Options Trading Glossary

BackspreadAny spread in which in-the-money options are sold and a greater quantity of out-of-the-money options are bought. In a more general sense, it may refer to any strategy that makes money when the market becomes volatile.
Bear spreadA spread which makes money if the underlying stock or future declines in price. Typically constructed by buying puts at one strike and selling a like number of puts with a lower strike
Bull spreadA spread which makes money if the underlying stock or future rises in price. Typically, one would buy calls at a certain strike and sell the same number of calls at a higher strike.
Calendar spread (time spread)A spread in which one sells options at one strike and buys options at a longer maturity with the same striking price. In a neutral calendar spread, one would not necessarily buy and sell the same quantity of options. The spread may be constructed with either puts or calls, but they are not mixed; that is, if one buys calls, he also sells calls to complete the spread — puts would not be involved in that case.
Call Calendar Spread buy long term call + sell equal no. of near month at-the-money calls of the same underlying at the same strike price
why? –> sell time. We hope that Price remains unchanged at expiration
Bull Calendar Spreadif you are bullish –> sell near month calls 
Neutral Calendar Spreadif you are neutral –> sell near month call 
Put Calendar Spreadreplicate with puts
Covered Option  covered means you have an offsetting position in that underlying security
written calls means covered by long stock
written puts means covered by short stock
Beta A measure of how a stock’s volatility changes in relation to the overall market. A beta may help you determine how closely a stock in your portfolio tracks the movement of an index, if you’re considering hedging with index options. A beta of 1.5 means a stock gains 1.5 points for every point the index gains—and loses 1.5 points for every point the index loses.
Alpha A measure of how a stock performs in relation to a benchmark, independent of its beta. A positive alpha means that the stock outperformed what the beta predicted, and a negative alpha means the stock didn’ t perform as well as predicted.
Delta  The amount by which an option’s price will change if the underlying security moves one point in price. See also ‘position delta’.
The general rule is this: the shorter-term the strategy, the higher the delta should be of the instrument being used to trade the strategy. (more movement)
ie. Delta increase as you get closer to expiration for near or at the money options
GammaThe amount by which the delta will change when the underlying stock moves by one point. See delta.
Theta  Theta is a way to measure the impact and exposure of the passage of time on an option’s price. 
In theory, theta represents how much an option’s premium may decay per day or week with all other market factors and variables remaining the same.
Theta is generally expressed as a negative number, and reflects the amount by which the option’s value will decrease every day. 
VegaA term to describe the amount by which an option’s price will change for a 1 percent change in the volatility of the underlying security.
Rho   Rho is a value intended to measure an option contract’s sensitivity to interest rate changes. 
It is a way to assess the potential change in an option’s value given a change in interest rates. 
Rho and interest rate changes have the strongest impact on longer-term options.
most traders agree that rho has less of a measurable impact on option prices overall
Open Interest Net outstanding open contracts that have been purchased
meaning only count 1 side 
Ratio Spreadno of options sold > number purchased
Straddle Any position that involves both puts and calls on the same side of the market, with same strike price
Both options have the same underlying and same expiration date
Strangle Any position that involves both puts and calls on the same side of the market, with Lower strike price
Both options have the same underlying and same expiration date
Open interest The number of open positions for a particular options series. High open interest means that there are many open positions on a particular option, but it is not necessarily a sign of bullishness or bearishness.
Volume The number of contracts—both opening and closing transactions—traded over a certain period. A high daily volume means many investors opened or closed positions on a given day.
Liquidity The more buyers and sellers in the market, the greater the liquidity for a particular options series. Higher liquidity may mean that there is a demand for a particular option, which might increase the premium if there are lots of buyers, or decrease the premium if there are lots of sellers.
Married Put You simultaneously purchase shares of stock and a put on that stock

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