Certain events such as a stock split or a stock dividend (e.g., a 3-for-2 stock split). An adjusted option may cover more than the usual one hundred shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a corresponding factor. Example: buying 1 call (covering 150 shares) at 4 would cost $600. See also Strike price interval.

Austrian Futures and Options Exchange

Austrian Futures and Options Exchange

A type of option order which requires that the order be executed completely or not at all. An AON order may be either a day order or a GTC (good til cancel) order.

An option that can be exercised at any time prior to its expiration date. See also European-style option.

A trading technique that involves the simultaneous purchase and sale of identical assets or of equivalent assets in two different markets with the intent of profiting by the price discrepancy.

The price at which a seller is offering to sell an option or a stock. See also Assignment.

Received notification of an assignment by The Options Clearing Corporation. See also Assignment

Received notification of an assignment by The Options Clearing Corporation.

A term that describes an option with a strike price that is equal to the current market price of the underlying stock.

Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.

One of a variety of strategies involving two or more options (or options combined with a position in the underlying stock) that can potentially profit from a fall in the price of the underlying stock.

A market distinguished by declining prices.

The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price. Example: writing 1 XYZ May 60 call, and buying 1 XYZ May 65 call.

The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price. Example: buying 1 XYZ May 60 put, and writing 1 XYZ May 55 put.

An adjective describing the opinion that a stock, or a market in general, will decline in price -- a negative or pessimistic outlook.

Governs how much you make or lose on a spread bet for every point of movement in the price of the market.

A measure of how closely the movement of an individual stock tracks the movement of the entire stock market.

A spread betting price is made up of a level at which you can sell and a level at which you can buy. The level at which you can sell is always the lower of the two prices and is called the bid.

The price at which a buyer is willing to buy an option or a stock.

A special form of spread trade with only two outcomes at expiry – if a specific result is achieved (for example, the FTSE to finish up at the end of the trading day) the trade is closed at a level of 100. If the result is not achieved, the trade closes at 0. Binary trades therefore have something in common with a traditional fixed-odds trade, except that we make a continuous price for the binary, between 0 and 100, allowing you to close your trade out before the final settlement to cut your losses or take your profit early.

The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Essentially an IOU issued by a borrower to a lender. Bonds are usually fixed-interest securities issued by governments, but can come in a variety of different forms. With a fixed-interest bond, the borrower normally makes interest payments on specified dates, often twice-yearly.

A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call; simultaneously buying 1 XYZ May 65 put, and writing 1 May 60 put.

The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.

A person acting as an agent for making securities transactions. An 'Account Executive' or a 'broker' at a brokerage firm deals directly with customers. A 'Floor Broker' on the trading floor of an exchange actually executes someone else's trading orders.

Buy, sell, or hold recommendations or ratings given to individual company stocks by securities analysts, depending on how they think the stock will perform in the short- or long-term.

One of a variety of strategies involving two or more options (or options combined with an underlying stock position) that may potentially profit from a rise in the price of the underlying stock.

The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call.

The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. Example: writing 1 XYZ May 60 put, and buying 1 XYZ May 55 put.

An adjective describing the opinion that a stock, or the market in general, will rise in price -- a positive or optimistic outlook.

A unique limited risk bet that stays 'alive' even when your safety level is breached, giving you the chance to bounce back into profit. Our built-in 'Floors' and 'Ceilings' ensure that the price will not exceed the stated level, however far the underlying market may move.

A strategy involving three strike prices that has both limited risk and limited profit potential. A long call butterfly is established by: buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. A long put butterfly is established by: buying one put at the highest strike price, writing two puts at the middle strike price, and buying one put at the lowest strike price. For example, a long call butterfly might be: buying 1 XYZ May 55 call, writing 2 XYZ May 60 calls and buying 1 XYZ May 65 call.

You ‘buy’ a market if you think it will rise (if you are opening a new bet). You also ‘buy’ to close out an existing ‘sell’ bet.

A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a combined order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. See also Covered call / covered call writing.

Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted between the London and New York exchanges via the transatlantic telegraph cable beginning in the mid 1800s.

An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Horizontal spread.

An option contract that gives the owner the right to buy the underlying security at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying stock if the option is assigned.

The interest expense on money borrowed to finance a securities position.

An investor sells a certain currency with a low interest rate and uses the funds to purchase a different currency at a higher interest rate, thus capturing the difference – or profit – between the two rates.

The price of an asset for immediate delivery. In other words, the actual price of an instrument right now; this term is often used for stock indices, whereas the synonymous term of spot is more often applied to forex and commodity prices. See also Spot Rate.

The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised. See also Exercise settlement amount.

The Chicago Board Options Exchange.

Chicago Board of Trade

A government or quasi-governmental organization that manages a country's monetary policy. For example, the US Central Bank is the Federal Reserve, and the German Central Bank is the Bundesbank.

Visual representations of raw data. Investors can learn to spot recurring patterns in financial charts to help them make informed decisions on a market or a company.

A term referring to all options of the same type -- either calls or puts -- covering the same underlying stock.

A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

The process of ending an existing trade. Closing a trade results in a profit or loss being realized.

The final price of a security at which a transaction was made. See also Settlement Price.

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence.

Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.

A trading position involving out-of-the-money puts and calls on a one-to-one basis. The puts and calls have different strike prices, but the same expiration and underlying stock. A long combination is when both options are owned, and a short combination is when both options are written. Example: a long combination might be buying 1 XYZ May 60 call, and buying 1 XYZ May 55 put.

Commodity Exchange Inc, New York

A basic good used in commerce which is usually uniform across producers and can be traded on an exchange. Soft commodities are goods that are grown, such as coffee and sugar, while hard commodities are extracted through mining, such as gold and coal.

A strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a 'flat-top butterfly.

An order to execute a transaction in one security that depends on the price of another security. An example might be: 'Sell the XYZ May 60 call at 2, contingent upon XYZ stock being at or below $59 1/2.

The amount of the underlying asset covered by the option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend, or otherwise special by the listing exchange.

A trade which has a strictly limited maximum loss by virtue of a Guaranteed Stop.

An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly riskless profit. For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call, and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called 'conversion arbitrage.' See also Reversal / reverse conversion.

To close out an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing short position for either a profit or loss.

An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite.

An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite.

A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and writing 1 XYZ May 55 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also Uncovered call option writing and Uncovered put option writing.

Cash secured put is an option stategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned).

An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.

A spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.

The unrefined state of petroleum, Crude Oil is one of the world’s most important and well-traded markets. WTI or West Texas Intermediate is a type of low sulphur crude oil or sweet crude, used as an oil benchmark or marker.

Coffee, Sugar and Cocoa Exchange

The two currencies that comprise a Forex rate. A Forex rate is the amount that the first currency in the pair is worth expressed in terms of the second currency.

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta.

The expiration dates applicable to the different series of options. Traditionally, there were three cycles:

Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April, and July. After the January expiration, the months outstanding will be February, March, April and July.

A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.

A position (stock or option) that is opened and closed on the same day.

Difference between the two ends of our quoted price. You make an Up Trade ('buy') at the higher end of the spread and make a Down Trade ('sell') at the lower end of the spread.

Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.

A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.

A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.

The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock.

A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.

The funds required as an initial outlay for a bet. It is not the total amount that can be lost on the trade.

A fall in the value of an asset.

A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.

A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. Example: buying 1 May 60 call and writing 1 March 65 call.

An adjective used to describe an option that is trading at a price less than its intrinsic value (i.e., trading below parity).

Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order.

The part of a company's profits distributed to shareholders, usually on a regular basis. An interim dividend is paid at the half-year stage and a final dividend at the end of the full year.

A trade backing a particular price to fall.

A price trend characterized by a series of lower highs and lower lows.

A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.

A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

In a margin account, this is the difference between the securities owned and the margin loans owed. It is the amount the investor would keep after all positions have been closed and all margin loans paid off.

An option on shares of an individual common stock or exchange traded fund.

A strategy which has the same risk-reward profile as another strategy. For example, a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread. See also Synthetic position.

European Exchange, Frankfurt

The Central Bank for the new European Monetary Union.

An option that can be exercised only during a specified period of time just prior to its expiration. See also American Style Option

The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the 'ex-date,' and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming 'ex-date' as part of their stock tables.

A share bought without the right to receive the next dividend which is retained by the seller.

Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded in a similar fashion as a single equity. The first ETF came about in 1993 with the AMEX's concept of a tradable basket of stocks -- the Standard & Poor's Depositary Receipt (SPDR). Today, the number of ETFs that trade options continues to grow and diversify. Investors can buy or sell shares in the collective performance of an entire stock portfolio - or a bond portfolio -- as a single security. Exchange traded funds allow some of the more favorable features of stock trading, such as liquidity and ease of equity style features to more traditional index investing.

To invoke the rights granted to the owner of an option contract. In the case of a call, the option owner buys the underlying stock. In the case of a put, the option owner sells the underlying stock.

A procedure used by The Options Clearing Corporation as an operational convenience for it's clearing members. Under these proceedings, a clearing member is deeming to have tendered exercise notices for options that are in-the-money by threshold amounts, unless specifically instructed not to do so. This procedure protects the owner from losing the intrinsic value of the option because of failure to exercise. Unless instructed not to do so, all expiring equity options that are held in customer accounts will be exercised if they are in the money by a specified amount.

The price at which the owner of an option can purchase (Call) or sell (Put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.

The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised.

The date and time at which a bet will automatically close against some predefined market value should the bet remain open beyond its last dealing time.

The expiration dates applicable to the different series of options. Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April, and July. After the January expiration, the months outstanding will be February, March, April and July.

The date on which an option and the right to exercise it cease to exist.

The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

The month during which the expiration date occurs.

The Central Banking system for the United States.

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation.

The execution of an order.

A type of option order which requires that the order be executed completely or not at all. A fill-or-kill order is similar to an all-or-none (AON) order. The difference is that if the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be 'killed' (i.e., cancelled) immediately. Unlike an AON order, a FOK order cannot be used as part of a GTC order.

The Financial Industry Regulatory Authority (FINRA), is the largest independent regulator for all securities firms doing business in the United States.

Betting on the price movement of a financial instrument, such as shares, currencies and indices. Two prices are quoted – the bid and offer price – the difference between which is the spread. The bet is on whether the future price of the instrument will be higher than the offer price or lower than the bid price.

Financial Instrument Exchange, New York

The use of government spending and taxation to influence macroeconomic conditions.

When an investment yields a regular or fixed return.

A trader on an exchange floor who executes trading orders for other people.

An exchange member on the trading floor who buys and sells for his or her own account.

The simultaneous buying of one currency and selling of another.

The FTSE 100, 250 and 350 are the best-known stock indices in the UK and are used primarily to bench mark the performance of UK companies by market capitalization. The constituent companies within each index are calculated quarterly. Informally known as the ‘Footsie’, the indices are maintained by FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange.

A method of predicting stock prices based on the study of earnings, sales, dividends, and so on.

Can be the analysis of companies or the economy. With the former such factors taken into account are sales, earnings, products or services, markets and management. With the latter fundamental research considers such things like GDP, interest rates and unemployment. In financial trading, this differs from technical research, which uses past prices and trading to predict future prices.

Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.

A future or forwards rate is notionally an agreement to conduct a transaction at some specified time in the future where the price is agreed now. For a spread bet it means that the expiry date is at some point in the future (cf. daily bets). Often the price of a future or forwards bet will differ from the cash price.

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta

The phenomenon of a market trading at a price away from the previous traded price without trades occurring at intervening prices: more usually, but not necessarily, relates to when a market resumes trading after a period of closure.

One of the measures of national income and output for a country's economy; the total value of all final goods and services produced by the economy.

The relationship between potential profit or loss and the initial outlay. A position with high gearing or leverage stands to make or lose a large amount from a small initial outlay. With IG Index, the initial outlay is normally the deposit for the bet.

A type of limit order that remains in effect until it is either executed (filled) or cancelled, as opposed to a day order, which expires if not executed by the end of the trading day. A GTC option order is an order which if not executed will be automatically cancelled at the option's expiration.

A Stop-loss order that puts an absolute limit on your liability, eliminating the chance of slippage and guaranteeing an exit price for your trade.

A position established with the specific intent of protecting an existing position. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline.

A measure of actual stock price changes over a specific period of time. See also Standard deviation

Hong Kong Futures Exchange

Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.

An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Calendar spread.

In an illiquid market, a small amount of business often moves prices by a disproportionate amount, and bid and offer prices can be far apart.

A type of option order which gives the trading crowd one opportunity to take the other side of the trade. After being announced, the order will be either partially or totally filled with any remaining balance immediately cancelled. An IOC order, which can be considered a type of day order, cannot be used as part of a GTC order since it will be cancelled shortly after being entered. The difference between fill-or-kill (FOK) orders and IOC orders is that a IOC order may be partially executed.

The volatility percentage that produces the 'best fit' for all underlying option prices on that underlying stock. See also Individual volatility.

An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

A compilation of several stock prices into a single number. Example: The S&P 100 Index.

An option whose underlying interest is an index. Generally, index options are cash-settled.

The volatility percentage that justifies an option's price, as opposed to historic or implied volatility. A theoretical option pricing model can be used to generate an option's individual volatility when the five remaining quantifiable factors (stock price, time until expiration, strike price, interest rates, and cash dividends) are entered along with the price of the option itself.

A professional investment management company. Typically, this term is used to describe large money managers such as banks, pension funds, mutual funds, and insurance companies.

Foreign Exchange rates at which large international banks quote other large international banks.

Interest rate futures allow you to take a view on all the main interest rate contracts, including Short Sterling, Gilt, Bund, Eurodollar, JGB and T-Bond. With short-term interest rate contracts, you can bet on the direction of a country's three-month interest rates. This means that if you think short-term interest rates will fall, you 'buy'. You ‘sell’ if you think rates will rise.

The in-the-money portion of an option's price. See also In The Money Option.

International Petroleum Exchange, London

An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination. An iron butterfly contains four options as is an equivalent strategy to a regular butterfly spread which contains only three options. For example, a short iron butterfly might be: buying 1 XYZ May 60 call and 1 May 60 put, and writing 1 XYZ May 65 call and writing 1 XYZ May 55 put.

International Securities Exchange.

A measure of the rate of change in an option's theoretical value for a one-unit change in the volatility assumption.

Least-squares AMBiguity Decorrelation Adjustment.

The last time (on the last dealing day) you may bet on a particular market.

The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

A term describing one side of a position with two or more sides. When a trader legs into a spread, he/she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position.

A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.

London International Financial Futures Exchange

A trading order placed with a broker to buy or sell stock or options at a specific price.

An instruction to deal if the price moves to a more favorable level (eg to 'buy' if the price goes down to a specified level).

A trade which has a strictly limited maximum loss.

A trading environment characterized by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.

A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.

London Metal Exchange

The position of an option purchaser (owner) which represents the right to either buy stock (in the case of a call) or to sell stock (in the case of a put) at a specified price (the strike price) at or before some date in the future (the expiration date). It results from an opening purchase transaction -- e.g., long call or long put.

A position in which an investor has purchased and owns stock.

In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2008, LEAPS are available with expirations of January 2010 and January 2011.

London Stock Exchange

The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a security from a brokerage firm.

An accounting process by which the price of securities held in an account are valued each day to reflect the closing price, or market quote if the last sale is outside of the market quote. The result of this process is that the equity in an account is updated daily to properly reflect current security prices.

An exchange member on the trading floor who buys and sells options for his or her own account and who has the responsibility of making bids and offers and maintaining a fair and orderly market. See also Specialist / specialist group / specialist system

A method of supplying liquidity in options markets by having market makers in competition with one another. An alternative to a specialist system. They are similarly charged with making fair and orderly markets in a given class of options.

A type of market order which allows the investor to give discretion to the floor broker regarding the price and/or time at which a trade is executed.

A type of option order which requires that an order be executed at or near the close of trading on the day the order is entered. A MOC order, which can be considered a type of day order, cannot be used as part of a GTC order.

A trading order placed with a broker to immediately buy or sell a stock or option at the best available price.

A quotation of the current best bid / ask prices for an option or stock in the marketplace (an exchange trading floor). This information is usually obtained by the investor from someone at a brokerage firm. However, for listed options and stocks, these quotes are widely disseminated and available through various commercial quotation services.

The simultaneous purchase of stock and put options representing an equivalent number of shares. This is a limited risk strategy during the life of the puts because the stock can always be sold for at least the strike price of the purchased puts.

A mathematical formula used to calculate the theoretical value of an option. See also Black-Scholes formula.

The procedures by which a government or central bank seeks to affect macroeconomic conditions by influencing the supply and availability of money.

Milan Stock Exchange

Any option contract that is listed and traded on more than one national options exchange. See also Fungibility.

A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put position is uncovered if the writer is not short stock or long another put.

Boston Options Exchange Group L.L.C.

Philadelphia Stock Exchange.

Dissemination of quotations from the NASD and / or members thereof for the options market.

Dissemination of quotations from the NASD and / or members thereof.

An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.

An option strategy (or stock and option position) expected to benefit from a neutral market outcome.

A conservative option strategy in which an investor buys Treasury bills (or other liquid assets) with 90 percent of his or her funds, and buys call options (or put options or a mixture of both) with the balance. The proportions of this strategy are subject to change based on prevailing interest rates.

Any option that does not have common stock as the underlying asset. Non-equity options include options on futures, indexes, foreign currencies, Treasury security yields, etc.

A type of order which releases normal obligations implied by the other terms of the order. For example, a limit order designated as 'not-held' allows discretion to the floor trader in filling the order when the market trades at the limit price of the order. In this case, there is no obligation to provide the customer with an execution if the market trades through the limit price on the order. See also Discretion and Market-not-held order.

New York Cotton Exchange

New York Mercantile Exchange

New York Stock Exchange.

American Stock Exchange.

In the options business this means the same as ask / ask price, or the price at which a seller is offering to sell an option or a stock.

London Securities and Derivatives Exchange

A type of option order which treats two or more option orders as a package, whereby the execution of any one of the orders causes all the orders to be reduced by the same amount. For example, the investor would enter an OCO order if he/she wished to buy 10 May 60 calls or 10 June 60 calls or any combination of the two which when summed equaled 10 contracts. An OCO order may be either a day order or a GTC order.

The total number of outstanding option contracts on a given series or for a given underlying stock.

The trading method by which competing market makers and Floor Brokers representing public orders make bids and offers on the trading floor.

An addition to, or creation of, a trading position. An opening purchase transaction adds long options to an investor's total position, and an opening sale transaction adds short options. An opening option transaction increases that option's open interest.

A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration) . The contract also obligates the writer to meet the terms of delivery if the contract right is exercised by the owner.

The time from when an option contract is created by a writer of that option to the expiration date; sometimes referred to as an option's lifetime.

A graphical representation of the estimated theoretical value of an option at one point in time, at various prices of the underlying stock.

The first widely-used model for option pricing is the Black Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

The seller of an option contract who is obligated to meet the terms of delivery if the option owner exercises his or her right. This seller has made an opening sale transaction, and has not yet closed that position.

A stock on which listed options are traded.

A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.

An instruction to open a new bet should a specified price be reached.

Osaka Securities Exchange

An over-the-counter option is one which is traded in the over-the-counter market. OTC options are not listed on an options exchange and do not have standardized terms. These are to be distinguished from exchange-listed and traded equity options with NASD stocks as the underlying equity issue, which are standardized. See also Fungibility.

An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value.

An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value.

A national association having many characteristics of an exchange. Rather than a floor or physically central market place, trading takes place via computer terminals.

An option strategy involving the writing of call options (wholly or partially) against existing long stock positions. This is different from the buy-write strategy which involves the simultaneous purchase of stock and writing of a call. See also Ratio write.

Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.

A term used to describe an option contract's total premium when that premium is the same amount as its intrinsic value. For example, when an option's theoretical value is equal to its intrinsic value, it is said to be 'worth parity.' When an option is trading for only its intrinsic value, it is said to be 'trading for parity.' Parity may be measured against the stock's last sale, bid, or offer.

A chart of the profits and losses for a particular options strategy prepared in advance of the execution of the strategy. The diagram is plot of expected profit or loss against the price of the underlying security.

NYSE Arca

An option whose underlying entity is a physical good or commodity, like a common stock or a foreign currency. When that option is exercised by its owner, there is delivery of that physical good or commodity from one brokerage or trading account to another.

The risk to an investor (option writer) that the stock price will exactly equal the strike price of a written option at expiration; i.e., that option will be exactly at the money. The investor will not know how many of his/her written (short) options he/she will be assigned. The risk is that on the following Monday he/she might have an unexpected long (in the case of a written put) or short (in the case of a written call) stock position, and thus be subject to the risk of an adverse price move.

A ‘Percentage In Point’ is generally, though not always, the fourth decimal place, i.e. 0.0001. Traditionally, a pip was the smallest point by which a Forex rate could move; with modern advances in precision this is no longer the case, though.

The increment in price movement that results in you making or losing your trade size.

The combined total of an investor's open option contracts (calls and / or puts) and long or short stock.

An investing strategy in which open positions are held for an extended period of time.

   1. Total price of an option: intrinsic value plus time value.
   2. Often (erroneously) this word is used to mean the same as time value.

For securities that are traded in more than one market, the primary market is usually the exchange where trading volume in that security is highest.

A graphical presentation of the profit and loss possibilities of an investment strategy at one point in time (usually option expiration), at various stock prices.

An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.

A type of future with periodic expiries spaced three months apart. Prices are normally quoted for the next two or three quarter months.

The two-way market price that a broker makes for a given instrument; because it is two-way, you can buy or sell, according to whether you think the price will rise or fall.

A term most commonly used to describe the purchase of an option(s), call or put, and the writing of a greater number of the same type of options that are out-of-the-money with respect to those purchased. All options involved have the same expiration date. For example, buying 5 XYZ May 60 calls and writing 6 XYZ May 65 calls. See also Ratio write.

An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis; i.e., more calls written than the equivalent number of shares purchased. For example, buying 500 shares of XYZ stock, and writing 6 XYZ May 60 calls. See also Ratio spread.

The net amount received or paid when a closing transaction is made and matched together with an opening transaction.

A term used in technical analysis to describe a price area at which rising prices are expected to stop or meet increased selling activity. This analysis is based on historic price behavior of the stock.

An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a nearly riskless profit. For example, selling short 100 shares of XYZ stock, buying 1 XYZ May 60 call, and writing 1 XYZ May 60 put at favorable prices. The process of executing these three-sided trades is sometimes called 'reversal arbitrage. See also Conversion.

A measure of the expected change in an option's theoretical value for a 1 percent change in interest rates.

Exposure to uncertain change, most often used with a negative connotation of adverse change.

If you are new to spread betting it is possible to make substantial losses as well as substantial profits. With IG Index, you can manage your risks via controlled risk trades, making it possible to put an absolute limit on potential losses. We also offer non-guaranteed Stops and Limit Orders to open and close betting positions.

A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both. Variations of this include rolling up, rolling down, rolling out and diagonal rolling.

The procedure whereby a trade approaching expiry is closed and a trade of the same size and direction is opened for the next period, thereby prolonging the exposure to a particular market.

How your open trades are doing: the unrealized money that you would gain or lose on your open trades if they were closed at prevailing market prices.

South African Futures Exchange

The Securities and Exchange Commission. The SEC is an agency of the federal government which is in charge of monitoring and regulating the securities industry.

A market where securities are bought and sold after their initial purchase by public investors.

The name for a group of securities or companies in the same market or industry.

An index that measure the performance of a narrow market segment, such as biotechnology or small capitalization stocks.

An option strategy in which a put option is written against a sufficient amount of cash (or T-bills) to pay for the stock purchase if the short option is assigned.

You 'sell' a market if you think it will fall (if you are opening a new trade). You also 'sell' to close out an existing 'buy' trade.

Option contracts on the same class having the same strike price and expiration month. For example, all XYZ May 60 calls constitute a series.

The process by which the underlying stock is transferred from one brokerage account to another when equity option contracts are exercised by their owners and the inherent obligations assigned to option writers.

The official price at the end of a trading session. This price is established by The Options Clearing Corporation and is used to determine changes in account equity, margin requirements and for other purposes. See also Mark To Market.

Sydney Futures Exchange

Singapore Exchange

A unit of ownership, usually in a corporation, that entitles the owner to a share of profits in the form of a dividend.

The position of an option writer which represents an obligation on the part of the option's writer to meet the terms of the option if it is exercised by its owner. The writer can terminate this obligation by buying back (cover or close) the position with a closing purchase transaction.

A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker-dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and returning it to the lending broker-dealer.

The difference between the level of a Stop order and the actual price at which it was executed. Can occur during periods of higher volatility when market prices move rapidly or gap.

Swiss Options and Financial Futures Exchange

One or more exchange members whose function is to maintain a fair and orderly market in a given stock or a given class of options. This is accomplished by managing the limit order book and making bids and offers for his/her/their own account in the absence of opposite market side orders. See also Market-maker and Market-maker system, (competing).

A stock dividend issued by one company in shares of another corporate entity, such as a subsidiary corporation of the company issuing the dividend.

The price for a currency, index, commodity or share for immediate settlement or delivery.

A bet on the outcome of an event. The ‘spread’ is a range of outcomes, and the ‘bet’ is on whether the outcome of the event will be above or below the spread. The pay out is based on the accuracy of the bet.

A position consisting of two parts, each of which alone would profit from opposite directional price moves. As orders, these opposite parts are entered and executed simultaneously in the hope of (1) limiting risk, or (2) benefiting from a change of price relationship between the two parts.

A statistical measure of price fluctuation. One use of the standard deviation is to measure how stock price movements are distributed about the mean. See also Volatility.

Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.

A dividend paid in shares of stock rather than cash. See also Spin-off.

A compilation of a number of stocks into one total price, expressed against some base value from a specific date, thus allowing investors to easily follow the performance of certain groups of stocks.

An increase in the number of outstanding shares by a corporation, through the issuance of a set number of shares to a shareholder for a set number of shares that the shareholder already owns. For example, a corporation might declare a '2-for-1 stock split.' This means that for every share of stock an investor owns, he/she will be given another, thus owning 2 shares instead of 1. There will be a corresponding reduction in equity value per share. In this case, the new shares (post-split) will be worth one-half their previous value but the investor will own twice as many shares. See also Stock dividend.

A type of contingency order placed with a broker that becomes a limit order when the stock trades, or is bid or offered, at or through a specific price.

A type of contingency order, often erroneously known as a 'stop-loss' order, placed with a broker that becomes a market order when the stock trades, or is bid or offered, at or through a specified price. See also Stop-limit order.

A trading position involving puts and calls on a one-to-one basis in which the puts and calls have the same strike price, expiration, and underlying stock. A long straddle is when both options are owned and a short straddle is when both options are written. Example: a long straddle might be buying 1 XYZ May 60 call, and buying 1 XYZ May 60 put.

The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.

The normal price differential between option strike prices. Equity options generally have $2.50 strike price intervals (if the underlying stock price is below $25), $5.00 intervals (from $25 to $200), and $10 intervals (above $200). LEAPS generally start with one at-the-money, one in-the-money, and one out-of-the-money strike price. The latter two are usually set 20%-25% away from the former.

A requirement that any investing strategy fall within the financial means and investment objectives of an investor or trader.

A term used in technical analysis to describe a price area at which falling prices are expected to stop or meet increased buying activity. This analysis is based on previous price behavior of the stock.

A long stock position combined with a long put of the same series as that call.

A short stock position combined with a long call of the same series as that put.

A long call position combined with a short put of the same series.

A strategy involving two or more instruments that has the same risk-reward profile as a strategy involving only one instrument.

A short stock position combined with a short put of the same series as that call.

A long stock position combined with a short call of the same series as that put.

A short call position combined with a long put of the same series.

A method of predicting future stock price movements based on the study of historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume.

The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

The estimated value of an option derived from a mathematical model. See also Model and Black Scholes formula.

A measure of the rate of change in an option's theoretical value for a one-unit change in time to the option's expiration date. See also Time decay.

The smallest unit price change allowed in trading a security. For listed stock, this is generally 1/8th of a point. For a listed option under $3 in price, this is generally 1/16th of a point. For a listed option over $3, this is generally 1/8th of a point.

A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.

An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread.

The part of an option's total price that exceeds its intrinsic value. The price of an out-of-the-money option consists entirely of time value.

   1. Any investor who makes frequent purchases and sales.
   2. A member of an exchange who conducts his or her buying and selling on the trading floor of the exchange.

A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.

All of the charges associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and/or assignment, exchange fees, SEC fees, and margin interest. In academic studies, the spread between bid and ask is taken into account as a transaction cost.

Tokyo Stock Exchange

The classification of an option contract as either a put or a call.

A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.

The security subject to being purchased or sold upon exercise of the option contract.

A measure of the rate of change in an option's theoretical value for a one-unit change in the volatility assumption. See also Kappa and Delta

Most commonly used to describe the purchase of one option and writing of another where both are of the same type and of same expiration month, but have different strike prices. Example: buying 1 XYZ May 60 call and writing 1 XYZ May 65 call. See also Bull (or bullish) spread and Bear (or bearish) spread.

A measure of stock price fluctuation. Mathematically, volatility is the annualized standard deviation of a stock's daily price changes. See also Historic volatility and Individual volatility and Implied volatility.