trading options vocab :)

bid

Bid talks about the price at which buyers are willing to pay for a stock or an option contract. When you enter an order to SELL your shares or option contract, you should get immediately filled if you set the limit price at the Bid.

ask

Ask talks about the price at which sellers are willing to be paid or sell a stock or an option contract. When you enter an order to BUY shares or an option contract, you should get immediately filled if you set the limit price at the Ask.

spread

Spread refers to the difference in value between the Bid and the Ask. The narrower or smaller the difference between Bid and Ask the better.

Long

Long refers to a bullish (green UP) position in which you think the stock will rise or the value of the option premium will increase. You can take stocks long by buying shares or equity. You can take options long by buying contracts.

short

Short refers to a bearish (red DOWN) position in which you think the stock will fall or the value of the option premium will decrease. You can take stocks short by short selling shares or equity. You can take options short by selling contracts.

equity

Equity refers to ownership of stock. If I buy 10,000 shares of AAPL , I could also state that I own 10,000 shares of equity in Apple. Equity positions are different than option positions because you are buying and selling shares , not option contracts.

options

Options are contracts that allow you to buy or sell shares of an underlying security at a specified price in the future. Options give you the right but not the obligation to exercise the contract. Most people choose not to hold the option until expiration and buy the shares. Most traders simply day trade or swing trade option contracts expecting the VALUE or the PREMIUM of the option contract to rise and sell for a higher price.

call option

Call Options are bullish contracts that you buy if you think the value of the underlying security or stock is going to rise within the specified time frame. For example, if AAPL stock is at 260 and today is December 1st and I think AAPL stock will rise to 270 by the end of the month, I am going to buy AAPL 12/27 270 Calls expecting to make money from the increased value of the option contract and the increased value of the stock.

put option

Put Options are bearish contracts that you buy if you think the value of the underlying security or stock is going to fall within the specified time frame or expiration of the contract. For example, if AAPL stock is at 260 and today is December 1st and I think AAPL stock will fall to 250 by the end of the month, I am going to buy AAPL 12/27 250 Puts expecting to make money from the increased value of the option contract and the decreased value of the stock.

the Greeks

The term “The Greeks” refer to how an option contract is priced and how the value or the premium of the option contract will be affected based on future stock movement. The two most important Greek values to be familiar with are Delta and Theta. Delta measures the expected movement in the value of the option premium per $1 move in the value of the underlying security. For example; If AAPL 270 Call has a Delta of 0.45 , for every $1 movement in AAPL, the value of that specific option premium SHOULD increase or decrease in value by roughly $45. The important thing to note is that the more IN THE MONEY an option contract is, the HIGHER the Delta value will be and the greater $ moves you will see in the option premium. The other very important Greek value is the Theta. Every option contract decay’s in value the closer you get to your expiration date and every option contract has a specific value of Theta indicating how much $ your option contract will decrease in value per day until expiration. This value is very important because high Theta values can cause you to lose money on the contract EVEN IF the underlying security or stock is moving in your favor. It is always best to look for lower Theta values and higher Delta values that way you are maximizing your gains and minimizing your losses.

strike price

Strike Price refers to the option contract you select. For example; if you buy an AAPL 270 Call, your strike price is 270. This is the number that you believe the underlying security or stock should move toward. If you buy in the money options then the strike price is already above or below the value of the underlying security but it still indicates which option contract you own.

expiration date

Expiration Date refers to the date in which your option contract expires. Every contract has a specific expiration date. The expiration date you choose as an option trader depends on multiple variables.

Implied Volatility

Implied volatility is a very important mechanism within an option contract that influences the value of the contract and indicates what the expected move in the underlying security is over a period of time. The higher the Implied Volatility , the higher the value of the premium. Before a stock reports earnings, you will almost always see an increase in implied volatility.

scalping

Scalping is a general term that is used to describe rapid day trading. If you buy and sell shares or buy and sell option contracts within a very small time frame such as less than an hour, it is considered scalping. Scalping is very common amongst pattern day trader’s and professionals. You can make a lot of money in a short period of time if you know what you are doing.

Margin Account (dont get this one)

A Margin Account is an account that allows you to trade on leverage. Leverage is when you borrow money from a bank or a lender and use that money to trade with certain conditions and limitations. In order to trade unlimited on a Margin Account, you need to maintain a balance of at least $25,000 in your account. If you have less than $25,000, you can only make 3 DAY trades per 5 day cycle.

Cash Account

A Cash Account is an account that allows you to trade using solely the cash/funds you have available in your account at the time of the purchase or sale. There are no restrictions as to how many times per week you can trade, however, you can only use the cash you have available in your account. After you open and close a position, the cash becomes unsettled and you have to wait for the funds to settle to re-use the money and profits. Option trades settle overnight while equity/stock trades settle over three days.

Volatility

Volatility is a term that refers to the movement of a stock or the market in general. The higher the volatility, the more range and difference in price a stock/the market will have throughout the day or over a specified period of time. Volatility can be amazing , but it can also be dangerous if you don’t know what you’re doing.

volume

Volume refers to the number of shares or option contracts that have been exchanged between buyer’s and seller’s over a specified period of time. Volume can be calculated over short time frames or over long time frames. It’s a very important term and tool to utilize when trading as it indicates the strength or sentiment behind stock movement. High volume on a rising stock indicates demand , while low volume on a rising stock indicates weakness. Low volume on a falling stock indicates weakness, while high volume on a falling stock indicates panic.

Price action

Price action is broad term that refers to supply and demand and the exchange between buyers and sellers. If someone says to you for example, “the price action on TSLA today was super choppy”, they are simply stating that there was no clear direction in the stock and the war between buyers and sellers was essentially a tie. If someone says to you for example, “the price action on AAPL today was strong today when we cleared 270”, they are simply stating that the buyers took over and overpowered the sellers indicating that AAPL had a clear and strong direction.

Confluence

when you combine more than one trading technique or analysis to increase your odds of a winning trade.

Technical Analysis

Technical Analysis is the practice of using charts and data provided by charts to predict stock movement and market trends.

supply zone

- a price area where traders tend to sell their assets. It is located on top of the current market price, indicating a high potential for selling activity.

demand zone

a price area in the stock where there is a high demand for the stock and buyers are ready to purchase at different levels.

support

Support is the level at which demand is strong enough to stop the stock from falling any further.

resistance

Resistance is a price or price zone above the current market that contains the upside movement of an asset. Resistance is where selling interest appears over time, blocking further upside progress. Resistance can be a single price point, such as the high of the day or the hourly high.

morning average

A moving average (MA) is a widely used technical indicator that smooths out price trends by filtering out the noise from random short-term price fluctuations. Moving averages can be constructed in several different ways and employ different numbers of days for the averaging interval.

Trendline

Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data's best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment's value might move.

candlestick

A type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period.

bounce

If a bounce is expected at a certain level that means we expect the stock to fall to that specific level and expect buyers to step in at that level and push push price higher. Ideally would be looking to purchase calls at that level.

rejection

If a rejection is expected at a certain level we expect price of the stock to rise initially and expect price to hit that specific level and then expect sellers to step in and push price down. Ideally we would be looking to purchase puts at that level.

high of the day

Highest point price has gone to for that specific day.

low of the day

Lowest point price has gone to for that specific day.

Break and hold

would like to see the 5 minute candle stick close above or below a certain level.