when a company buys a majority of another company's public stock
options that can be exercised before their expiration date
buying and selling similar instruments to make a risk-free profit
the lowest available price to buy
being forced to fulfill the obligation of an option contract
an option with a strike price at or near the price of the underlying
automatic performance of an option contract, due to the option expiring in-the-money
an option expiration month later than the current month
a spread in which more options are purchased than sold
the difference between the price of futures and the cash price
an incremental change in interest rates of 0.01%
the outlook that the price of a stock or the market will drop
a spread that profits from a drop in the price of the underlying security
the difference between the bid and ask price of a security
a means for investors to put all of their positions into one standard unit to look at an entire portfolio and understand how it will change with certain market moves. Click here to learn more.
the strikes are widened close to 1 standard deviation out to take additional risk and can act as a potential substitute for selling strangles. Click here to learn more.
a butterfly strategy in which we select wider strikes to yield a higher probability of success during periods of high IV Rank. Click here to learn more.
the debt of a company to its lenders, to be repaid over time with interest
the point at which a position generates neither a profit nor a loss
a combination of a long call butterfly and a short OTM call vertical, or a long put butterfly and a short OTM put vertical, so one side is wider than the other. The short vertical finances the long butterfly, and increases the probability of profit of the strategy.
the outlook that the price of a stock or the market will rise
a spread that profits from a rise in the price of the underlying security
a 3-strike price spread that profits from the underlying expiring at a specific price
when the stock market or a particular underlying is at or near its low, the tastytrade methodology is to "buy" into a long position (and inversely, close out of a short position).
the amount available for the purchase and short sale of securities. Includes cash and margin
the simultaneous purchase of stock and sale of a covered call
an option trade that benefits from the passage of time, also called a time spread
an option that gives the holder the right to buy stock at a specific price
a person who sells a call and receives a premium
total costs associated with owning stock, options or futures, such as interest payments or dividends
refers to financial instruments that settle as a credit or debit to a trading account instead of the underlying instrument/physical commodity at expiration. Click here to learn more.
the short strikes are closer to the ATM strike to collect more premium (45-50% the width of the strikes); this increases potential profit and ROC. Click here to learn more.
a combination of options positions that replicates owning the underlying stock
having a contrarian viewpoint means that you reject the opinion of the masses. This is where buying into strength, selling into weakness comes from - it is a contrarian way of thinking. Despite market trends, contrarians like to buy when the market is performing poorly and sell when the market is performing well.
original price paid for a stock, plus any commissions or fees
limiting profitability on a trade to increase probability of success and reduce the cost of entering a trade.Click here to learn more.
a combination of a long stock position with a short call
a spread trade that, when opened, results in a credit to your account
an order that expires at the end of the regular market session
the number of days until an option or futures contract expires. Click here to learn more.
a trade that is opened and closed in the same trading session
a spread trade that, when opened, results in money being debited from your account
the expected change in price of an option for a $1 move in the underlying security
A position or portfolio with offsetting options so that the trader is neither long nor short.Click here to learn more.
the total annual dividend divided by the price of the stock
the underperformance of a fund that attempts to replicate the return of a certain underlying.Click here to learn more.
a variable which helps us determine trade setups and trade management.Click here to learn more.
ownership in a company, expressed in shares of stock
an exchange-traded fund, a basket of stocks meant to track an index or sector
the date when all shareholders are guaranteed a dividend, and the stock's price is adjusted downward
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.Click here to learn more.
the date at which an option stops trading, and all contracts are exercised or become worthless
the value of an option beyond its intrinsic value, also known as time value
this means that Tom/Tony do not have a position in an underlying they are discussing. Flat can also mean that the deltas in a particular underlying are nuetral
number of shares of a company available for public trading
Contracts for financial instruments and physical commodities that require buyers to purchase and sellers to sell an asset at a specified price at a specified future date.Click here to learn more.
unlike stock options, futures are the underlying instrument off which the options are priced. Futures options expire into long/short futures contracts.Click here to learn more.
the expected change in delta for a $1 move in the underlying security
analytic measurements of different types of risk
to own a position in an instrument that lessens the risk of a similar instrument.Click here to learn more.
a new function of the modern market where programmed trading platforms exploit inefficiencies in market pricing.Click here to learn more.
trade setups we use during times of rich option prices. We like to collect credit/sell premium, and hope for a contraction in volatility.Click here to learn more.
measure of the range of stock prices in the previous year, in percentage terms
someone who has bought an option or owns a security
measure of the expected range of stock prices in the future, in percentage terms
selling puts above calls, or calls below puts, when managing a short position.Click here to learn more.
Initial Public Offering, a company's first attempt to sell its stock in the marketplace
an option that could be exercised, and the stock position immediately closed, at a profit to the trader
a combination of two spreads that profits from the stock trading in a specific range at expiration
implied volatility reverting to the mean.Click here to learn more.
a metric which tells us whether implied volatility is high or low in a specific underlying based on a given time frame of IV data.Click here to learn more.
a bond with a low credit rating, indicating a higher risk of default by the borrower
adding more positions to an existing position, keeping the same directional assumption
options with an expiration month more than one year in the future
trading a spread by buying or selling each leg at different times
the use of a small amount of money to control a large number of securities
underlyings that track different underlyings and attempt to amplify their move by a certain multiplier.Click here to learn more.
an order to buy or sell at a specific price, or better
the risk that a position can't be closed when desired
trade setups that benefit from increases in volatility as well as more directional strategies.Click here to learn more.
the amount being borrowed to purchase securities. Click here to learn more.
the average of the bid and ask price
an order to buy or sell immediately at the best available price
a combination of a long stock position with a long put
the act of combining two or more companies into one
a call or put that does not have an offsetting stock or option position
the number of outstanding option contracts of a certain issue
a long or short position in stocks or options
an option that could not be exercised, and the stock position closed, at an immediate profit
a security that is not listed on a stock exchange
trading a discrepancy in the correlation of two underlyings. Click here to learn more.
when an option trades with no additional time premium
a type of stock with a claim on a company's earnings before dividends are paid
the likelihood in percentage terms that an option position or strategy will be profitable at expiration. For spreads like short verticals or iron condors, you can estimate the probability of success by taking the max loss of that position and divide it by the distance between the long and short strikes. So, if you sell a 100/105 call spread for 2.00 credit, the max potential loss is $300. If you take $300 divided by $500, you get a probability of success of 60%.
the likelihood in percentage terms that a stock or index will land above or below some price on the day of expiration. The probability of expiring doesn't care about what happens between now and expiration. It only considers the probability that the stock will be above some higher price or below some lower price at expiration.
the likelihood in percentage terms that a stock or index will reach some higher or lower price at any time between now and expiration. The probability of touching takes into account all the possible prices that might occur in between now and expiration. It is always higher than the probability of expiring
the total number of puts traded on a stock, divided by the total number of calls
an option that gives the holder the right to sell stock at a specific price
a spread in which more options are sold than purchased
this is potential maximum return you could make on an option trade. It's calculated by taking the maximum potential profit and dividing it by the margin requirement of the position. For example, if you sell a 100/105 call vertical for 2.00 credit, the return on capital would be the max profit of $200 divided by the margin requirement of $300. That yields a max return on capital of 66%.Click here to learn more.
to close an existing option and replace it with an option of a later date or different strike price. Click here to learn more.
changing trade size and risk based on capital available in a trading account. Click here to learn more.
a trader who enters and exits a position quickly for a small profit or loss
buying and selling an underlying multiple times in the same day for a small profit. Click here to learn more.
when the stock market or a particular underlying is at or near its highs, the tastytrade methodology is to "sell" into a short position (and inversely, close out of a long position).
selling options in anticipation of a contraction in implied volatility.Click here to learn more.
a defined risk strategy that uses two varying vertical spread widths, thus creating a directional bias.Click here to learn more.
a position that is opened by selling borrowed stock, with the expectation the stock price will fall
The loss incurred from purchasing something at the ask price and selling at the bid price. Slippage costs are inversely related to liquidity, which is why we like to trade extremely liquid products
when a company divides its assets into two companies and issues shares of the new company
a position involving a long and short option of different strike prices or expirations, or both
an option position involving the purchase of a call and put at the same strike prices and expirations
an option position involving the purchase of a call and put at different strike prices
the price at which stock is purchased or sold when an option is exercised
an original tastytrade strategy structured by buying an ATM call spread and financing the spread with the sale of a far OTM call option. Click here to learn more.
a position that emulates another, using calls, puts or stock. Click here to learn more.
risk inherent to the marketplace that cannot be eliminated with diversification
calculations that use stock price movement and volume to identify predictive patterns
estimated price of an option, derived from a mathematical model
an estimate of the amount an option's value decreases with each passing day
"your trade size". example: if you normally trade 3 contract for a given strategy or underlying, 2 tranches would be 6 contracts.
"tastytrade return on capital" which is Theta/Buying Power Reduction
risk that is accompanied with naked options and when your possible max loss is unknown on order entry. Click here to learn more.
company-specific risk that can, in theory, be reduced or eliminated through diversification
an estimate of the amount an option's value changes due to a 1% change in implied volatility
an option position that includes the purchase and sale of two separate options of the same expiration
an index that calculates the implied volatility of the S&P 500 index
a measure of the change in stock prices, either historical or predicted in the future
the underlyings in the volatility asset class used to gauge fear or uncertainty for various financial instruments and commodities.Click here to learn more.
the difference in implied volatility of each opposite, equidistant option. Click here to learn more.
a list of underlyings that we can keep track of in a trading platform to help us identify market conditions or trading opportunities. Click here to learn more.
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