Glossary Flashcards
Ask Price
This is the current asking price in which a security or option on a security. If you one wants to enter a trade immediately it’s best to use the ask price.
At The Money
This refers to the strike price of an option where it is equal to the current prices of the underlying stock price. As an example, the stock is trading at $75, and you buy an option that has a strike price of $75.
Bearish
This term refers to our overall market and/or individual underlying stock sentiment when we feel the market is heading or trending down.
Bid Price
This is the current price in which we can sell an underlying security or option. When exiting a trade, you’ll typically place a market order, which allows you to get out of the trade quickly at or near the bid price.
Bullish
This term refers to our overall market and/or individual underlying stock sentiment when we feel the market is heading or trending up.
Call
This is an option contract that will give us the right and NOT the obligation to buy a specified number of shares at a specified price (1 contract = 100 shares) on or before a specified date (expiration date).
Channel
This is a term that we use when it comes to our technical analysis to describe an area in which the stock fluctuates. This is done between clear resistance and support over time. The longer something is in a channel, the stronger the breakout of the channel (up or down) typically is.
Daily Price Bar
This term is used to refer to the daily price, and it’s corresponding representation on the chart. It contains the opening price, intraday low, intraday high and the closing price.
Expiration
Every option contract that we purchase has a certain expiration date. If an option contract expires, it will expire worthless. Remember as part of our trading rules this should never happen as we will always exit our position at least 30 days before option expiration.
In The Money
This refers to call options in which the strike price where the price is currently less than the underlying stock. For example, if the stock is trading at $80 and we buy an options contract with a strike price of $75 this would represent our option being $5 In-The-Money.
Intrinsic Value
We use intrinsic value when talking about our options contract. It pertains to the amount of money that a call option is In-The-Money. For example, if the stock is trading at $80 and we buy an options contract with a strike price of $75 this would represent our option being $5 In-The-Money. That means it has $5 of intrinsic value.
Long
This is a term that we use when we are expecting a stock or call option to go up in value.
MACD
This is an indicator that we use on our technical analysis charts to help determine the story a chart is telling us. It stands for Moving Average Convergence Divergence and you can watch this video to learn more about the MACD itself.
Moving Average
This is an indicator designed to help us determine the market and individual underlying stock market strength or weakness. The calculation works by adding the prices for a certain number of days (we use 7 and 30) and dividing that by the total number of days used.
Option
Simply put an option is a contract that gives us the right but not the obligation to buy or sell a particular security at a specified price on or before a certain date specified.
Options Chain
This refers to the section in which we can view all the details related to an underlying stock’s available options, bid and ask prices, open interest, volume, etc.
Out of The Money
This term is used to refer to a call option where the strike priced is higher than the current price of the underlying stock. For example, the stock price is $50, and you purchase an options contract that has a $52.5 strike price. This would be out of the money by $2.5.
If you are using a put option (wanting the stock to go down), an Out-of-the-Money option is going to be one in which the strike prices are below the current market price of an underlying stock.
Put
Stated simply a put is an option contract where we have the right, but not the obligation to SELL a specified number of shares of a specific security and a predetermined price on or before a certain date specified in advance.
Resistance
This can be defined by an area in where an underlying stock tends to struggle to surpass. This is due to selling, however, if a stock does overtake resistance that resistance will now become support for the underlying stock.
Reverse Trouble Tom
Rather than type out a lengthy explanation that may be challenging to understand I’ve created a full video walkthrough including examples of good and bad reverse troubled tom’s (RTT) in the FAQ section.
Roller
Also, know as a rolling stock is used to define an underlying stock that tends to fluctuate in price through certain levels over the course of time. One can imagine it looking a bit like a roller coaster track full of ups and downs.
Short
This can be defined and referred to when someone is aiming for the underlying security to decrease in value.
Spread
For our purposes, this will refer to the difference in prices between the Bid and the Ask prices. We aim to keep this number to 10% or less.
Strike Price
The strike price refers to the price in which an underlying security be executed with should someone exercise their option. A strike price can be In-The-Money, At-the-Money, or Out-of-The-Money.
