Common Terms used by Options Traders

Common Terms used by Options Traders

July 11, 2014 / Ken Bailey

Glossary of Terms

I have been asked about a glossary of terms many times over the years. In doing some research I have not found a standard for terms used for options
trading. I have had students discuss the meaning of some terms. It seems their opinions vary based on their background and the training they have had. So
below I have put together the definitions the way I use options trading terms and acronyms. I’ll take any input you might have and if appropriate I’ll add
it to the blog. For now you are getting what I think of and I’ll add to it over time. This first pass is just terms that students have asked about. I hope
you find it helpful:

Bear: An options trade with a long option at a higher strike and a short option at a lower strike.

Bull: An options trade with a long option at a lower strike and a short option at a higher strike. A helpful acronym BLSH, Buy the Low strike and S the
High strike. Example: A bull call is a trade with a long call at a lower strike than the short call. So if someone says they are in a bull call 43/40, that
means the 40 strike is the long and the 43 is the short.

BCT: The Big chicken Trade: A series of bull call calendars and bear put calendars.

Bid/Ask Spread: The difference between the bid price and the ask price for a given option.

BTO: Buy to open, buying an option to open a position

BTC: Buy to close, buying an option to close a position

STO: Sell to open, selling an option to open a position

STC: Sell to close, selling an option to close a position

Bounce: When an equity changes direction, typically at support or resistance. Example: The SPY bounced off of support.

Calendar: An options trade with a short option close to expiration and a long option further out in time.

Diagonal: An options trade with the short option at a different strike than the long option and the options are in different months.

Ex-dividend: The date that a stock begins trading without the dividend.

GTC: Good till canceled. An order designation that some brokers have that keeps the order open until it is filled or canceled.

Horizontal: A trade with the options at the same strike in different months.

ATM: At-the-money. Refers to the strike or strikes that are closest to the equities price. Example: The 120 strike call would be considered ATM when the
equity is between 119.51 and 120.49 assuming the strikes are $1 apart.

ITM: In-the-money. All option strikes that have intrinsic value. For a call, all strikes that are below the price of the equity. For a put, all strikes
that are above the price of the equity.

DITM: Deep-in-the-money. Many strikes ITM.

OTM: Out-of-the money. All option strikes that have no intrinsic value. For a call, all strikes that are above the price of the equity. For a put, all
strikes that are below the price of the equity.

Long: When you purchase an option to open a position. Or when you have net positive delta.

NPD: Net-position-delta, the sum of all the deltas of all of the options in a trade or portfolio.

NPT: Net-position-theta, the sum of all the thetas of all of the options in a trade.

NPV: Net-position-vega, the sum of all the vegas of all of the options in a trade.

Option Spread: The different between the strikes of an options trade. Also the difference between strikes an option chain.

Rejected: When an equity changes direction at a resistance.

Resistance: A level that an equity doesn’t like to go above or stay above.

Short: When you sell an option to open a position. Or when you have net negative delta.

Support: A level that an equity doesn’t like to go below or stay below.

Vertical: A trade with the options at different strikes in the same month.

Virtual/Paper trading: Placing, monitoring and closing trades without using real money. Can be done at many brokers or can be done on paper.

Well that is all I could come up with right now. I’m sure there are many other terms that might not be well known in the options world but I’ll leave those
for you to let me know about.

Part of learning is looking things up so if you have a term that you don’t know what it means, look it up and let me know what you think. I’ll verify it
and add it to the list. Of course one of my favorite sayings is “I may be wrong but I don’t think so.”

Good Trading

Ken Bailey
OptionsANIMAL Instructor

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