed when you want to close an existing long position through selling the contracts you have previously bought. Read more about the Sell to Close Order.

Sell To Open Order: An order that's placed when you want to open a new position through writing new contracts. Read more about the Sell to Open Order.

Settlement: The process by which the terms of a contract are resolved when the option is exercised. Read more about Settlement.

Short: You are short on a financial instrument if you have short sold that financial instrument and/or you stand to gain from it falling in price.

Short Albatross Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Condor Spread.

Short Bear Ratio Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Short Bear Ratio Spread.

Short Bull Ratio Spread: This is an advanced strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Short Bull Ratio Spread.

Short Butterfly Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Butterfly Spread.

Short Calendar Straddle: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Calendar Straddle.

Short Calendar Strangle: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Calendar Strangle.

Short Call: This is a simple strategy that can be used when the outlook on an underlying security is bearish. Learn how to use a Short Call.

Short Call Calendar Spread: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Call Calendar Spread.

Short Condor Spread: An advanced strategy that can be used when the market is volatile. Learn how to use a Short Condor Spread.

Short Gut: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Gut.

Short Position: The position of being short on a financial instrument. If you write contracts then you hold a short position on them.

Short Put: This is a simple strategy that can be used when the outlook on an underlying security is bullish. Learn how to use a Short Put.

Short Put Calendar Spread: An advanced strategy that can be used to profit from volatile market conditions. Learn how to use a Short Put Calendar Spread.

Short Selling: The selling of a financial instrument that isn't currently owned, with the expectation of buying it back in the future at a lower price.

Short Straddle: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Straddle.

Short Strangle: This is a simple strategy that can be used to profit from an underlying security remaining neutral. Learn how to use a Short Strangle.

Spread: A position that's created by buying and/or selling different contracts on the same underlying security to combine multiple positions into one effective position. Read more about the Types of Options Spreads.

Spread Order: A type of order that's used to create a spread by simultaneously transacting all the required trades.

Stock Option: A type of option where the underlying security is stock in a publically listed company.

Stock Repair Strategy: A strategy that's used to recover losses from held stock that has fallen in value. Read more about Stock Repair Strategy.

Stock Replacement Strategy: A strategy that involves buying deep in the money call options instead of the underlying stock. The strategy is used to reduce the capital required to enter the position. Read more about Stock Replacement Strategy.

Stop Limit Order: See Limit Stop Order.

Stop Market Order: See Market Stop Order.

Stop Order: A type of order that's used to automatically close a position when a specified price is reached.

Strap Straddle: This is a simple strategy that can be used when price of the underlying security is volatile, but the inclination occurs when the move will be to the upside. Learn how to use a Strap Straddle.

Strap Strangle: This is a simple strategy that can be used when the price of the underlying security is volatile, but  the inclination occurs when the move will be to the upside. Learn how to use a Strap Strangle.

Strike Arbitrage: An advanced strategy that involves the use of arbitrage. Read more about the strike arbitrage at Arbitrage Strategies.

Strike Price: The price specified in a contract at which the holder of the contract can exercise their option. The strike price of a call is the price at which the holder can buy the underlying security and the strike price of a put is the price at which the holder can sell the underlying security.

Strip Straddle: This is a simple strategy that can be used when the price of the underlying security is volatile, but the inclination occurs when the move will be to the downside. Learn how to use a Strip Straddle.

Strip Strangle: This is a simple strategy that can be used when the price of the underlying security is volatile, but the inclination occurs when the move will be to the downside. Learn how to use a Strip Strangle.

Support Level: A price point, lower than its current price, that a financial instrument hasn't fallen below over a given period of time.

Swing Trader: A trader who looks for relatively short term price swings and aims to profit from those swings by trading accordingly.

Swing Trading: The style of trading used by swing traders, where positions are usually held for a relatively short period of time in order to profit from short term price swings. Read more about Swing Trading.

Synthetic Long Call: A synthetic position which is essentially the same as owning calls. It involves buying puts and buying the related underlying security.

Synthetic Long Put: A synthetic position which is essentially the same as owning puts. It involves buying calls and short selling the related underlying security.

Synthetic Long Stock: A synthetic position which is essentially the same as owning stocks. It involves buying at the money calls and writing at the money puts on the relevant stock.

Synthetic Position: A position that's created using a combination of stocks and options, or a combination of different positions, to emulate another stock position or option position. Read more about Synthetic Positions.

Synthetic Short Call: A synthetic position which is essentially the same as being short on call options. It involves short selling stock and then writing put options based on that stock.

Synthetic Short Put: A synthetic position which is essentially the same as being short on put options. It involves buying a stock and then writing call options based on that stock.

Synthetic Short Straddle: A synthetic strategy that essentially replicates the Short Straddle trading strategy. Read more about the synthetic short straddle at Synthetic Strategies.

Synthetic Short Stock: A synthetic position which is essentially same as being short on stock. It involves the writing of at the money call options and buying at the money put options on the relevant stock.

Synthetic Straddle: A synthetic strategy that essentially replicates the Long Straddle trading strategy. Read more about the synthetic straddle at Synthetic Strategies.

T

Technical Analysis: A style of analysis used to predict the future price movements of a financial instrument by studying historical data relating to the volume and price. This typically involves analyzing charts and graphs to find patterns and trends.

Theoretical Value: The value of a specific option, or position, that is calculated by a pricing model or other mathematical formulas.

Theta Value: One of the Greeks, the theta value measures the theoretical rate of time decay of that option. Also referred to as Options Theta.

Time Decay: The process by which the extrinsic value diminishes as the expiration date of the option gets closer. Read more about Time Decay.

Time Call Spread: See Calendar Call Spread.

Time Put Spread: See Calendar Put Spread.

Time Spread: See Calendar Spread.

Time Value: See Extrinsic Value

Trading Plan: A detailed plan that a trader would prepare to lay out how they'll approach their trading. The plan would usually include defined objectives, details of methods that will be used for budget control, risk management, and which strategies will be used.

Trailing Stop Order: A type of order that includes a stop price which is based on a percentage or absolute change from the previous best price.

Trading Levels: A level that's assigned to account holders at brokers to indicate what level of risk they can be exposed to. They are used to protect traders that have insufficient capital or inadequate experience from entering trades that they shouldn’t have. Also known as approval levels. Read more about Trading Levels.

Trading Style: The method and/or approach that a trader undertakes to follow; there are several specific types of trading styles. Read more about Types of Options Trader & Trading Style.

Trend: A recognizable and continued movement in a market or in the price of a specific financial instrument.

U

Uncovered Option: See Naked Option

Underlying Asset: See Underlying Security

Underlying Security: The asset, security, or financial instrument that an option is based on.

Underlying Financial Instrument: See Underlying Security

V

Vega Value: One of the Greeks, the vega value measures the theoretical effect of changes in the implied volatility of the underlying security on the price of the option. Also referred to as Options Vega.

Vertical Spread: A type of spread that's created using multiple contracts with different strike prices, but it has the same expiration dates. Read more about Vertical Spreads.

Volatile: A financial instrument or whole market, that's moving unexpectedly and/or dramatically is said to be volatile.

Volatile Market: A market that's constantly moving unexpectedly and dramatically, with a high level of price instability.

Volatile Trading Strategies: Strategies that can be used to profit from a volatile market and/or a volatile financial instrument. List Of Volatile Strategies.

Volatility: A measure of how a financial instrument is expected to fluctuate over a specified period of time. Read more about Volatility.

Volatility Crunch: A significant drop in implied volatility.

Volatility Skew: When a graph that represents the implied volatility across options with the same underlying security, but different strike prices form a curve skewed to right.

Volatility Smile: When a graph that represents the implied volatility across options has the same underlying security but different strike prices, forms a concave similar in appearance to a smile.

Volume: The amount of transactions that took place involving a specified financial instrument such as a particular option. One with a high volume means it has been heavily traded.

W

Weekly Option: A type of option that uses a weekly expiration cycle.

Writer: The creator of new contracts to sell.

Writing an Option: The process of effectively creating new contracts to sell.