A type of corporate action that occurs when one company purchases a majority stake in another company. Acquisitions can be paid for in cash, stock, or a combination of the two.
A pessimistic outlook on the price of an asset. Traders who believe that an asset price will depreciate over time are said to be bearish.
An optimistic outlook on the price of an asset. Traders who believe that an asset price will appreciate over time are said to be bullish.
Day trading is the opening and closing of your trading positions within a short period, typically the same day. Also known as intraday trading, the goal of using this trading style is usually to take small profits which eventually add up to bigger gains over time.
The amount that a stock is predicted to increase or decrease from its current price, based on the current level of implied volatility for binary events.
An investing/trading methodology that estimates a security’s fair value using relevant quantitative and qualitative information. The goal of this approach is to compare the result of fundamental analysis to the current market value of a security to determine whether it is undervalued, overvalued, or fair.
Options on futures are similar to options on stocks, but with one major exception…Futures are the underlying instrument off which the options are priced (unlike equity options which have the stock as its underlying). As a function of being priced off of futures, it’s important to be aware of the differences between futures options and equity options.
Legging a trade refers to the opening or closing of each leg for a non-naked strategy in separate transactions.
Liquidity is how easily an investor can buy or sell an asset without losing much value. The more an asset is traded, the more liquid it becomes.
Margin is the amount of capital required to open a trade.
Mean reversion is very important to what we do at tastytrade. As mean reversion traders, we look to exploit price extremes and volatility because we believe they will revert to their mean over time. Volatility proves to be the one variable that is recognized as being ‘mean reverting’ in many option-pricing models.
Allocating a minimum of $2,000 to a trading fund.
A term referring to the current bid/ask price of an asset in the marketplace.
Risk Management refers to the strategic risk that we take when trading options. This covers everything from our trade size, to our strike selection, product choice and type of strategy. We are able to control all of these factors in order to increase our probability of success and avoid large drawdowns in our account.
A type of arbitrage in which a profit is theoretically guaranteed. May also be referred to as "Risk-Free Arbitrage."
While traditional investing advocates for fewer occurrences and values the buy and hold strategy, we at tastytrade take a statistical approach to trading. We believe in putting on many small high probability trades to increase our probability of success.
Triple witching refers to one of the four days a year when index futures, index options and stock options expire on the same day.
Undefined Risk refers to the risk that is accompanied with naked options and when your possible max loss is unknown on order entry. This normally refers to a naked call as the underlying equity could possibly go up indefinitely. Naked puts also have undefined risk, however we know that an underlying can only go to zero so we can consider this our max loss.
The idea that the movement of the /VX give some type of prediction of future market activity.
A vertical debit spread is a defined risk, directional options trading strategy where we buy an option that we want to increase in value, while selling a similar option type against it to reduce the overall cost and risk of the trade.
“Vertical” in this case just means that the options are in the same expiration cycle.
“Debit” means we are paying for the spread, and we want the overall spread to increase in value. The long option is our asset in a debit spread, and the short option is our cost basis reduction component.
“Spread” indicates that we have a long and short option component in the same trade, where one offsets the P/L of the other to a degree.
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