| Backspread | Any 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 spread | A 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 spread | A 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 Spread | if you are bullish –> sell near month calls |
| Neutral Calendar Spread | if you are neutral –> sell near month call |
| Put Calendar Spread | replicate 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 | |
| Gamma | The 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. | |
| Vega | A 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 Spread | no 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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