Also known as a “time” or “horizontal” spread. This debit spread consists of buying longer term options and selling shorter terms options with the same strike price in order to profit from time decay.
A neutral spread strategy involving the purchase of a long term strangle and the sale of a short term strangle.
A contract that gives the buyer the right, but not the obligation, to purchase a set amount of stock (usually 100 shares) at a predetermined price anytime on or before the expiration date (American Style option) or at expiration only (European Style Option). The predetermined price is known as the strike price.
Call Broken Wing Butterfly Spread
A Butterfly Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to downside. This is done by buying further strike out of the money call options than a regular butterfly spread.
Call Broken Wing Condor Spread
A Condor Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to downside. This is done buying further strike out of the money call options than a regular Condor spread.
Call Ratio Backspread
A credit spread strategy with unlimited profit to upside and limited profit to downside through buying more out of the money long calls than in the money short (sold) calls.
Call Ratio Spread
A credit spread strategy with the ability to profit when a stock goes up, down or sideways through selling/shorting more out of the money calls than in the money long calls bought.
Call Time Spread
Also a “Call Calendar Spread”. A strategy where long term call options are bought and near term call options are sold/shorted in order to profit from time decay.
Also known as “Called Out”. When a call option writer is obligated to surrender the underlying stock to the option buyer at a price equal to the strike price of the call option.
The total amount of securities issued by a corporation to include bonds, debentures, preferred stock, common stock and surplus.
Typically associated with index options, this is the process through which option holders receive the intrinsic value of the options in cash at expiration. In this case, option sellers are responsible for cash payment. This contrasts with equity options in which stock is exchanged at expiration rather than cash. Cash settled options can be very dangerous when used as a short position, both alone and in a spread.
Chicago Board Options Exchange. The first national exchange to trade listed stock options.
An index measuring the level of implied volatility in US index options and is used as a measurement of volatility in the US stock market. The VIX is quoted as a percentage estimating the implied volatility of the market, which is the expected annualized movement of the S&P-500 over the next 30 days. When the VIX is at 30, it means that the S&P-500 might move as much as 2.5% (30% divided by 12 months) up or down over the next 30 days.
Chicago Board Of Trade. The world's largest futures exchange, it was founded in 1848.
A list of options quotes across multiple strike prices which includes the bid/ask price, open interest, volume and the Greeks based on the depth of the chain quote.
Class of Options
Option contracts of the same type and style that covers the same underlying asset.
Period at the end of a trading day where final prices for the day are calculated.
The buying back or selling off of an option for which an option trader has the opposite position. A short position would be closed using a “buy to close” order, and a long position would be closed using a “sell to close” order.
Chicago Mercantile Exchange evolved from the Chicago Produce Exchange, originating in 1874 by a group of agricultural dealers. It is the world's largest livestock exchange, and was given it’s current name in 1919.
Also known as a “fence” or “cylinder”, this strategy involves the purchase of stock and the sale of a call against that stock (covered call), while purchasing a put option on the same stock (protective put). It is used primarily to protect an existing stock position.
Any marginable securities, such as stock or cash, used as a basis for borrowing money. If the value of the securities (against which the loan was made) dips significantly, the investor may be forced to provide additional collateral or liquidate part of the position to repay the loan.
A general and broad term used to describe positions consisting of multiple option positions on the same underlying stock/index/ETF. Combinations can include long and short calls, long and short puts, or any combination therein. Combinations often have different strike prices and/or expirations.
Interest earned on both an original investment and interest already accrued.
A limited risk, limited reward strategy with profit/loss characteristics similar to a butterfly. Four options at four strike prices are used. Similar to the butterfly, the outer strike prices make the "wings." Unlike the butterfly "body" which consists of two options at the middle strike, the condor "body" consists of one option at each of two middle strikes.
A term originating from the oil market. This is when farther month implied volatility is higher than nearer month implied volatility. This is indicative of a normal market condition.
Contingent Trailing Stop
A “trailing stop” order will be placed only if/when the market price for the security (stock) specified meets the criteria (greater than or less than a price entered). This means that you can trigger a "trailing stop" order, a stop order that moves along with a favorable movement in a security, when a stock or index reaches a desired price level based on the security's last trade price. This type of order is favorable if you do not wish for the market makers to see your stop order prior to being triggered.
The amount of underlying asset covered by the option contract. This is generally 100. For example, if an option is quoted for $3.50, then one contract would cost $350 (3.50 x 100), and would cover 100 shares.
The opposite belief of the general public and/or Wall Street. It is typically most significant at major market turning points, as overall consensus of opinion usually marks an extreme that will bring some form of correction to bring balance back to supply/demand.
When stocks start going sideways after a significant rise as investors start selling some of their holdings to take profit.
The highest and lowest price that an options contract has traded.
Transforming a long stock position into a position which is short the stock using options, without closing the original long stock position, through the use of synthetic positions.
A debt security feature that allows the holder to convert to another issue.
When a stock drops in price temporarily before rebounding later.
The percentage rate of interest in fixed income securities.
A bond's coupon payment divided by the par value.
Buying back a short option position to close out the position.
A short call option position, typically with an expiration of 30 days or less, against a long stock position. Typically the goal is to collect the premium for the short call and hold until it expires worthless at expiration. This is an income or cost basis reduction strategy.
A strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security. A covered put has limited profit potential and unlimited risk. For this reason, the Covered Put is not a common strategy that most option traders use when speculating a stagnant or bearish move in the underlying stock.
Covered Straddle Write
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position, as you must have cash on hand to purchase shares if the short put is exercised.
The term used for structured warrants that works almost exactly the same as call options and put options. The key difference is that warrants do carry an obligation, unlike buying options on equities, indexes and ETF’s. They must be held until expiration, and can only be exercised at expiration.
Coverdell Education Savings Account
Also known as an “Educational IRA”, an account designed to help fund a child's education. Contributions are taxed, but earnings used toward qualifying education expenses are tax exempt. The entire account must be disbursed prior to the beneficiary's 30th birthday. Any withdrawals after this date will be subject to income taxes and a penalty. The account may be transferred to another family member.
An increase in the cash balance of an account resulting from a sale or deposit.
An option spread in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.
Coupon rate divided by the market price of the bond.
An account created for the benefit of a minor which is managed by an adult as the custodian.
Custodial IRA Account
An account created for the benefit of a minor that is managed by an adult as the custodian and restricted by the rules associated with the corresponding IRA account. See also Traditional IRA and Roth IRA.
Capacity Utilization Rate
From the Federal Reserve, it measures the percentage of available resources being utilized by manufacturers, mines, and utilities. It is released monthly about 16 days after the end of the month, and is a leading indicator of consumer inflation. When producers are nearing full capacity they respond by raising prices, and the higher costs are usually passed on to the consumer.
CB Consumer Confidence (a.k.a. The Conference Board (CB)).
From The Conference Board Inc., it measures the level of a composite index based on surveyed households. It is released monthly on the last Tuesday of the current month. This report is a survey of about 5,000 households which asks respondents to rate the relative level of current and future economic conditions including labor availability, business conditions, and overall economic situation. Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity.
Chicago PMI (a.k.a. Chicago Business Barometer or Purchasing Managers’ Index).
From Kingsbury International, Ltd., it measures the level of a diffusion index based on surveyed purchasing managers in the Chicago area. It is released monthly on the last business day of the current month, and is a leading indicator of economic health. Businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy. This report is a survey of purchasing managers in Chicago which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories. Data is given to Kingsbury subscribers 3 minutes before the public release time listed on the calendar. Early market reaction is usually a result of trades made by these subscribers. Above 50.0 indicates expansion, below indicates contraction.
Core CPI m/m (a.k.a. CPI Ex Food and Energy or Underlying CPI).
From the Bureau of Labor Statistics, it measures change in the price of goods and services purchased by consumers, excluding food and energy. It is released monthly about 15 days after the end of the month. Food and energy prices account for about a quarter of CPI, but they tend to be very volatile and distort the underlying trend. The FOMC (Federal Open Market Committee) usually pays the most attention to the Core data. So do traders because consumer prices account for the majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.
Core Durable Goods Orders m/m (a.k.a. Durable Goods Orders Ex Transportation).
From the Census Bureau, it measures the change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items. It is released monthly about 26 days after the end of the month, and is a leading indicator of production. Rising purchase orders signal that manufacturers will increase activity as they work to fill the orders. Orders for aircraft are volatile and can severely distort the underlying trend. The Core data is therefore thought to be a better gauge of purchase order trends.
Core PCE Price Index m/m (a.k.a. Personal Consumption Expenditures)
From the Bureau of Economic Analysis, it measures the change in the price of goods and services purchased by consumers, excluding food and energy. It is released monthly, about 30 days after the month ends. The Core PCE Price Index differs from Core CPI (Consumer Price Index) in that it only measures goods and services targeted towards and consumed by individuals. Prices are weighted according to total expenditure per item which gives important insights into consumer spending behavior. This is rumored to be the Federal Reserve’s favorite inflation measure, but CPI is released about 15 days earlier and tends to get most of the attention.
Core PPI m/m (a.k.a. Core Finished Goods PPI – Producer Price Index)
From the Department of Labor, it measures the change in the price of finished goods and services sold by producers, excluding food and energy. It is released monthly about 15 days after the end of the month. Food and energy prices make up about 40% of overall PPI which tends to mute the importance of the Core data.
Core Retail Sales m/m (a.k.a. Retail Sales Ex Autos)
From the Census Bureau, it measures the change in the total value of sales at the retail level, excluding automobiles. It is released monthly about 14 days after the end of the month. Automobile sales account for about 20% of Retail Sales, but they tend to be very volatile and distort the underlying trend. The Core data is therefore thought to be a better gauge of spending trends.
CPI m/m (a.k.a. Consumer Price Index)
From the Bureau of Labor Statistics, it measures the change in the price of goods and services purchased by consumers. It is released monthly about 15 days after the end of the month. Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. The CPI is derived from a sampling of the average price of various goods and services and then compared to the previous sampling.
Crude Oil Inventories (a.k.a. Crude Stocks or Crude Levels).
From the Energy Information Administration (EIA), it measures the change in the number of barrels of crude oil held in inventory by commercial firms during the past week. It is released weekly 4 days after the end of the previous week. This report is important to traders as it influences the price of petroleum products which affects inflation, but also impacts growth as many industries rely on oil to produce goods.
From the Bureau of Economic Analysis, it measures the difference in value between imported and exported goods, services, income flows, and unilateral transfers during the previous quarter. It is released quarterly, about 75 days after the quarter ends. Though it should be noted that the goods and services portion has no impact because it’s a duplicate of the monthly Trade Balance data, it’s directly linked to currency demand – a rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country.