Trader Jargon Flashcards
Stock Option
A contract that grants the right (but not the obligation) to buy or sell 100 shares of a stock at a strike price
Call Contract
Options contract to buy an underlying asset like a stock, future, or index
Holders
buyers of an option
Long
you are “long” if you own an option
Writers
Sellers of an option
Short
you are “short” if you sell an option
Buy Call
the buyer obtains the right (but not obligation) to purchase the underlying stock or index at the strike price
Sell Call
the seller assumes the obligation to supply the underlying asset if (or when) the call contract buyer “exercises” their right
Put Contract
A contract governing the SALE of a stock, index, or other underlying asset.
Buy Put
Buyer obtains the right (but not the obligation) to sell the underlying stock or index at a set strike price
Complete this true statement:
The SELLER of a Put Contract…
… assumes the obligation to purchase an underlying asset IF AND WHEN the put contract is exercised by the buyer.
Premium
the price of the contract
Strike Price
The cost per share at which the holder of an option may buy or sell the underlying security
Breakeven Price
(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
Exercise
When the owner of an option exercises their rights granted by the contract
Assignment
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
Multiplier
The number of shares an option contract represents, usually 100 shares
“Bearish”
A downward move (or speculation) of an underlying (or market at large)
“Bullish”
An upward move (or speculation) from an underlying (or market at large)
“In the Money” (ITM)
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”
“Out of the Money” (OTM) Contract
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
“At the Money” (ATM)
An option whose strike price = the current stock price
Underlying
Another name for a stock, shares, index, future, or any other asset in context
Delta
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
Intrinsic Value
the “real” value of an option, or the amount an option is in the money
Extrinsic Value
the “time” value of an option, based on the implied volatility and the expiration of the option
Implied Volatility
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
Historical Volatility
a standard deviation of a stock or index’s percent change from one period of time to the next
Swing Trading
placing trades that you hold for longer than 24 hours
Day Trading
buying and selling trades in an under 24-hour time period
Vertical Spreads
paying premium to buy one option, and at the same time collecting a premium by selling another option (combining a long with a short)
