Accumulation – When stocks start moving sideways after a significant drop as investors start accumulating.
Adjusted Options – Non-standardized stock options with customized terms in order to price in major changes in the underlying stock’s capital structure.
All-or-None (AON) Order – An order that must be completely filled or else it will not be executed. This is a useful order for option traders executing complex option strategies which needs to be precisely filled.
American-Style Option – An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style.
Arbitrage – The simultaneous purchase and sale of financial instruments in order to benefit from price discrepancies. Option traders frequently look for price discrepancies of the same option contract between different option exchanges, thereby benefiting from a risk free trade.
Ask Price – As used in the phrase ‘bid and asked’ it is the price at which a potential seller is willing to sell. Another way of saying this is the asking price for what someone is selling. You buy option contracts and stocks on their Ask price.
Assign – to designate an option writer for fulfillment of his obligation to sell stock (call option writer) or buy stock (put option writer). The writer receives an assignment notice from the Options Clearing Corporation.
At the Money – When an option’s strike price is the same as the prevailing stock price.
Automatic Exercise – A protection procedure whereby 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.
Auto-trading – A three way agreement to have your options broker automatically execute trade recommended by your options advisory service.
Backspread – A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options and is an advanced options strategy.
Bearish – An opinion that expects a decline in price, either by the general market or by an underlying stock, or both.
Bearish Options Strategies – Different ways to use options in order profit from a downwards move in the underlying stock.
Bear Spread – an option strategy that makes its maximum profit when the underlying stock declines and has its maximum risk if the stock rises in price. The strategy can be implemented with either puts or calls. In either case, an option with a higher striking price is purchased and one with a lower striking price is sold, both options generally having the same expiration date.
Bear Trap – Any technically unconfirmed downward move that encourages investors to be bearish. It usually precedes strong rallies and often catches the unwary.
Beta – A figure that indicates the historical propensity of a stock price to move with the stock market as a whole.
Bid/Ask Spread – The difference between the prevailing bid and ask price. Generally, option contracts that are more liquid tend to have a tighter Bid/Ask Spread while option contracts that are less liquid and are thinly traded tend to have a wider Bid/Ask Spread.
Bid Price – The price at which a potential buyer is willing to buy from you. This means that you sell at the Bid Price.
Binary Options – Options that either pay you a fixed return when it ends up in the money by expiration or nothing at all.
Black-Scholes Model – A mathematical formula designed to price an option as a function of certain variables-generally stock price, striking price, volatility, time to expiration, dividends to be paid, and the current risk-free interest rate.
Break – Even Point-the stock price (or prices) at which a particular strategy neither makes nor loses money. It generally pertains to the result at the expiration date of the options involved in the strategy. A “dynamic” break-even point is one that changes as time passes.
Breadth – The net number of stocks advancing versus those declining. When advances exceed declines the breadth of the market is inclining. When the declines exceed advances the market is declining.
Breakout – What occurs when a stock price or average moves above a previous high resistance level or below a previous low support level. The odds are that the trend will continue.
Bullish – An opinion in which one expects a rise in price, either by the general market or individual security.
Bullish Options Strategies – Using options in order profit from an upwards move in the underlying stock.
Bull Call Spread – A bullish options strategy which aims to reduce the upfront cost of buying call options in order to profit from stocks that are expected to rise moderately
Bull Spread – An option strategy that achieves its maximum potential if the underlying security rises far enough, and has its maximum risk if the security falls far enough. Either puts or calls may be used for the strategy.
Bull Trap – Any technically unconfirmed move to the upside that encourages investors to be bullish. Usually precedes important declines and often fools those who do not wait form confirmation by other indicators.
Butterfly Spread – A neutral option strategy that has both limited risk and limited profit potential, constructed by combining a bull spread and a bear spread. Three strike prices are involved, with the lower two being utilized in the bull spread and the higher two in the bear spread. The strategy can be established with either puts or calls; there are four different ways of combining options to construct the same basic position.
Call Broken Wing Butterfly Spread – To establish an options position by going long.
Call Broken Wing Condor 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 achieved by buying further strike out of the money call options than a regular butterfly spread.
Call Ratio Backspread – 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 achieved by buying further strike out of the money call options than a regular Condor spread.
Call Ratio Spread – A credit options trading strategy with unlimited profit to upside and limited profit to downside through buying more out of the money calls than in the money calls are shorted.
Call Time Spread – Another name for Call Calendar Spread. An Options Trading strategy where long term call options are bought and near term call options are written in order to profit from time decay.
Called Away – The process in which 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.
Calendar Spread – A type of options trading strategy that uses a combination of options with different expiration dates in order to profit primarily from time decay.
Calendar Straddle or Combination – A complex neutral options strategy involving the purchase of a long term straddle and the sale of a short term straddle.
Calendar Strangle – A complex neutral options strategy involving the purchase of a long term strangle and the sale of a short term strangle.
Call Options – Options which gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
Capitalization – The total amount of securities issued by a corporation. This may include: bonds, debentures, preferred stock, common stock and surplus.
Cash Settlement / Cash Delivered – Options which, when exercised, delivers the profit in cash instead of an underlying asset.
CBOE – The Chicago Board Options Exchange; the first national exchange to trade listed stock options.
Chain – A list of options quotes across multiple strike prices.
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. An option trader who writes a call option will execute a closing order by “buying to close” that call option. An option trader who bought a call option will execute a closing order by “selling to close” that call option.
Condor Spread – A neutral option strategy that profits from a stock trading within a predetermined range.
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 Order – An order to buy stock and sell a covered call option that is given as one order to the trading desk of a brokerage firm. Also called a “net order.” This is a “not held” order.
Correction – When a stock drops in price temporarily before rebounding later.
Contract Size – The amount of underlying asset covered by the option contract. This is generally 100. If an option is quoted for $2.50, then one contract would cost $2.50 x 100 = $250 and would cover 100 shares.
Contract Neutral Hedging – A static hedging technique involving buying 1 put option or selling 1 call option for every 1 share held.
Contrary Opinion – The belief opposite that of the general public and/or Wall Street. It is most significant at major market turning points. An overall consensus of opinion, whether bullish or bearish, usually marks an extreme. An investor taking a contrary view will usually benefit in time.
Conversiont – The transformation of 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.
Consolidation – When stocks starts 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 at. Find out more about
Cover – to buy back as a closing transaction an option that was initially written.
Covered Call Write – a strategy in which one writes call options while simultaneously owning an equal number of shares of the underlying stock.
Covered Put Write – a strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security.
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
Covered Warrant – the term used for structured warrants that works almost exactly the same as call options and put options.
Credit – Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.
Credit Spread – A Credit Spread position is an option spread in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.
Day Order – An order that expires at the end of the trading day if it is not executed.
Day trader – Traders who open and close option positions or multiple option positions all within the same trading day. This requires a $25,000 minimum account balance.
Day trading – Trading methodology that involves making multiple trades that are opened and closed all within the same trading day.
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 which you have to pay money to put on.
Decay – Time Decay in Options.
Deliverables – The financial assets that are delivered to the options holders when options are exercised.
Delta – The numerical value by which an option’s price will change for a corresponding change in price of the underlying entity. Call options have positive deltas, while put options have negative deltas. The delta on an option is an instantaneous measure of the option’s price change, and is the best way to measure your outstanding risk on a position. Being Long (+) 100 deltas is the same as being long 100 shares of stock and same thing with being short (-) 100 deltas is the same as being short 100 shares of stock.
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 in part from the value and characteristics of another financial instrument. Examples of derivatives are options, futures and warrants.
Diagonal Spread – An options spread on the same underlying but with a different expiration month and strike.
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.
Discount Broker – A brokerage firm that offers low commission rates.
Dividend – When a company pays a share of the profit to existing shareholders.
Downside Protection – Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option.
Dynamic Hedging – A hedging technique which requires constantly rebalancing in order to maintain the hedge ratio.
Early Exercise (assignment) – The exercise or assignment of an option contract before its expiration date.
Employee Stock Options – Stock options granted to employees by their companies as a mean of compensation and incentive
Equity Option – An option that has common stock as its underlying security
ETF – Exchange Traded Funds. Open ended funds tradable over an exchange just like a stock. ETFs are a great way to get industry or sector exposure such as a basket of financials, gold, or emerging markets.
Exercise – A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option.
Exercise Limit – To manifest the right granted under the terms of a listed options contract. A holder is the only person able to exercise an option. Call holders exercise to buy the underlying security, while put holders exercise the right to sell the underlying security.
Exercise Price – 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.
Expiration Date – The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract.
Expiration Time – The day on which an option contract becomes void. The expiration date for listed stock options is the Saturday after the third Friday of the expiration month. All holders of options must indicate their desire to exercise, if they wish to do so, by this date.
Extrinsic Value – The time of day by which all exercise notices must be received on the expiration date. The expiration time is currently 5:00 PM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30 PM on the business day preceding the expiration date. The times are Eastern Time.
Fair Value – Also known as “Premium Value” or “Time Value”. It is the difference between an option’s price and the intrinsic value.
Fiduciary Call – An option trading stratey which buys call options as a replacement for a protective put or married put in the same proportion
Financial Instrument – A physical or electronic document that has intrinsic monetary value or transfers value. For example, cash, shares, futures, options and precious metals are financial instruments..
Fundamental Analysis – A method of analyzing the prospects of a security by observing accepted accounting measures such as earnings, growth, sales, assets, etc.
Gamma – The rate of change of a stock option’s delta for one unit change in the price of the underlying stock.
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.
Goldilock Economy – An economy that has steady growth and moderate inflation which is neither too heated nor cold and allows for stock market friendly monetary policies
Good Until Canceled (GTC) – A designation applied to some types of orders, meaning that the order remains in effect until it is either filled or cancelled.
Greeks – A set of mathematical criteria involved in the calculation of stock option prices. The Greeks are composed of Delta, Theta, Gamma, Vega, and Rho.
Grocession – A prolonged period of 0 to 2% growth in GDP that will feel like a recession.
Hedge – Transactions that will protect against loss through a compensatory price movement.
Historical Volatility – Volatility of past price movement of the underlying asset.
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 written in order to profit when the underlying stock remains flat.
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 written in order to profit when the underlying stock remains flat.
Horizontal Spread – An option strategy in which the options have the same strike price, but different expiration dates. This is also referred to the more common term: calendar spread.
Implied Volatility – A measure of the volatility of the underlying stock, it is determined by using prices currently existing in the market at the time, rather than using historical data on the price changes of the underlying stock.
Incremental Return Concept – A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position aiming to sell at higher prices.
Index – A compilation of the prices of several common entities into a single number.
Index Option – An option whose underlying asset is an index instead of a hard asset such as stocks. Most index options are cash-based.
In-the-Money – A term describing any option contract that has intrinsic value. A call option is in-the-money if the underlying security is higher than the strike price of the call. A put option is in-the-money if the security is below the strike price.
Intrinsic Value – The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money. For call options, this is the difference between the stock price and the striking price, if that difference is a positive number, or zero otherwise. For put options it is the difference between the striking price and the stock price, if that difference is positive, and zero otherwise.
Last Trading Day – The third Friday of the expiration month. Options cease trading at 3:00 PM Eastern Time on the last trading day.
Leg – (Verb) A risk oriented method of establishing a two-sided position. Rather than entering into a simultaneous transaction to establish the position (a spread, for example), the trader first executes one side of the position, hoping to execute the other side at a later time and a better price. The risk materializes from the fact that a better price may never be available, and a worse price must eventually be accepted. ?(Noun) In an option strategy involving many kinds of options, each option type is known as a leg.
Legging – Entering each leg of a complex options trading position separately and individually.
LEAPS – Long-Term Equity Anticipation Securities. Simply said, it is option contracts that expires 1 year or more in the future. Sometimes option contracts that expires 6 months to a year later are also known as a LEAPS.
Level II Quotes – Real time quotes provided by NASDAQ outlining the specific bid ask spread provided by each market maker.
Leverage – In investments, the attainment of greater percentage profit and risk potential. A call holder has leverage with respect to a stock holder-the former will have greater percentage profits and losses than the latter, for the same movement in the underlying stock.
Limit – See Trading Limit.
Limit Order – An order to buy or sell securities at a specified price (the limit).
Liquid / Liquidity – The ease at which a purchase or sale can be made without disrupting existing market prices.
Listed Option – A put or call option that is traded on a national option exchange. Listed options have fixed striking prices and expiration dates.
Long – To be long is to own something.
Look Back Options – Exotic options which allows the holder to “Look Back” at the price action of the underlying asset during expiration to decide the optimal price at which to exercise the options.
Margin (stocks) – To buy a security by borrowing funds from a brokerage house. The margin requirement-the maximum percentage of the investment that can be loaned by the brokerage firm is set by the Federal Reserve.
Margin (options) – Cash deposit needed to be held in account when writing options.
Marked-To-Model – A valuation method using financial models for level 2 assets, which are less liquid assets that are hard to value due to an absence of a readily available market.
Market Maker – An exchange member whose function is to aid in the making of a market, by making bids and offers for his account in the absence of public buy or sell orders. Several market-makers are normally assigned to a particular security. The market-maker system encompasses the market-makers and the board brokers.
Market Order – An order to buy or sell securities at the current market. The order will be filled as long as there is a market for the security.
Market On Close (MOC) – An option trading order that fills a position at or near market close.
Married Put and Stock – a put and stock are considered to be married if they are bought on the same day, and the position is designated at that time as a hedge
Model – A mathematical formula designed to price an option as a function of certain variables-generally stock price, striking price, volatility, time to expiration, dividends to be paid, and the current risk-free interest rate. The Black Scholes model is one of the most commonly used models.
Moneyness – The strike price of an option in relation to the prevailing price of the underlying asset.
Multiple Compression – Where the overall market sell off over a period of time in order to generally reduce PE ratios across the board due to pessimism about the macro economy.
Multiple Expansion – Where the overall market rallies over a period of time in order to generally increase PE ratios across the board due to optimism about the macro economy.
NASDAQ – National Association of Securities Dealers Automatic Quotation System. It is an electronic market place in USA where securities are listed and traded electronically.
Naked Option – An uncovered option risk that carries unlimited risk.
Narrow Based – Generally referring to an index, it indicates that the index is composed of only a few stocks, generally in a specific industry group. Narrow-based indices are NOT subject to favorable treatment for naked option writers.
Neutral – Describing an opinion that is neither bearish or bullish. Neutral option strategies are generally designed to perform best if there is little or no net change in the price of the underlying stock.
Neutral Options Strategies – Different ways to use options in order profit a stock remains stagnant or within a tight trading range
Non-Equity Option – An option whose underlying entity is not common stock; typically refers to options on physical commodities, but may also be extended to include index options.
One Sided Market – A market condition where there are significantly more sellers than buyers or more buyers than sellers. In this case, there are not enough buyers putting up offers to buy from sellers or that there are not enough sellers putting up offers to sell to buyers.
Open Interest – The net total of outstanding open contracts in a particular option series. An opening transaction increases the open interest, while any closing transaction reduces the open interest.
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.
Options Chains – Tables showcasing the options that a stock offers over various strike price and expirations.
Options Contracts – Contingent contracts that allows its holder to buy or sell a specific asset when exercised.
Optionable Stocks – Stocks with tradable options.
Option Pain – Also known as Max Pain or Max Option Pain. It is the stock price which will result in the most number of options contracts expiring out of the money.
Option Pricing Curve – A graphical representation of the projected price of an option at a fixed point in time. It reflects the amount of time value premium in the option for various stock prices, as well. The curve is generated by using a mathematical model. The delta (or hedge ratio) is the slope of a tangent line to the curve at a fixed stock price.
Option Trader – Also known as Options Trader. It is anyone who buys and sells options in the capital markets.
Option Trading – Also known as Options Trading. It is the buying and selling of stock and index options in the capital market so as to speculate for leveraged profits in every market condition or perform hedging to reduce portfolio risk.
Options Clearing Corporation (OCC) – The issuer of all listed option contracts that are trading on the national option exchanges.
Options Margin – See “Margin (Options)”.
Options Trading – The buying and selling of stock and index options in the capital market so as to speculate for leveraged profits in every market condition or perform hedging to reduce portfolio risk.
Options Trader – Anyone who buys and sells options in the capital market.
Options Strategist – An investment professional who specializes in research, analysis and execution of options strategies.
Options Symbol – A string of alphabets that define specific options contracts. Can be referred to as the name of an options contract.
Out of the Money – Describing an option that has no intrinsic value. A call option is out-of-the-money if the stock is below the strike price of the call, while a put option is out-of-the-money if the stock is higher than the strike price of the put.
Over-the-Counter Option (OTC) – An option traded over-the-counter, as opposed to a listed stock option. The OTC option has a direct link between buyer and seller, has no secondary market, and has no standardization of striking prices and expiration dates.
Overvalued – Describing a security trading at a higher price than it logically should. Normally associated with the results of option price predictions by mathematical models. If an option is trading in the market for a higher price than the model indicates, the option is said to be overvalued.
Parity – Describing an in-the-money option trading for its intrinsic value: that is, an option trading at parity with the underlying stock. An option trading under parity is a discount option.
Physical Option – An option whose underlying security is a physical commodity that is not stock or futures.
Physically Settled Option – An option which the actual underlying asset exchange hands when exercised.
Portfolio – Holdings of securities by an individual or institution. A portfolio may contain options of different stocks or a combination of shares, options and other financial instruments.
Position – Specific securities in an account or strategy. A covered call writing position might be long 1,000 ABC and short 10 ABC January 50 calls. It also refers to facilitate; buy or sell a block of securities, thereby establishing a position.
Position Trading – The use of options trading strategies in order to profit from the unique opportunities presented by stock options, such as time decay, volatility and even arbitrage to make safe, fixed, albeit lower profit.
Premium – The total price of an option contract is made up of the sum of the intrinsic value and the time value premium. Even though most people refer to the price of an option contract as the “Premium”, it is actually an inaccurate expression. The Premium of an option contract is the part of the price that is not intrinsic.
Premium Over Parity – This is the time value in an option.
Profit Range – The range within which a particular position makes a profit. Generally used in reference to strategies that have two break-even points-an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range.
Profit Table – A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph.
Protected Strategy – A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination).
Protective Call – An option trading hedging strategy that protects profits made in a short stock position using call options.
Protective Put – An option trading hedging strategy that hedges against a drop in stock price using put options.
Public Book (of orders) – The orders to buy or sell, entered by the public, that are away from the current market. The board broker or specialist keeps the public book. Market-makers on the CBOE can see the highest bid and lowest offer at any time. The specialist’s book is closed (only he knows at what price and in what quantity the nearest public orders are).
Pull back – A temporary fall in price after a rally. The rally usually continues after a Pull Back. This is also known as a “Correction” in prices.
Put – An option granting the holder the right to sell the underlying security at a certain price for a specified period of time.
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 Parity – Put Call Parity is an option pricing concept that requires the extrinsic values of call and put options to be in equilibrium so as to prevent arbitrage. Put Call Parity is also known as the Law of One Price.
Put Call Ratio – The ratio of the number of open put options against the number of open call options. The higher the resulting number, the more put options are bought or shorted on the underlying asset.
Put Ratio Backspread – A credit options trading strategy with unlimited profit to downside and limited profit to upside through buying more out of the money puts than in the money puts are shorted.
Put Ratio Spread – A credit options trading strategy with the ability to profit when a stock goes up, down or sideways through shorting more out of the money puts than in the money puts are bought.
Ratio Backspread – Credit volatile options trading strategy that opens up one leg for unlimited profit through selling a smaller amount of in the money options against the purchase of at the money or out of the money options of the same type.
Ratio Calendar Combination – A strategy consisting of a simultaneous position of a ratio calendar spread using calls and a similar position using puts, where the striking price of the calls is greater than the striking price of the puts.
Ratio Spread – Constructed with either puts or calls, the strategy consists of buying a certain amount of options and then selling a larger quantity of out-of-the-money options.
Ratio Strategy – A strategy in which one has an unequal number of long securities and short securities. Normally, it implies a preponderance of short options over either long options or long stock.
Ratio Write – Buying stock and selling a preponderance of calls against the stock that is owned.
Realize (a profit or loss) – The act of closing a position, incurring a profit or a loss. As long as a position is not closed, the profit or loss remains unrealized.
Resistance – A term in technical analysis indicating a price area higher than the current stock price where an abundance of supply exists for the stock, and therefore the stock may have trouble rising through the price.
Reverse Hedge – A strategy in which one sells the underlying stock short and buys calls on more shares than he has sold short. This is also called a synthetic straddle and is an outmoded strategy for stocks that have listed puts trading.
Reverse Strategy – A general name that is given to strategies which are the opposite of better known strategies. For example, a ratio spread consists of buying calls at a lower strike and selling more calls at a higher strike. A reverse ratio spread also known as a backspread consists of selling the calls at the lower strike and buying more calls at the higher strike. The results are obviously directly opposite to each other.
Risk Graph – A graphical representation of the risk/reward profile of an option position.
Risk Free Return – Profit on a risk free investment instrument such as the Treasury bills. It is a common standard of measuring the opportunity cost of having your money in anything other than Treasury bills.
Roll Down – Close out options at one strike and simultaneously open other options at a lower strike.
Roll Forward – Close out options at a near-term expiration date and open options at a longer-term expiration date.
Rolling – A follow up action in which the strategist closes options currently in the position and opens other options with different terms, on the same underlying stock.
Quadruple Witching – The third Friday of March, June, September and December when Index Futures, Index Options, Stock Futures and Stock Options expire. This is one of the most volatile trading days of the year, with exceptionally high trading volume.
Quarterlies / Quarterly Options – Options with quarterly expiration cycle.