Guide to Options Trading

Vocabulary flashcards covering key terms and their definitions related to options trading.

Options Trading

A type of investing where traders buy and sell options contracts to predict and profit from price movements of assets.

Bull Market

A market condition where prices are rising, indicating optimistic investor sentiment.

Bear Market

A market condition where prices are falling, indicating pessimistic investor sentiment.

Call Option

An options contract that gives the holder the right to buy an asset at a specified price within a specific time period.

Put Option

An options contract that gives the holder the right to sell an asset at a specified price within a specific time period.

Premium

The cost of buying an options contract.

Strike Price

The price at which the underlying asset can be purchased or sold if the option is exercised.

Expiration Date

The date by which an options contract must be exercised or it becomes invalid.

Intrinsic Value

The difference between the current price of the underlying asset and the strike price of the option.

Time Value

The additional value of an option that extends beyond its intrinsic value, decreasing as expiration approaches.

Support

A price level where a downtrend can be expected to pause or reverse as demand increases.

Resistance

A price level where an uptrend can be expected to pause or reverse due to increased supply.

Risk Management

Strategies to control potential losses in trading, essential for preserving capital.

Market Order

An order to buy or sell an option immediately at the best available price.

Limit Order

An order to buy or sell an option at a specified price or better.

Stop-Loss Order

An order designed to limit an investor's loss on a position in a security.

Trading Psychology

The mindset and emotional state that influences a trader's performance and decision-making.

Liquidity

The ease with which an asset can be bought or sold in the market without affecting its price.

Volume

The total number of shares or contracts traded within a specific period.

Indicators

Metrics used to analyze market trends and inform trading decisions.

Backtesting

The process of testing a trading strategy using historical data to determine its effectiveness.