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A

    Adjusted Options
    Non-standardized stock options. Contract size may not represent 100 shares in addition to other customized terms relevant to stock's capital structure. ETNtrade does not endorse trading adjusted options. Please see American-Style Option, which is the type of option contract ETNtrade does use for educational purposes.
    Adjusted Strike Price
    The change in the strike price of an option contract that results from a corresponding change in the underlying stock, index or exchange traded fund (ETF). The adjustment in the strike price is proportionate to the change in the stock price as a result of the split. If the stock does a 2 for 1 split, the option strike will adjust as well. For example: If 1 share of a $100 stock is now 2 shares of a $50 stock, the option to buy 1 contract for $100 is now 2 contracts to buy at $50. In short, the value of the position remains unchanged.
    All-or-None (AON) Order
    An All-or-None order allows a trader to buy or sell a specified number of contracts at a single price. The number of contracts must meet or exceed a predetermined threshold level, and these orders must be executed during pit trading sessions. All Or None orders are routed to the primary exchange where they are manually held and executed when eligible. Furthermore, these orders are not reflected in the bid / ask quotes.
    American Stock Exchange (Amex or AMEX)
    The American Stock Exchange is one of the three major stock exchanges in the U.S., with the New York Stock Exchange and the Nasdaq being the other two. It was founded in 1842 in New York City. It trades a wide variety of equity and index options as well.
    American-Style Option
    An option contract that may be sold (or exercised) at any time between the date of purchase and the expiration date. Unlike a Warrant and/or European-style options, there is no requirement to hold the contract for any specified period of time. Most exchange-traded options are American-style.
    Arbitrage
    A technique almost exclusively used by floor traders and other professionals to capitalize on small price discrepancies between different option exchanges.
    Ask (or Ask Price)
    The price you pay, or the lowest price that someone is currently willing to sell stock shares or option contracts. The ask price is also known as the offer.
    Ask Size
    The number of options contracts offered at a specific price.
    Assignment
    The process through which an option seller is notified by the Option Clearing Corporation (OCC) that the person who bought an option contract has decided to exercise the right to buy or sell shares at the strike price. Upon notification, the option seller is obligated to deliver or receive shares according to the terms of the contract.
    At-the-market
    Any trade executed at the prevailing bid or ask. For example, if the bid-ask spread on an option is 2.50 – 2.70, a customer who places a market order to sell the option will receive the current bid of 2.50. Likewise, a customer looking to buy the option will pay 2.70.
    At-the-Money (ATM)
    The option strike price that is the closest to the stock’s current trading price. ATM options have the highest time (Theta) decay compared to OTM or ITM options for same expiration month. This is very useful for spread trading when time decay is a consideration for profitability. The further away the options move both ITM and OTM, the less Theta decay will erode value.
    Automatic Exercise
    When the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder. In doing so, the intrinsic value is maintained through purchase of the shares. However, the shares now owned are vulnerable to market movement until the position is sold.
    ADP Non-Farm Employment Change (a.k.a. Automatic Data Processing, Inc.)
    ADP provides payroll services to many corporations in the US. They use the data collected from their customers to derive the overall employment estimations. Specifically, it provides an estimated changed in the number of employed people during the previous month, excluding the farming industry and government. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. It leads the government-released employment data by 2 days, and has slowly demonstrated its predictive qualities since its May 2006 debut. ADP changed the calculation methodology February 2007 and December 2008 to better align with the government’s data.
    Advance GDP Price Index q/q (a.k.a. GDP Deflator)
    From the Bureau of Economic Analysis, it measures the annualized change in the price of all goods and services included in GDP. It is reported quarterly about 30 days after the end of the quarter, and is the broadest measure of inflation, encompassing all activities included in GDP. It is the primary instrument that the central bank uses to assess inflation. While this is q/q data, it's reported in an annualized format (quarterly change x4).
    Advance GDP q/q (a.k.a. GDP First Release or Estimated GDP or Gross Domestic Product)
    From the Bureau of Economic Analysis, it measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is released quarterly about 30 days after the end of the quarter, and is the broadest measure of economic activity and the primary gauge of the economy's health. While this is q/q data, it's reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact.
    Average Hourly Earnings m/m
    From the Bureau of Labor Statistics, this is the earliest data related to labor inflation. It measures the change in the price businesses pay for labor, excluding the farming industry, and is released monthly (usually on the first Friday after the month ends). It is important because it is a leading indicator of consumer inflation – where businesses pay more for labor the higher costs are usually passed on to the consumer.
    Average Hourly Earnings m/m
    From the Bureau of Labor Statistics, this is the earliest data related to labor inflation. It measures the change in the price businesses pay for labor, excluding the farming industry, and is released monthly (usually on the first Friday after the month ends). It is important because it is a leading indicator of consumer inflation – where businesses pay more for labor the higher costs are usually passed on to the consumer.

B

    Backspread
    A spread strategy in which the net position has more long options than short ones. To create a call backspread you might sell one lower strike call and buy two higher strike calls. This position offers limited risk and unlimited profit potential. Typically backspreads are initiated as delta neutral positions.
    Bear Spread
    A combination of option positions designed to benefit from a decline in the stock price.
    Bear Call Spread
    This strategy is a credit spread, and involves selling a call with a lower strike and buying a call with a higher strike. The idea is to allow the entire position to expire and keep the net credit collected as a result of the opening buy/sell. The maximum profit is the credit collected upon opening the position, which is achieved when the stock trades at or below the lower (short) strike through expiration. The maximum risk for the trade is the difference between the strikes less the credit collected.
    Bear Put Spread
    This strategy is a debit spread, and involves buying a put with a higher strike price and selling a put with a lower strike price. The maximum profit is achieved at or below the lower strike price. The maximum risk for the trade is what was paid to open the position.
    Bearish
    The term used to describe the market sentiment of people who expect the general market to decline.
    Bearish Options Strategies
    Techniques to profit from downward moves in the underlying stock using options.
    Beta
    A figure that reflects the historical propensity of a stock price to move with the stock market as a whole. The lowest theoretical Beta is zero indicating no movement, while the highest Beta is 2 which indicates big price moves relevant to small moves in the market.
    Bid Price
    The price point where a buyer is willing to purchase a given stock or option contract.
    Bid/Ask Spread
    The difference between the bid and ask price. The spread will generally be tighter on heavily traded option contracts, and relatively wider on thinly traded contracts.
    Black-Scholes Model
    A mathematical formula that provides the theoretical value for options given various factors that impact it’s price to include the strike price, the price of the underlying, the current interest rate, the amount of time remaining until expiration, dividends, and volatility.
    BOX
    The Boston Options Exchange.
    Break Even Point
    The stock price, or price range, at which an option position will neither make nor lose money.
    Breakout
    When a stock price or average trades above a previous high resistance level or below a previous low support level.
    Bull Spread
    A combination of option positions designed to benefit from an increase in the stock price.
    Bull Call Spread
    This strategy is a debit spread, and involves buying a call with a lower strike and selling a call with a higher strike. The maximum profit is achieved when the stock trades at or above the higher strike. The maximum risk for the trade is what was paid to open the position.
    Bull Put Spread
    This strategy is a credit spread, and involves selling a put with a higher strike and buying a put with a lower strike. The idea is to allow the entire position to expire and keep the net credit collected as a result of the opening buy/sell. The maximum profit is the credit collected upon opening the position, which is achieved when the stock trades at or above the higher (short) strike through expiration. The maximum risk is the difference between the strikes less the credit collected.
    Bullish
    The term used to describe the market sentiment of people who expect the general market to rise.
    Butterfly Spread
    A neutral strategy involving limited risk and limited reward. It involves 4 options (all calls or all puts) at 3 different strike prices. For example, to buy a butterfly, you might buy one call at a lower strike, sell two calls at the middle strike, and buy one call at the higher strike. In this example, the highest and lowest strikes are "wings" while the middle strike makes up the "body" of the butterfly.
    Buy To Close
    An order entered to close a short position.
    Buy To Open
    An order entered to establish a new long position.
    Beige Book (a.k.a. Current Economic Conditions)
    From the Federal Reserve, this analysis is used by the FOMC to help make their next decision on interest rates. However, it tends to produce a mild impact as the FOMC also receives 2 non-public books - the Green Book and the Blue Book - which are widely believed to be more influential to their rate decision. The Beige Book is anecdotal evidence supplied by the 12 Federal Reserve banks regarding local economic conditions in their district.
    Building Permits (a.k.a. Residential Building Permits
    From the Census Bureau, it measures the annualized number of new residential building permits issued during the previous month. It is released monthly about 17 days after the end of the month, and is an excellent gauge of future construction activity because obtaining a permit is among the first steps in constructing a new building. While this is monthly data, it's reported in an annualized format (monthly figure x12).
    Business Inventories
    From the Census Bureau, it measures the change in the total value of goods held in inventory by manufacturers, wholesalers, and retailers. It is released monthly about 45 days after the end of the month and is a signal of future business spending because companies are more likely to purchase goods when they have depleted inventories.

C

    Calendar Spread
    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.
    Calendar Straddle or Combination
    A neutral strategy involving the purchase of a long term straddle and the sale of a short term straddle
    Calendar Strangle
    A neutral spread strategy involving the purchase of a long term strangle and the sale of a short term strangle.
    Call
    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.
    Called Away
    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.
    Capitalization
    The total amount of securities issued by a corporation to include bonds, debentures, preferred stock, common stock and surplus.
    Cash Settlement
    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.
    CBOE
    Chicago Board Options Exchange. The first national exchange to trade listed stock options.
    CBOE VIX
    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.
    CBOT
    Chicago Board Of Trade. The world's largest futures exchange, it was founded in 1848.
    Chain
    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.
    Close
    Period at the end of a trading day where final prices for the day are calculated.
    Closing Order
    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.
    CME
    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.
    Collar
    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.
    Collateral
    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.
    Combination Spread
    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.
    Compound Interest
    Interest earned on both an original investment and interest already accrued.
    Condor
    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.
    Contango
    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 Orders
    Orders that are working based on a preset 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.
    Contract Size
    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.
    Contrarian
    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.
    Consolidation
    When stocks start going sideways after a significant rise as investors start selling some of their holdings to take profit.
    Contract Range
    The highest and lowest price that an options contract has traded.
    Conversion
    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.
    Convertible Bond
    A debt security feature that allows the holder to convert to another issue.
    Corporate Bonds
    Debt obligations that are issued by corporations.
    Correction
    When a stock drops in price temporarily before rebounding later.
    Coupon Rate
    The percentage rate of interest in fixed income securities.
    Coupon Yield
    A bond's coupon payment divided by the par value.
    Cover
    Buying back a short option position to close out the position.
    Covered Call
    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.
    Covered Put
    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.
    Covered Warrant
    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.
    Credit
    An increase in the cash balance of an account resulting from a sale or deposit.
    Credit Spread
    An option spread in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.
    Current Yield
    Coupon rate divided by the market price of the bond.
    Custodial Account
    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.
    Current Account
    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.

D

    Day Order
    An order that expires at the end of the trading day if it has not been filled.
    Day Trade
    Positions that are who opened and closed within the same trading day.
    Debenture Bond
    A debt issue by a corporation and backed by the company.
    Debit
    An expense or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.
    Debit Spread
    Option spreads where you pay a net debit to initiate the position.
    Debt/Equity Ratio
    A measure of a company's leverage, calculated by dividing long-term debt by common shareholders' equity, commonly using the data from the previous fiscal year.
    Decay
    Also known as Time Decay or Theta Decay. The way in which the theoretical value of an option decreases as time passes. The specific measurement of the option's change in value over time is represented by the Greek letter theta. The rate at which an option loses its value increases more rapidly during the final 30 days of an option's life.
    Delivery (options)
    The act of meeting the obligations of a contract upon assignment.
    Delta
    Delta is one of the 5 Greek letters used to calculate the movement of an option. It is the sensitivity of an option's theoretical value to a change in the price of the underlying stock/index/ETF. Specifically, the expected change in an option's price given a one-unit change in the price of the underlying. Call options have positive deltas, while put options have negative deltas.
    Delta Neutral
    When positive delta options and negative delta options offset each other to produce a position which neither gains nor decreases in value as the underlying stock moves slightly up or down. Such a position will return a profit no matter which way the underlying stock eventually moves as long as the move is significant.
    Delta Spread
    A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option.
    Derivatives
    A financial instrument whose value is derived from the value and characteristics of another financial instrument such as stocks, bonds, commodities or a market index such as the S&P 500. The most common types of derivatives are options, futures, and mortgage-backed securities.
    Diagonal Call Time Spread
    A neutral option strategy profiting primarily through time decay by buying long term ATM (at the money) call options and shorting short term OTM (out of the money) call options against them.
    Diagonal Spread
    A position in which the trader buys and sells options with different strike prices and expirations.
    DIAMONDs
    Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust.
    Discount
    An option is trading at a discount if it is trading for less than its intrinsic value. A future is trading at a discount if it is trading at a price less than the cash price of its underlying index or commodity.
    Dividend Rate
    The fixed or adjustable rate paid on common stock or preferred stock.
    Dividend
    When a company pays a share of the profit to existing shareholders.
    Dow Jones Industrial Average (DJIA)
    The oldest and most widely known index of the U.S. stock market, the Dow represents the price movements of the 30 companies that, in the opinion of the editors of The Wall Street Journal, most represent the American economy.
    Downside Protection
    The cushion against loss, in case of a price decline by the underlying security.
    Downtick
    When the most recent trade for a particular instrument occurs at a lower price than the trade immediately preceding it.
    Dynamic Hedging
    A hedging technique which requires constantly rebalancing in order to maintain the hedge ratio.
    Durable Goods Orders
    From the Census Bureau, it measures the change in the total value of new purchase orders placed with manufacturers for durable goods. 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. This data is usually revised via the Factory Orders report released about a week later. Durable goods are defined as hard products having a life expectancy of more than 3 years, such as automobiles, computers, appliances, and airplanes.

E

    Early Exercise (assignment)
    The exercise or assignment of an option contract before its expiration date.
    Employee Stock Options
    A form of compensation or incentive for employees of a publicly traded company, allowing purchase of company stock at a specific price or at a specific discount.
    Equity Option
    A contract that allows the holder to buy or sell shares of a publicly traded stock at a predetermined price.
    ETF (Exchange Traded Funds)
    Open ended funds tradable over an exchange just like a stock. ETFs made it possible for investors to invest in a variety of other instruments like gold and silver just like investing in stocks.
    European Exercise
    A contract that can only be exercised at its expiration. There can be no early assignment with this type of option.
    Ex-dividend date
    The date before which investors must own shares to be eligible to receive a declared dividend. On ex-dividend day, the stock price drops by the amount of the dividend because buyers after that point will not receive the dividend. This is very important when you are in a spread position. It is not uncommon for the short call to be assigned the day before Ex-Dividend day ( with notification coming on Ex-Dividend day ). This means that the spread holder will be responsible for the dividend.
    Execution
    The process of completing and confirming or “filling” an order to buy or sell securities.
    Exercise
    To invoke the right associated with a particular option contract. When exercising a call option, the holder buys stock at a predetermined price (strike) from the option seller. With a put option, the holder of the option sells the stock to the option seller at the strike price.
    Exercise by Exception
    a.k.a. “Automatic Exercise”. This is an automatic procedure implemented by the Options Clearing Corporation (OCC) to protect customers from losing the intrinsic value of options they forget to exercise. For example, the OCC automatically exercises all stock options that have at least $0.05 of intrinsic value, or an index option worth $0.01 or more.
    Exercise Limit
    The limit on the number of contracts which a holder can exercise in a fixed period of time. Set by the appropriate option exchange, it is designed to prevent an investor or group of investors from "cornering" the market in a stock.
    Exercise Price
    a.k.a. “Strike Price”. The price specified by the option contract at which the holder can buy or sell the underlying stock.
    Expiration Date
    The last day on which an option contract may be exercised. The expiration date for listed stock options is 3rd Friday of every month, with the contract officially “expiring” on that Saturday.
    Extrinsic Value
    Also known as "Premium Value" or "Time Value". It is the difference between an option's price and the intrinsic value. Out-of-the-money and At-the-money options are entirely extrinsic value.
    Empire State Manufacturing Claims (a.k.a. New York Manufacturing Index)
    From the Federal Reserve Bank of New York, it measures the level of a diffusion index based on surveyed manufacturers in New York state. It is released monthly around the middle of the current month. The ESMC is a survey of about 200 manufacturers in New York state which asks respondents to rate the relative level of general business conditions. Above 0.0 indicates improving conditions, below indicates worsening conditions. Source first released in April of 2002. This report is a leading indicator of economic health. Businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.
    Employment Cost Index
    From the Bureau of Labor Statistics, it measures the Change in the price businesses and the government pay for civilian labor. It is released quarterly about 30 days after the end of the quarter, and is a leading indicator of consumer inflation. When businesses pay more for labor, the higher costs are usually passed on to the consumer.
    Existing Home Sales (a.k.a. Home Resales)
    From the National Association of Realtors (NAR), it measures the annualized number of residential buildings that were sold during the previous month, excluding new construction. It is released monthly about 24 days after the end of the month, and is a leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect. For example, renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction. While this is monthly data, it is reported in an annualized format (monthly figure x12). Existing homes make up the majority of total sales and therefore tend to have more impact than New Home Sales.

4

    401(k), 403(b), and 457
    Employer-sponsored retirement plans named after the respective Internal Revenue Code sections in which they appear.

F

    Face Value
    The dollar value of a U.S. Treasury Bill at maturity. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date.
    Fair Value
    When the market price of an option is in line with its theoretical value as predicted by a formula such as Black-Scholes.
    Federal funds rate
    The interest rate that is charged by banks on overnight loans to other banks.
    Fill
    See Execution.
    Fill Or Kill
    An order that must be filled immediately or canceled.
    FINRA
    The Financial Industry Regulatory Authority (Formerly referred to as NASD), is the largest non-governmental regulator for all securities firms doing business in the United States.
    Floor Broker
    A trader on the exchange floor who executes customer orders.
    Floor Trader
    A person on the exchange floor who buys and sells contracts for his or her own account. In this capacity, the person acts as a market maker.
    Foreign Exchange
    The “Spot” market. This is the cash market for foreign currencies. Trade does not occur on centralized contract markets but rather, over-the-counter in an international network of dealers.
    Forex
    See Foreign Exchange.
    Frontspreads
    Options strategies designed to profit from neutral market conditions where prices change very little. The goal is to take advantage of time decay and volatility.
    Fundamental Analysis
    The method of evaluating a particular stock using financial information such as revenue, profit, and management performance.
    Fungibility
    The ability to trade the same instrument interchangeably across exchanges or other marketplaces.
    Futures Contract
    An agreement to make or accept delivery of a specified quantity and quality of a commodity during a specific month in the future at a predetermined price.
    Futures Cash
    Total required segregated funds after a futures position is initiated. Funds must remain segregated until the position is closed.
    FX
    See Foreign Exchange.
    Factory Orders m/m
    From the Census Bureau, it measures the change in the total value of new purchase orders placed with manufacturers. It is released monthly, about 35 days after the month ends, and contains a revision of the Durable Goods Orders data released about a week earlier, and fresh data regarding non-durable goods. It’s a leading indicator of production – rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.
    Fed Chairman Speaks
    From the Federal Reserve, and as head of the central bank (which controls short term interest rates), he has more influence over the nation’s currency value than any other person. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy.
    Federal Budget Balance (a.k.a. Monthly Treasury Statement or Treasury Budget).
    The Department of the Treasury is the source. It measures the difference between the federal government’s income and spending during the previous month. Released monthly, usually on 8th business day after month ends. Positive number reflects budget surplus, negative reflects deficit. *Also called Monthly Treasury Statement or Treasury Budget.
    Federal Funds Rate (a.k.a. Interest Rates or Fed Funds Rate).
    From the Federal Reserve, it measures the interest rate at which banks lend balances held at the Federal Reserve to other banks overnight. It is scheduled for release 8 times per year. FOMC (Federal Open Markets Committee) members vote on where to set the rate. The individual votes are published in the FOMC statement. The rate decision is often priced into the market and tends to be overshadowed by the FOMC Statement which is focused on the future. Short-term interest rates are the paramount factor in currency valuation. Traders look at most other indicators merely to predict how rates will change in the future.
    Federal Reserve Chairman Testimony (currently Ben Bernanke)
    As head of the central bank, which controls short term interest rates, the Fed Chairman has more influence over the nation's currency value than any other person. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy. The testimony usually comes in 2 parts: first he reads a prepared statement (a text version is made available on the Fed's website at the start), then the committee will hold a question and answer session. Since the questions are not known beforehand they can make for some unscripted moments that lead to heavy market volatility.
    Final GDP q/q. (a.k.a. Gross Domestic Product)
    From the Bureau of Economic Analysis, it measures annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is released quarterly, about 90 days after the quarter ends, and is the broadest measure of economic activity and the primary gauge of the economy’s health. While this is q/q data, it’s reported in an annualized format (quarterly change x 4). The ‘Previous’ listed is the ‘Actual’ from the Preliminary release and therefore the ‘History’ data will appear unconnected. There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact.
    FOMC Meeting Minutes. (a.k.a. Federal Open Market Committee)
    From the Federal Reserve, it’s a detailed record of the FOMC’s most recent meeting, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates. It is scheduled 8 times per year, 3 weeks after the Federal Funds Rate is announced.
    FOMC Member “insert name” Speaks (a.k.a. Federal Open Market Committee)
    Federal Reserve FOMC members vote on where to set the nation's key interest rates and their public engagements are often used to drop subtle clues regarding future monetary policy.
    FOMC Statement (a.k.a. Interest Rate Statement or Fed Statement or Monetary Policy Statement or Federal Open Market Committee)
    From the Federal Reserve, this report is the primary tool the FOMC uses to communicate with investors about monetary policy and is scheduled for release 8 times per year. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes. The FOMC usually changes the statement slightly at each release. It is these changes that traders focus on.

G

    Gamma
    Gamma is one of the 5 Greek letters used to calculate the movement of an option. It is the rate of change of an option's delta for one unit change in the price of the underlying stock. Typically, Gamma is only useful to professional traders managing very large positions.
    Gamma Neutral
    A position which has zero or near zero gamma value resulting in the delta value of the position staying stagnant no matter how its underlying stock moves.
    Good Until Canceled (GTC)
    An order that remains in effect until it is either filled or cancelled.
    Going Forward
    Analyst's Jargon. Meaning "In The Future". 12 months going forward means 12 months in the future.
    Greeks
    A set of mathematical criteria involved in the calculation of stock option prices to include Delta, Gamma, Theta, Vega and Rho.
    G7 Meetings. (a.k.a. Group of 7)
    G7 meetings are attended by finance ministers and central bankers from 7 industrialized nations – Canada, Italy, France, Germany, Japan, the UK, and the US. The meetings are closed to the press but officials usually talk with reporters throughout the day, and a formal statement covering policy shifts and meeting objectives is usually released after the meetings have concluded. Both the comments and statement can create significant market volatility. Though it’s not an institution, the G7 is an influential global policy-making body operating at the highest level, and their initiatives and policies can have a substantial impact on currency markets.
    G20 meetings. (a.k.a. Group of 20)
    G20 meetings are attended by finance ministers and central bankers from 20 industrialized nations including the G7 nations – Canada, Italy, France, Germany, Japan, the UK, and the US. The meetings are closed to the press but officials usually talk with reporters throughout the day, and a formal statement covering policy shifts and meeting objectives is usually released after the meetings have concluded. Though it’s not an institution, the G20 is an influential global policy-making body operating at the highest level, and their initiatives and policies can impact the currency markets.

H

    Hedge
    Transactions that are initiated to protect a position, cap loss potential, generate credit and/or income on an existing position.
    Hedge Ratio
    The mathematical quantity that is equal to the delta of an option.
    Historical Volatility
    A measurement of the actual movement of stock price over a specific period of time. It is used as a base to compare implied volatility (IV) in the option chains, which help determine if current option prices are high or low relative to the stock's past performance. See Implied Volatility.
    Horizontal Call Time Spread
    An option strategy in which longer term at-the-money call options are bought and short term at-the-money call options are sold. Maximum profit is when the underlying stock remains at or below the short strike through expiration.
    Horizontal Put Time Spread
    An option strategy in which longer term at-the-money put options are bought and short term at-the-money put options are sold. Maximum profit is when the underlying stock remains at or above the short strike through expiration.
    Horizontal Spread
    Also known as a time or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price.
    Housing Starts
    From the Census Bureau, it measures the annualized number of new residential buildings that began construction during the previous month. It is released monthly about 17 days after the end of the month, and is a leading indicator of economic health because building construction produces a wide-reaching ripple effect. For example, jobs are created for the construction workers, subcontractors and inspectors are hired, and various construction services are purchased by the builder. While this is monthly data, it is reported in an annualized format (monthly figure x12). This data is slightly overshadowed by Building Permits because they are tightly correlated and a permit must be issued before the house can begin construction.

I

    ISE (International Stock Exchange)
    The ISE is a completely electronic exchange.
    Implied Volatility
    The amount of movement expected in the stock given the current price of the options
    Index
    The monitoring of the performance of multiple stocks as it relates to a group. A change in the index is actually the entire effect of all component price changes.
    Index Option
    An option based on an index, such as the S&P 100, rather than an individual stock. These options are typically cash-settled because it would be too cumbersome to buy or sell all of the stocks that make up the index in the event of an assignment.
    Indicated Annual Dividend
    Represents the amount paid to a shareholder during the course of a year, based upon the current indicated periodic dividend (usually quarterly).
    Individual Retirement Account (IRA)
    a.k.a.”traditional” IRA. A tax-deferred retirement account set up with a financial institution such as a bank, broker, or mutual fund in which contributions may be invested in many types of securities.
    In-the-Money
    An option with intrinsic value. A call with a strike price below the current market price or a put above the current market price.
    Intermediary Bank
    The intermediary bank is the bank that your financial institution uses to accept wires.
    Intrinsic Value
    The amount an option is in-the-money (ITM).
    Incremental Return Concept
    Earning additional return from option writing against a stock or longer term option position. Additional target is to sell stock or long term option position for profit.
    Iron Butterfly
    A limited risk, limited reward strategy with the same general profit graph as a butterfly, but created using a combination of puts AND calls (unlike the butterfly which is ALL puts or ALL calls). The body of the iron butterfly is a long (or short) straddle. The wings are a short (or long) strangle. In other words, if you sell the straddle, you buy the strangle…and vice versa.
    IMF Meetings. (a.k.a International Monetary Fund)
    IMF meetings are usually held twice a year and are attended by the representatives of IMF and the World Bank. Meetings are open to the press and officials usually talk with reporters throughout the day. A formal statement covering policy shifts and meeting objectives is released after the meetings have concluded. Both the comments and statement can create market volatility.
    Import Prices m/m (a.k.a. Import Price Index)
    From the Bureau of Labor Statistics, it measures the change in the price on imported goods and services purchased domestically. It is released monthly about 12 days after the end of the month; the earliest government-released inflation data. It contributes to inflation for businesses and consumers, especially those who rely heavily on imported goods and services.
    Industrial Production m/m (a.k.a. Factory Output)
    From the Federal Reserve, it measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. It is released monthly about 16 days after the end of the month, and is a leading indicator of economic health. Production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings.
    ISM Manufacturing PMI. (a.k.a. The Institute of Supply Management Purchasing Manger’s Index or Manufacturing ISM Report On Business)
    From the ISM, it measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. It is released monthly, on the first business day after the month ends, and it’s 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. It is a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.
    ISM Non-Manufacturing PMI. (a.k.a. Services PMI or Non-Manufacturing ISM Report On Business)
    From the Institute of Supply Management, the Non-Manufacturing Purchasing Managers’ Index measures the level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry. It is released monthly, on the third business day after the month ends, 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. It is a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

J

    Joint Tenants with Rights of Survivorshi
    Account ownership by two or more people. Upon death of an owner, the surviving account owner automatically retains ownership of the account.
    Joint Tenants in Common
    Account ownership by two or more people. Upon death of an owner, a proportional percentage of the account typically passes to his or her estate.
    Jackson Hole Symposium. (a.k.a. Kansas City Fed Economic Symposium)
    The Economic Symposium, held in Jackson Hole, Wyoming, is attended by central bankers, finance ministers, academics, and financial market participants from around the world. The meetings are closed to the press but officials usually talk with reporters throughout the day. Comments and speeches from central bankers and other influential officials can create significant market volatility.

K

    Keogh
    a.k.a. a “self-employed pension”. A U.S. tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses.

L

    Last Trading Day (LTD)
    The final day in which trading may occur for a particular delivery month. The 3rd Friday of every month for front month options.
    LEAPS
    Long-term Equity Anticipation Securities. They are long-term stock or index options that have 9 months of life or more until expiration. LEAPS trade like normal options but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stock.
    Leg
    One part of a multiple option strategy. Legging into a position entails placing 1 part of a spread while attempting to enter additional legs at more favorable prices separately.
    Level II Quotes
    Real time quotes provided by NASDAQ outlining the specific bid ask spread provided by each market maker.
    Leverage
    A characteristic of options that makes it possible for holders to realize a greater percentage of profit or loss than the underlying instrument. Controlling shares for a fraction of the price while still having the ability to participate in a large proportion of the overall move.
    Limit Order
    To buy or sell a predetermined number of shares at a specified price or better if available. Limit orders guarantee a price but do not guarantee execution or “fill”.
    Liquid Market
    A high volume trading environment in which buyers and sellers benefit from narrow bid-ask spreads, and can place large orders to be filled without any significant impact on the market price.
    Liquidity
    A measure of how quickly a security can be sold at a fair price and converted to cash. The more volume, the more liquidity. An important measure to ensure a holders ability to exit quickly.
    Listed Option
    An exchange traded put or call contract issued by the OCC with standardized strike prices and expiration dates.
    Load
    A sales commission paid when purchasing shares of a mutual fund or when redeeming shares of a mutual fund.
    Long Position
    A position that results from an initial purchase of stock or options. The term “long” refers to “buying” or holding a position that is bullish in nature.
    Lot
    A unit of trading. In the futures market, one lot refers to one futures or options contract. In the forex market, one lot is equivalent to 100,000 units of a particular foreign currency.

M

    Management fee
    a.k.a. “advisory fee”. The money paid to the manager(s) of a mutual fund or other type of professionally managed investment.
    Maintenance Margin
    Cash which must remain on deposit in the customer's account for any position. A drop in funds below this level requires a deposit back to initial margin levels.
    Margin
    Traders who buy on margin borrow a percentage of the purchase price from their brokerage firm. The account holder is responsible for any loss of those borrowed monies.
    Margin Equity Percentage
    Calculates the value of your securities in relation to the money you have borrowed. A negative margin balance does not necessarily indicate borrowed funds.
    Market-If-Touched (MIT) Order
    An order placed much like a Limit order, but when the market touches the specified price the order immediately converts to a Market order. Buy orders would be placed below current market price and sell orders would be placed above current market price.
    Market Maker
    A floor trader who provides two-sided markets (bid-ask) and takes the opposite side of a customer trade. Market makers provide liquidity in the market, and may trade for their own accounts or they may represent a proprietary trading firm.
    Market Maker System
    A competitive trading environment where floor traders create efficiency and liquidity by competing with each other to provide the best bids and offers.
    Mark-to-Market
    The process of valuing an account at the end of the day based on the settlement prices of the securities.
    Market-Not-Held-Order
    An order issued by a customer allowing the floor broker to use his or her best judgment regarding the price and timing of the trade.
    Market-on-Close Order (MOC)
    An order to buy or sell a contract at the prevailing market price during the closing range (usually, the last 30-60 seconds of trading). Similar to a market order in that no price is specified during order entry.
    Market Order
    An order to buy or sell at the current market price.
    Married Put Strategy
    a.k.a. “married put” or “synthetic call”. Buying stock and buying puts to limit downside risk.
    MIT
    See Market-if-Touched Order.
    MOC
    See Market-on-Close Order.
    Money Market Funds
    A type of mutual fund that contains securities such as T-bills and commercial paper. Most of these funds invest in short-term debt instruments.
    Money Purchase Plan
    A Trust in which a defined portion or percentage of the account is distributed to the trustee(s) on a defined basis whether the account is profitable or not.
    Moneyness
    a.k.a. “ITM, OTM, ATM”. The strike price of an option in relation to the prevailing price of the underlying asset.
    Mortgage-Backed Securities
    A number of mortgages bundled together into a single security to be sold.
    Municipal Bond
    A bond that is issued by a state or local government. Historically, the interest paid on these bonds has been exempt from federal, state and local taxes in the state of issuance.
    Municipal Securities Rulemaking Board (M
    An independent self-regulatory organization in charge of establishing rules and regulations in trading of municipal securities.
    Mutual Fund
    An open-end investment company that invests the money of thousands of people in a number of securities to achieve a specific objective over time.
    Mutual Fund Category
    A group of mutual funds specialized to a certain type of investment objective, carrying similar levels of risks and returns.

N

    Naked Option
    Options that are sold to collect premium when the seller does not actually own shares of the underlying securities or options. This carries unlimited risk and limited profit.
    Narrow Based
    An index composed of only a few stocks, typically in a specific industry group. Narrow based indices are not subject to favorable treatment for naked option writers.
    NASDAQ (National Association of Securiti
    A computerized system that stores and displays up-to-the-second price quotations for securities traded over the counter.
    National Best Bid or Offer (NBBO)
    A term applying to the SEC requirement that brokers make their best effort to offer customers the best available ask price when they buy securities and the best available bid price when they sell securities.
    NBBO
    See National Best Bid or Offer.
    NBBO Spread Quote
    An NBBO Spread Quote reflects the best quotes printed from participating exchanges on each leg of the spread or other combination combined.
    Net asset value (NAV)
    The price of each share of a mutual fund. It is calculated by subtracting the fund's liabilities from its total assets, and dividing that figure by the number of shares outstanding. The NAV is the amount of money that an investor would receive for each share if the mutual fund sold all of its assets, paid off all of its outstanding debts, and distributed the proceeds to shareholders.
    Net investment
    Gross investment minus depreciation.
    Net profit
    a.k.a. “the bottom line”. Revenue less expenses.
    Net profit margin
    Net income as a percentage of sales, which tells you how many cents on each dollar of sales is pure profit.
    Neutral
    Neither bearish nor bullish.
    Neutral Options Strategies
    Strategies intended to profit from a lack of movement, or small range of movement, in the underlying.
    New York Mercantile Exchange (NYMEX)
    Founded in 1872 as a market for cheese, butter, eggs, its principle commodities today include heating oil and petroleum products.
    New York Stock Exchange (NYSE)
    The oldest and largest stock exchange in the United States.
    No-load fund
    A mutual fund that does not charge a sales commission.
    Non-equity Option
    An option that has an underlying security other than stock, such as futures or commodities.
    New Home Sales
    From the Census Bureau, it measures the annualized number of new single-family homes that were sold during the previous month. It is released monthly about 25 days after the end of the month, and is a leading indicator of economic health because the sale of a new home triggers a wide-reaching ripple effect. For example, furniture and appliances are purchased for the home, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction. While this is monthly data, it's reported in an annualized format (monthly figure x12). This report tends to have more impact when it's released ahead of Existing Home Sales because the reports are tightly correlated.
    Non-Farm Employment Change. (a.k.a. Non-Farm Payroll or NFP or Employment Change)
    From the Bureau of Labor Statistics, it measures the change in the number of employed people during the previous month, excluding the farming industry. It is released monthly, usually on the first Friday after the month ends. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. The combination of importance and earliness makes for hefty market impacts.

O

    One Cancels Other (OCO)
    The execution of one order cancels a second or alternate order.
    One Triggers Other (OTO)
    The execution of one order submits a second or alternate order.
    Open-End Fund
    A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell.
    Open Interest
    The total number of outstanding open contracts in a particular option series, being both bought and sold to “open” will increase open interest. Any closing transactions, such as “buy to close” or “sell to close” will reduce open interest.
    Opening Range
    Range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range.
    Opening Transaction
    A trade that creates a new position or adds to an existing one. It can be either long or short positions.
    Option
    The right to buy or sell specific securities at a specified price within a specified time. A put gives the holder the right to sell the stock, a call the right to buy the stock.
    Option Buying Power
    Calculated based upon account equity less any requirements and pending purchases.
    Option Chain
    A list of all of the options for an underlying instrument offering the various strike prices, expiration dates, and whether they are calls or puts.
    Option Clearing Corporation (OCC)
    The firm responsible for issuing and standardizing all exchange traded options. The OCC guarantees that all option contracts are honored and executed according to their terms.
    Option Requirements
    The balance you must maintain based upon the risk of the options positions in your account.
    Option Writer
    The person selling an option in an opening transaction, creating the obligation to meet the terms of the contract in the event of assignment.
    Out-of-the-Money (OTM)
    An option that has only time (extrinsic) value. It has no intrinsic value because its strike price is above (in the case of a call) or below (in the case of a put) the current market price of the underlying.
    Over-the-Counter Market (OTC
    A market where products are bought and sold by electronic means rather than on a designated exchange.
    Overvalued
    A security trading at a higher price than it logically should. If an option is trading for a higher price than the pricing model indicates, the option is said to be overvalued.

P

    Pacific Exchange PCX
    Located in San Francisco, an exchange that trades equities and options.
    Pair Trading
    Buying one stock and selling another related stock against it.
    Parity
    The term used to describe an in-the-money option with a price that is the same as its intrinsic value.
    Partial Fill
    A partial fill is when part of a limit order has been filled. A partial fill may be completed in the same day and then subsequently cancelled or the remainder may be filled.
    Price-to-earnings ratio (P/E)
    The share price of a stock, divided by its per-share earnings over the past year.
    P/E (Forward)
    Price/earnings ratio, using earnings estimates for the next four quarters.
    PEG Ratio
    A stock's price/earnings ratio divided by its year-over-year earnings growth rate.
    Philadelphia Stock Exchange (PHLX
    The Philadelphia Stock Exchange (PHLX) was founded in 1790. The PHLX trades stocks, equity options, index options and currencies.
    Physical Settlement
    The process of settling a futures contract at the expiration date by delivering the underlying instrument.
    Pin Risk
    When an underlying security settles at the option's strike price. The risk results from short option holders not knowing if they will be assigned.
    Pips
    Slang Forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001.
    Pit
    The area at an exchange where traders meet to buy and sell specific contracts.
    Portfolio
    All the securities held by an individual, institution, or mutual fund.
    Position
    The net of all open long and short contracts in a specific trading account.
    Position Limits
    Set by an exchange, this is the number of option contracts (or deltas) that an individual trader cannot exceed. The specifics of this limit differ by exchange and option type.
    Premium
    The total price of an option including both intrinsic and extrinsic or time value.
    Price to Book Ratio
    A stock's capitalization divided by its book value.
    Price to Cash Flow Ratio
    A stock's capitalization divided by its cash flow for the latest fiscal year.
    Price to Sales Ratio
    A stock's capitalization divided by its sales over the trailing 12 months.
    Primary Market
    In cases where the same contract is traded on multiple exchanges, the exchange that handles the most volume is considered the primary market. This can change day to day.
    Profit Sharing Plan Trust
    A Trust in which a defined portion or percentage of the account profits are shared with the trustee(s) on a defined basis.
    Protective Call
    a.k.a “synthetic put” or “married call”. A hedging strategy that protects profits made in a short stock position using call options.
    Protective Put
    a.k.a. “married put” or “synthetic call”. A strategy that hedges against a drop in stock price using put options
    Pull back
    a.k.a “correction”. A temporary fall in price after a rally, which usually continues after the correction.
    Put 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 upside. This is achieved by buying further strike out of the money put options than a regular butterfly spread.
    Put Broken Wing Condor Spread
    A Put Condor Spread with a skewed risk/reward profile which makes no losses or even a slight credit when the underlying stock breaks to upside. This is achieved by buying further strike out of the money put options than a regular put condor spread.
    Put/Call ratio
    A ratio of the trading volume of put options to call options used to gauge investor sentiment. A high volume of puts compared to calls indicates a bearish sentiment in the market.
    Put Option
    A contract that gives the holder the right, but not the obligation, to sell a stock at a set price for limited period of time. The seller or writer of the option is obligated to buy the stock at the strike price in the event that the option is assigned.
    Put Ratio Backspread
    A credit spread with unlimited profit to downside and limited profit to upside through buying more out-of-the-money puts than in-the-money puts shorted (sold).
    Put Ratio Spread
    A credit spread with the ability to profit when a stock goes up, down or sideways through shorting (selling) more out-of-the-money puts than in-the-money puts are bought.
    Pending Home Sales m/m. (a.k.a. Pending Resales)
    From the National Association of Realtors, it measures the change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction. It is released monthly, about 35 days after the month ends, and is a leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect. For example, renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.
    Personal Spending m/m. (a.k.a. Consumer Spending or Personal Consumption Expenditures)
    From the Bureau of Economic Analysis, it measures the change in the inflation-adjusted value of all expenditures by consumers. It is released monthly, about 30 days after the month ends. Though the data is significant, it tends to have a relatively mild impact because Retail Sales, which also covers consumer spending, is released about 2 weeks earlier. Consumer spending accounts for a majority of overall economic activity. It’s one of the most important gauges of economic health due to the vast ripple effect consumer buying creates in the economy.
    Philly Fed Manufacturing Index (a.k.a. Philadelphia Fed Business Outlook Survey)
    From the Federal Reserve Bank of Philadelphia, it measures the level of a diffusion index based on surveyed manufacturers in Philadelphia. It is released monthly around the middle of the month, and is a survey of about 250 manufacturers in the Philadelphia Federal Reserve district which asks respondents to rate the relative level of general business conditions. Above 0.0 indicates improving conditions, below indicates worsening conditions. This survey can have a relatively mild impact because it's released a few days after the tightly correlated Empire State Manufacturing Index. However, it is a leading indicator of economic health because businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.
    PPI m/m (a.k.a. Finished Goods PPI or Wholesale Prices – Producer Price Index)
    From the Department of Labor, it measures the change in the price of finished goods and services sold by producers. It is released monthly about 15 days after the end of the month, and is a leading indicator of consumer inflation. When producers charge more for goods and services the higher costs are usually passed on to the consumer. This report tends to have more impact when it is released ahead of the CPI data because the reports are significantly correlated.
    Prelim UoM Consumer Sentiment (a.k.a. Preliminary University of Michigan Consumer Sentiment or Reuters/University of Michigan Consumer Sentiment)
    From the University of Michigan, it measures the level of a composite index based on surveyed consumers. It is released monthly around the middle of the current month, and is a survey of about 500 consumers which asks respondents to rate the relative level of current and future economic conditions. There are 2 versions of this data released 14 days apart – Preliminary and Revised. The Preliminary release is the earlier and thus tends to have the most impact. Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity.

Q

    Quadruple Witching
    The Market Event when stock index futures, stock index options, stock options and Single Stock Futures all expire on the same day. It is expected that volatility may rise on this day.
    Quarterly Options
    Options on certain Index Stocks that expire on the final trading day of the quarter rather than the third Friday. These are designed to track more closely a company’s fiscal quarter and allow large trading firms to settle their quarter books at the same time as options expiration. Also referred to as Quarterlies.

R

    Ratio Backspread
    Buying more long options than those sold as part of a spread trade.
    Ratio Spread
    An options strategy in which the number of options purchased is greater or less than the number of sold options.
    Realized Profit or Loss
    The amount a Trader makes or loses when selling a position.
    Resistance
    A technical analysis point in which a security hits a high price multiple times but has not broken through due to an increase in selling at that level.
    Reward to Risk Ratio
    A gauge of how risky a position can be by dividing its maximum profit potential against the maximum loss potential. A ratio of above 1 means that the potential reward is higher than the potential loss.
    Return On Investment
    The profit in a trade, represented as a percentage. Also referred to as ROI.
    Reversal
    A change n direction of a security.
    Rho
    One of the five Option Greeks referring the an option’s sensitivity to a move in interest rates. Rho represents how much an option would change with a 1% move in Interest Rates.
    Risk Curve
    A mathematical chart drawn to analyze an option’s risk, reward, and breakeven points. Risk Curves assist a Trader with analyzing whether or not to enter a position, and to assist in setting entry and exit strategies.
    Rolling
    The act of selling one option to buy back another. Rolling is most often used in the Calendar Spread when the short position is expected to expire ITM.
    Roth IRA
    A U.S. tax-deferred retirement account
    Retail Sales m/m (a.k.a. Advance Retail Sales)
    From the Census Bureau, it measures the change in the total value of sales at the retail level. It is released monthly about 14 days after the end of the month, and is the earliest and broadest look at vital consumer spending data. It is the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
    Revised Nonfarm Productivity q/q
    From the Bureau of Labor Statistics, it measures annualized change in labor efficiency when producing goods and services, excluding the farming industry. It is released quarterly, about 65 days after the quarter ends. Productivity and labor-related inflation are directly linked – a drop in a worker’s productivity is equivalent to a rise in their wage. When businesses pay more for labor the higher costs are usually passed on to the consumer. While this is q/q data, it’s reported in an annualized format (quarterly change x 4). The ‘Previous’ listed is the ‘Actual’ from the Preliminary release and therefore the ‘History’ data will appear unconnected. There are 2 versions of this report released a month apart – Preliminary and Revised. The Preliminary release is the earliest and thus tends to have the most impact.
    Revised UoM Consumer Sentiment (a.k.a. Reuters/University of Michigan Consumer Sentiment or Revised University of Michigan Consumer Sentiment)
    From the University of Michigan, this report measures the level of a composite index based on surveyed consumers. It is released monthly, usually on the last Friday of the current month. This report is a survey of about 500 consumers which asks respondents to rate the relative level of current and future economic conditions. The 'Previous' listed is the 'Actual' from the Preliminary release and therefore the 'History' data will appear unconnected. There are 2 versions of this data released about 15 days apart – Preliminary and Revised. The Preliminary release is the earliest and thus tends to have more impact.
    Revised UoM Consumer Sentiment (a.k.a. Reuters/University of Michigan Consumer Sentiment or Revised University of Michigan Consumer Sentiment)
    From the University of Michigan, this report measures the level of a composite index based on surveyed consumers. It is released monthly, usually on the last Friday of the current month. This report is a survey of about 500 consumers which asks respondents to rate the relative level of current and future economic conditions. The 'Previous' listed is the 'Actual' from the Preliminary release and therefore the 'History' data will appear unconnected. There are 2 versions of this data released about 15 days apart – Preliminary and Revised. The Preliminary release is the earliest and thus tends to have more impact.

S

    Security / Securities
    Tradable instruments such as stock, bonds and other financial instruments.
    Sell To Close
    An order entered to close a long position.
    Sell To Open
    n order entered to open a short position.
    Short
    To Sell something you do not own, or having sold something you did not own. A trader can Short a stock/option and then they are short the stock/option.
    Speculator
    A Trader who uses Futures or Options to profit from a future movement in the value of an underlying security.
    Spread
    The difference between the Bid price and Ask price of a tradable instrument. The spread is often split when placing a trade where the spread is wide.
    Stop Limit Order
    A point at which a Limit Order is generated when a security hits a certain loss.
    Stop Order
    A point at which a Market Order is generated when a security hits a certain loss.
    Straddle
    An option strategy or spread trade where one buys both call and puts simultaneously with the same expiration and the same strike price. It is most commonly executed around events that would cause a security to move dramatically.
    Strangle
    An option strategy or spread trade where one buys both call and puts simultaneously with the same expiration but different strike prices. It is most commonly executed using OTM options and structured around events that would cause a security to move dramatically.
    Strike Price
    The price at which one has the right to buy or sell a particular security at when trading an option. While it is not necessary for an option to reach the strike price to be profitable, it is often the target price in which a trader believe a security will reach by the option’s expiration.
    Support
    A technical analysis point in which a stock hits a low price where buying is expected to pick up and the stock price is expected to increase.
    Symbol
    A series of letters used to represent a security.
    Synthetic Position
    A trade in which the combination of stocks and/or options creates a position that has the same risk curve and carries the same risk, reward and breakeven point of another option or stock trade.
    Synthetic Call
    A long stock with a protective or married put. Has the same risk curve as a Long Call.
    Synthetic Put
    A short stock with a long call. Has the same risk curve as a Long Put.
    Synthetic Long Stock
    A long call and a short put using the same strike price.
    S&P/CS Composite-20 HPI (a.k.a. Standard & Poor's (S&P) or Case-Shiller (CS) or House Price Index (HPI))
    From Standard & Poor’s, it measures the change in the selling price of single-family homes in 20 metropolitan areas. It is released monthly about 60 days after the month ends, and is a leading indicator of the housing industry's health because rising house prices attract investors and spur industry activity.

T

    Technical Analysis
    The use of charting patterns to attempt to determine the future movement of a security.
    Theoretical Value
    The real value of an option as calculated using a mathematical equation such as the Black Sholes Model. Theoretical Value is used to determine whether an option is overvalued or undervalued.
    Theta
    Theta is one of the 5 Greek letters used to calculate the movement of an option. It specifically calculates the rate of change in the price of an options theoretical value over the passage of time. Theta represents the amount an option will decay by for 1 day. It is a dollar value and not a percentage (.10 is ten cents, not ten percent).
    Ticker Symbol
    Prior to 2010, each option had a ticker symbols, made up of 3 to 5 letters, which referred to the particular option in which one was trading. Ticker Symbols are now illustrated by Stock, Expiration Month, and Strike Price.
    Time Decay
    The deterioration of the premium of an option over a specified amount of time. It is calculated with the Option Greek Theta. It is also referred to as Theta Decay.
    Time Spread
    Also known as a “Calendar” or “Horizontal Spread”. This spread consists of buying and selling options with different expirations but the same strike price in order to profit from time decay.
    Time Value
    The actual value of the time left on an option. It is calculated using the following equation: Time Value + Intrinsic Value = Premium. Time Value is the only part of the option premium that is affected by the Greeks. Time Value is also referred to as Extrinsic Value.
    Trend
    The general direction in which a security is moving.
    Triple Witching
    The Market Event when stock index futures, stock index options and stock options all expire on the same day. Also See Quadruple Witching where Single Stock Futures are added to the mix.
    TIC Long Term Purchases (a.k.a. Net Foreign Purchases of Long-Term Securities).
    TIC stands for Treasury International Capital. From the Department of the Treasury, it measures the difference in value between foreign long-term securities purchased by US citizens and US long-term securities purchased by foreigners during the reported period. This data represents the balance of domestic and foreign investment - for example, if foreigners purchased $100 billion in US stocks and bonds, and the US purchased $30 billion in foreign stocks and bonds, the net reading would be 70.0B. The market impact tends to be significant but varies from month to month. Demand for domestic securities and currency demand are directly linked because foreigners must buy the domestic currency to purchase the nation's securities.
    Trade Balance (a.k.a. International Trade)
    From the Bureau of Economic Analysis, it measures the difference in value between imported and exported goods and services during the reported month. It is released monthly, about 40 days after the end of the month. A positive number indicates that more goods and services were exported than imported. Traders follow this report because export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers.
    Treasury Currency Report (a.k.a. Report on International Economic and Exchange Rate Policies)
    From the Department of the Treasury, the release date is usually ‘tentative’ and/or delayed for days. It is released twice per year. This report provides a detailed review of global exchange rate policies, economic conditions, and central bank and government actions around the world. Most importantly, the report outlines counties that the Treasury deems currency manipulators.
    Treasury Secretary Speaks
    From the Department of the Treasury, it’s the Treasury Secretary’s job to communicate the US President’s economic policies, and his speeches are often used to signal policy shifts to the public and to foreign governments. He speaks on a broad range of subjects – only speeches that might have direct market impact are listed on our ‘Economic News Notables List’ in the monthly Premium Newsletter.

U

    Uncovered Option
    An Option which has been written or sold without an additional long position to cover the risk. Also referred to as a Naked Option, Uncovered Options often carry massive risk.
    Underlying Asset
    he security which the option is based on. Often referred to as the Underlyer, this security is used to ascertain the value of an option and its intrinsic value.
    Undervalued
    A term used to describe an option that is trading for less than the option Theoretical Value.
    Unemployment Claims (a.k.a. Jobless Claims or Initial Claims)
    From the Department of Labor, it measures the number of individuals who filed for unemployment insurance for the first time during the past week. It is released weekly 5 days after the end of the previous week. This is the nation's earliest economic data. The market impact fluctuates from week to week - there tends to be more focus on the release when traders need to diagnose recent developments, or when the reading is at extreme levels. Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.
    Unemployment Rate. (a.k.a Jobless Rate)
    From the Bureau of Labor Statistics, it measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month. It is released monthly, usually on the first Friday after the month ends. Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.

V

    Vertical Spread
    A Spread Trade which consists of 2 options with the same expiration and different strike prices. Common examples are Credit and Debit Spreads.
    VIX
    The Volatility Index created by the CBOE which measures the overall Implied Volatility of the S&P 500 by averaging a random sample of option IVs across multiple stocks, strikes and DTEs on the S&P 500. It is a Measurement of the Expected 30-Day Volatility of the S&P 500. The VIX is not a tradable index, though its options, which are cash settled, are tradable and often used as a hedging tool. The VIX is most commonly used as a comparative indicator for option traders. It is also referred to as the “Fear Index”.
    Volatility
    A measure of the rate and magnitude of the change of prices, up or down, of a Market or Security. In options, it can be calculated for the past (Historical Volatility) or for what is expected in the near future (Implied Volatility).
    Volatility Crush
    Also referred to as a Volatility Squeeze or Crunch, a Volatility Crush is a sudden and dramatic drop in the Implied Volatility of an option. This usually occurs after an event such as earnings or a new product release.
    Volatility Index
    Also known as the VIX. See VIX for more information.
    Volatility Skew
    A difference between the Implied Volatility on two options. Skews are identified as either Time Skews or Strike Skews. This condition in commonly searched for by Spread Traders in order to sell a higher IV option and buy a lower IV option.
    Volatility Smile
    An IV chart pattern that resembles a smile where both ends of the graph point up and dip in the middle.
    Volatility Smirk
    An IV chart pattern that resembles a smirk where only one end of the graph points up and the other remains relatively flat.
    Volume
    A Measurement of the amount of contracts or shares traded over a given period of time.

W

    Write
    To sell or short an option. The actual opening action of selling on option is often referred to as “writing” the option.
    Writer
    The person who sells or shorts an option.

Y

    Yeild
    Return on an Investment, displayed as a percentage.

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