Trader Jargon

Question 1

Stock Option

Answer 1

A contract that grants the right (but not the obligation) to buy or sell 100 shares of a stock at a strike price

Question 2

Call Contract

Answer 2

Options contract to buy an underlying asset like a stock, future, or index

Question 3

Holders

Answer 3

buyers of an option

Question 4

Long

Answer 4

you are “long” if you own an option

Question 5

Writers

Answer 5

Sellers of an option

Question 6

Short

Answer 6

you are “short” if you sell an option

Question 7

Buy Call

Answer 7

the buyer obtains the right (but not obligation) to purchase the underlying stock or index at the strike price

Question 8

Sell Call

Answer 8

the seller assumes the obligation to supply the underlying asset if (or when) the call contract buyer “exercises” their right

Question 9

Put Contract

Answer 9

A contract governing the SALE of a stock, index, or other underlying asset.

Question 10

Buy Put

Answer 10

Buyer obtains the right (but not the obligation) to sell the underlying stock or index at a set strike price

Question 11

Complete this true statement:

The SELLER of a Put Contract…

Answer 11

… assumes the obligation to purchase an underlying asset IF AND WHEN the put contract is exercised by the buyer.

Question 12

Premium

Answer 12

the price of the contract

Question 13

Strike Price

Answer 13

The cost per share at which the holder of an option may buy or sell the underlying security

Question 14

Breakeven Price

Answer 14

(Strike Price) + (Premium * 100)
On a Long Call, the stock has to be worth > breakeven price in order to profit
On a Long Put, stock has to be worth < breakeven price in order to profit

Question 15

Exercise

Answer 15

When the owner of an option exercises their rights granted by the contract

Question 16

Assignment

Answer 16

When a trader is forced to buy or sell the underlying because the call or put contract was exercised. This trader is forced to buy or sell this underlying under the terms of the exercised contract

Question 17

Multiplier

Answer 17

The number of shares an option contract represents, usually 100 shares

Question 18

“Bearish”

Answer 18

A downward move (or speculation) of an underlying (or market at large)

Question 19

“Bullish”

Answer 19

An upward move (or speculation) from an underlying (or market at large)

Question 20

“In the Money” (ITM)

Answer 20

a call with a strike price higher than the current stock price,
or a put with a strike price lower than the current stock price
are considered “ITM”

Question 21

“Out of the Money” (OTM) Contract

Answer 21

a call with a strike price higher than the current stock price,
or a put with a strike price lower than the current stock
is considered an “OTM” contract

Question 22

“At the Money” (ATM)

Answer 22

An option whose strike price = the current stock price

Question 23

Underlying

Answer 23

Another name for a stock, shares, index, future, or any other asset in context

Question 24

Delta

Answer 24

a Greek metric that tells you how much the premium will move (+/-) for every $1(+/-) the underlying asset moves by.
It can tell you, in theory, the statistical probability of the option calling ITM, OTM, or ATM

Question 25

Intrinsic Value

Answer 25

the “real” value of an option, or the amount an option is in the money

Question 26

Extrinsic Value

Answer 26

the “time” value of an option, based on the implied volatility and the expiration of the option

Question 27

Implied Volatility

Answer 27

the markets perception of the future volatility of an underlying security. Only options have this (not stocks or futures) and this directly affects the options premium price

Question 28

Historical Volatility

Answer 28

a standard deviation of a stock or index’s percent change from one period of time to the next

Question 29

Swing Trading

Answer 29

placing trades that you hold for longer than 24 hours

Question 30

Day Trading

Answer 30

buying and selling trades in an under 24-hour time period

Question 31

Vertical Spreads

Answer 31

paying premium to buy one option, and at the same time collecting a premium by selling another option (combining a long with a short)