Name :
Email :

                        Register NOW!

We respect your privacy. We will NEVER sell, rent or share your email address.
That's more than a policy, it's our guarantee!

Market Chart: DJX
pic

Market Chart: SPX
pic

Get the Free eBook from Guy Cohen

Free eBook: Introduction to Options Trading Register now to get your link to this book. Register...

Glossary

Glossary

A

back to top
American Stock Exchange (AMEX) Securities Exchange that handles approximately 20% of all securities trades within the US.
American-style option An option contract that can be exercised at any time before the expiration date. Stock Options are American Style.
Arbitrage Where the simultaneous purchase and disposal of a combination of financial instruments is such that a guaranteed profit is made automatically.
Ask The price that you buy at and the price that market makers and floor brokers are willing to sell at. The Ask stands for what the market makers and floor traders ask you to pay for the stock (or options or other instrument).
ATM (At the Money) Where the option exercise price is the same as the asset price.
At the Opening Order An order that specifies execution at the market opening or else it is cancelled.
Automatic Exercise The automatic exercise of an ITM (in the money) option by the clearing firm at expiration

B

back to top
Backspread A spread where more options (calls or puts) are bought than sold. (the opposite of a Ratio Spread).
Bear Call Ladder A strategy using calls where the trader sells a lower strike call, buys a higher strike call and another higher strike call.
Bear Call Spread A bearish net credit strategy using calls where the trader buys a higher strike call and sells a lower strike call. The higher strike call will be cheaper, hence the net credit. Bear Call spreads have limited risk and reward and are more profitable as the underlying asset price falls.
Bear Put Ladder A spread using puts where the trader sells a lower strike put, buys a higher strike put and another higher strike put.
Bear Put Spread A net debit spread only using puts where the trader buys a higher strike put and sells a lower strike put. The higher strike put will be more expensive, hence the net debit. Bear Put spreads have limited risk and reward and are more profitable as the underlying asset falls.
Bid The price the trader sells at and the price that market makers and floor traders are willing to buy at. [the Bid stands for the price at which the market maker will bid for your stock (or options, or other instrument)]
Bid - Ask Spread The difference between the bid and asked prices. Generally you will buy at the Ask and Sell at the Bid. The Ask is always higher than the Bid.
Blow off Top A large rise in price followed by a quick drop. Often accompanied with high volume. Usually a technical indicator for the end of a bullish trend.
Bond A debt financial instrument used by Governments and corporate entities in order to raise capital. The bond obliges the organization to pay its holders a fixed rate of return (coupon) and repay the principal of the debt at maturity. These bonds are traded (the CBOT is one of the major Bond Exchanges) and their values are directly correlated with interest rates and interest rate speculation by the markets. The lower interest rates are projected to be, the more valuable the bond will be.
Breakeven The point(s) at which a risk profile of a trade equals zero.
Breakout Where a price chart emerges upwards beyond previous price resistance.
Broker A person who charges commission for executing a transaction (buy or sell) order.
Bull Someone who expects the market to rise.
Bull Call Ladder A spread only using calls where the trader buys a lower strike call, sells a higher strike call and another higher strike call.
Bull Call Spread Long term bullish strategy involving buying low strike calls and selling same number of higher strike calls with the same expiration date.
Bull Market A rising market over a period of time (usually a few years).
Bull Put Ladder A spread using puts where the trader buys a lower strike put, sells a higher strike put and another higher strike put.
Bull Put Spread Short term bullish strategy involving buying lower strike puts and selling higher strike puts with the same expiration date.
Butterfly Spread 3-legged direction-neutral low volatility strategies involving either all call legs or all put legs. Suitable for rangebound stocks.
Buy on close An order stipulating to buy the security at the close of the trading session.
Buy on open An order stipulating to buy the security at the opening of the trading session.
Buy Stop A buy order where the price stipulated is higher than the current price. The rationale here is when the buyer believes that if the security breaks a certain resistance then the security will continue to rise.
Buy-Write A bullish strategy involving buying a stock and selling near term ATM or OTM call options to generate regular income. See Covered Call.

C

back to top
CAC 40 Index The Paris Bourse index based on 40 stocks.
Calendar Spread 2-legged option trade involving buying a long term option and selling a shorter term option with the same strike price. A Calendar Spread must involve either all call or all put legs, you cannot mix calls and puts together for this strategy.
Call Option The right, not the obligation to buy an underlying security at a fixed price before a predetermined date.
Call Premium The price of a call option.
Call Ratio Backspread Bullish strategy involving selling 1 or 2 lower strike calls and buying 2 or 3 higher strike calls.
Capital Gain The profit realised from buying and selling an asset
Capital Loss The loss taken from buying and selling an asset unprofitably.
Chicago Board Options Exchange (CBOE) The largest options exchange in the world.
Chicago Board of Trade (CBOT) The oldest commodity exchange in the US. Known for listings in T-bonds, notes and a variety of commodities.
Chicago Mercantile Exchange (CME) An exchange in which many types of futures contracts are traded in an open outcry system.
Class of options Options of the same type, style and underlying security.
Clearing House A separate institution to establish timely payment and delivery of securities.
Close The last price quoted for the day.
Closing Purchase A transaction which closes an open short position.
Collar A low risk bullish strategy involving buying a stock, buying near the money puts and selling out of the money calls.
Closing Sale A transaction which closes an open long position.
Commission A charge made by the broker for arranging the transaction.
Commodity A tangible good that is traded on an exchange. Eg oil, grains, metals.
Commodity Futures Trading Commission (CFTC) An institution charged with ensuring the efficient operation of the futures markets.
Condor See Condors
Consumer Price Index (CPI) An index measuring the change in prices of consumer prices. An important inflation indicator.
Contract A unit of trading for an option or future.
Correction A post rise decline in a stock price or market.
Covered Call A bullish strategy involving buying or owning a stock and selling near term ATM or OTM calls to generate regular income. See "Buy-Write".
Covered Put A bearish strategy involving shorting stock and shorting a near term put option to create regular income. Considered a high risk strategy.
Covered Short Straddle A bullish strategy involving buying (or owning a stock), selling near term puts and calls at the same strike price and expiration date. This is a risky strategy, involving almost certain exercise of the put or call and a significant downside risk if the stock price falls.
Covered Short Strangle A bullish strategy involving buying (or owning a stock), selling near term OTM puts and OTM calls at the same expiration date. This is a risky strategy, involving significant downside risk if the stock price falls.
Credit Spread Where the simultaneous buying and selling of options creates a net credit into your account (ie you receive more for the ones you sell than those you buy).

D

back to top
Day Order An order good for the day only.
Day Trade The acquisition and disposal of an asset in the same day.
Day Trading A trading style where positions are closed by the end of every day.
Debit Spread Where the simultaneous buying and selling of options creates a net debit from your account (ie you pay more for the ones you buy than those you sell).
Deep In the Money (DITM) Calls Where the price of the underlying security is far greater than the Call Strike Price.
Deep In the Money (DITM) Puts Where the price of the underlying security is far less than the Put Strike Price.
Delayed time quotes Quotes which are delayed from real time.
Delta The amount by which an option premium moves divided by the dollar for dollar movement in the underlying asset.
Delta Hedge A strategy designed to protect the investor against directional price changes in the underlying asset by engineering the overall position delta to zero.
Delta Neutral Where a spread position is engineered so that the overall position delta is zero.
Derivative A financial instrument whose value is "derived" in some way from the value of an underlying asset source.
Diagonal Spread 2-legged option trade involving buying a long term option and selling a shorter term option with a higher strike price. A Calendar Spread must involve either all call or all put legs, you cannot mix calls and puts together for this strategy.
Discount Brokers Low commission brokers who simply place orders, and do not provide advisory services.
Divergence Where 2 or more indicators move in different directions indicating different outcomes.
Dividend A payment made by an organization to its owners (shareholders), hopefully from profits.
Dow Jones Industrial Average (DJIA) An index of 30 blue chip stocks traded on the New York Stock Exchange (NYSE). This index is often considered a bellwether of overall market sentiment.
Downside Risk The potential risk of a trade if prices decline.

E

back to top
End of Day The close of the trading day when prices settle.
EPS Earnings per share. The amount of profits of an organization divided by the number of outstanding shares.
Equity Options Same as Stock Options
European Style Option An option which cannot be exercised before the expiration date.
Exchange Where an asset or derivative is traded.
Exchange Rate The price at which one currency can be converted into another currency.
Execution The process of completing an order to trade a security.
Exercise The activation of the right to buy or sell the underlying security.
Exercise (Strike) Price The price at which an asset can be bought or sold by the buyer of a call or put option.
Expiration The date at which the option's ability to be exercised ceases.
Expiration Date The last day on which an option can be exercised.
Extrinsic Value (Time Value) The price of an option less its intrinsic value. Out of the Money Options are entire made up of Extrinsic (or Time) Value.

F

back to top
Fair Market Value An asset's value under normal circumstances.
Fair Value The theoretical value calculation of an option using a pricing technique such as Black-Scholes options pricing formula.
Fibonacci Retracement Where prices on a chart move off their latest tops or bottoms in swings of 38%, 50% or 62% from their previous bottoms or tops before resuming their original trend direction. 50% is the most common and easiest to spot.
Fill An order which has been executed.
Fill Order An order which must be filled immediately or cancelled.
Fill or Kill An order where a precise number of contracts must be filled or the order is cancelled.
Floor Broker A member of an exchange who is paid to execute orders.
Floor Trader An exchange member who trades on the floor of the exchange for their own account.
Fundamental Analysis Analysis of a stock security which is based on the ability of the organization to generate profits for its shareholders. Such analysis embraces earnings, PE Ratios, EPS, Net Assets, Liabilities, Customers etc.
Futures Contracts Agreement to buy or sell an underlying security at a predetermined date at an agreed price. The difference between futures and options is that with options the buyer has the Right, not the obligation. With futures, both parties are obliged to fulfil their part of the bargain.

G

back to top
Gamma The speed by which Delta changes compared with the speed by which the underlying asset is moving.
Gap Where the opening bar of a price chart opens and stays beyond (lower or higher) than the spread of the previous bar. Gaps can be lower or higher.
Good till Cancelled Order (GTC) An order which continues until either it is filled or cancelled specifically by the trader.
Guts A volatility strategy involving buying In the Money (ITM) Calls and ITM Puts. High volatility is required, after the position is opened, to make this a profitable strategy.

H

back to top
Hedge A term for reducing the risk of one position by taking other positions with options, futures or other derivatives.
Historic Volatility A measure of the price fluctuation of an asset averaged out over a period of time. A typical and popular period would be 21-23 trading days.

I

back to top
Index A group of assets (often in a similar class of sector or market capitalisation) which can be traded as a single security.
Index Options Options on the indexes of stocks or other securities.
Interest Rates The rate at which borrowed money is charged by the lender, usually annualised into a percentage figure.
In the Money (ITM) Where you can exercise an option for a profit.
In the Money (ITM) Calls ITM Calls are where the current stock price is greater than the Call Strike Price.
In the Money (ITM) Puts ITM Puts are where the current stock price is less than the Put Strike Price.
Intrinsic Value The amount by which an option is in the money.
Iron Butterfly See Iron Butterflies

J

back to top
Japanese Candlesticks A popular method of visually depicting price bars where the open, high, low, close are shown explicitly.Upward moving price bars are hollow (or green if different colours are used).Downward moving price bars are filled (or red).Different looking bars and different clusters of price bars can lead to different interpretations of future price movements.

K

back to top

L

back to top
LEAPs Long-term Equity AnticiPation Securities.These are long term stock options with expirations up to 3 years in the future. LEAPs are available in Calls and Puts and are American-style traded options.
Leg One side or component of a spread
Leg in / Leg out Legging into a spread entails the completion of just one component part of a spread with the intention of completing the other component parts at more favourable prices later on.Legging out of a spread entails the opposite whereby you exit your spread one component part at a time with the intention of doing so at more favourable prices as the underlying security moves in the anticipated direction.
LIFFE London International Financial Futures and Options Exchange.
Limit Order An order to buy at a set price which is at or below the current price of the security.An order to sell at a set price which is at or above the current price of the security.
Liquidity The speed and ease with which an asset can be traded. Cash has the most liquidity of all assets whereas property (real estate) is one of the most illiquid assets.
Long Being long means that you are a buyer of a security.
Long Call Buying a call option.
Long Call Butterfly A 3-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike call, selling 2 middle strike calls with the same strike price and buying a higher strike call.
Long Call Condor A 4-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike call, selling 2 middle strike calls with different strike prices and buying a higher strike call.
Long Call Synthetic Straddle A 2-leg direction-neutral, strategy, requiring high volatility, involving buying 2 ATM calls for every 100 shares (US stock options) sold, thereby replicating the risk profile of a Long Straddle.
Long Combo A bullish strategy involving selling OTM puts and buying OTM calls in order to partially replicate a long stock position.
Long Iron Butterfly A direction neutral strategy constructed by combining a Bull Put Spread with a Bear Call Spread or by combining a narrow Short Strangle with a wider Long Strangle.
Long Put A bearish strategy, buying put options.
Long Put Butterfly A 3-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike put, selling 2 middle strike puts with the same strike price and buying a higher strike put.
Long Put Condor A 4-leg direction-neutral, strategy, requiring low volatility, involving buying a low strike put, selling 2 middle strike puts with different strike prices and buying a higher strike put.
Long Put Synthetic Straddle A 2-leg direction-neutral, strategy, requiring high volatility, involving buying 2 ATM puts for every 100 shares (US stock options) bought, thereby replicating the risk profile of a Long Straddle.
Long Stock Buying shares.
Long Synthetic Future Buying calls and selling the same amount of puts with the same strike and expiration date, effectively forming the same risk profile of buying a stock but with almost no cost.

M

back to top
MACD (Moving Average Convergence Divergence) Measures the difference between 2 moving averages and is a measure of momentum. As the moving averages drift apart then momentum is increasing and vice versa. Best viewed as a bar chart. Divergence between MACD and price action can indicate a change of trend is imminent.
Margin An amount paid by the account holder (either in cash or "marginable securities" which is held by the brokerage against non cash or high risk investments, or where the brokerage has lent the account holder the means to undertake a particular trade.
Margin Account An account where the brokerage lends the customer part of the net debit required to make a trade.
Margin Call Where the brokerage calls the account holder in order for them to pay more funds into their account to maintain the trade.Note that strategies that involve some form of unlimited risk often require a level of margin to be determined by the brokerage.
Margin Requirements The amount of cash or marginable securities (eg blue chip stocks) which an account holder must have in his account in order to write uncovered (or naked) options.
Mark to Market The daily adjustment of margin accounts to reflect profits and losses in such a way that losses are not allowed to accumulate.
Market Capitalisation The number of outstanding shares multiplied by the value per share.
Market if Touched (MIT) Order An order that becomes a market order if the price specified is reached.
Market Maker A trader or trading firm that buys and sells securities in a market in order to facilitate trading. Market makers make a two sided (bid and ask) market.
Market on Close Order An order that requires the broker to achieve the best price at the close or in the last 5 minutes of trading.
Market on Open Order An order that must be executed at the opening of trading.
Market Order Trading securities immediately at the best market prices in order to guarantee execution.
Market Price The most recent transaction price.
Modified Call Butterfly A neutral to bullish strategy similar to a Long Call Butterfly except that the OTM bought calls have a strike price nearer to the central strike price of the sold calls.
Modified Put Butterfly A neutral to bullish strategy similar to a Long Put Butterfly except that the ITM bought puts have a strike price nearer to the central strike price of the sold puts.
Momentum Where a market direction (up or down) is established.
Momentum Indicators Technical Analysis indicators using price movement and volume in order to determine market direction.
Momentum Traders Traders who use momentum as their primary tool to invest.
Moving Average The average of a security's (or index's) latest prices for a specific period of time (eg 50 days). Another technical analysis tool.
Mutual Fund An open-ended investment fund that pools investors' contributions to invest in securities such as stocks and bonds.

N

back to top
Naked Selling naked options refers to a sold options contract with no hedge position in place. Such a position leaves the option seller (writer) exposed to unlimited risk.
NASDAQ National Association of Securities Dealers Automated Quotations system.This is a computerised system providing brokers and dealers with securities price quotes.
Near the Money (NTM) Where the underlying asset price is close to the Strike Price of an option.
New York Stock Exchange (NYSE) The largest stock exchange in the US.
Note A short term debt instrument - they normally mature in or less than 5 years.

O

back to top
OEX Standard & Poor's 100 Stock Index.
Offer The lowest price at which someone is willing to sell.Also can refer to the "Ask" of a "Bid-Ask" spread. See "Ask".
On the Money (At the Money) See "ATM" or "At the Money".
Open Interest The total number of options or futures contracts that are not closed or delivered on a particular day.
Open Outcry Verbal system of floor trading still used at many exchanges (eg the CME and CBOT).
Opening The beginning of the trading session at an exchange.
Opportunity Cost The risk of an investment expressed as a comparison with another competing investment.
Option A security which gives the buyer the right, not the obligation to buy (call) or sell (put) an underlying asset at a fixed price before a predetermined date.
Option Premium The price of an option.
Option Writer The seller of an option (usually naked).
Out of the Money (OTM) Where the option has no intrinsic value and where you cannot exercise an option for a profit.
Out of the Money (OTM) Calls OTM Calls are where the current stock price is less than the Call Strike Price.
Out of the Money (OTM) Puts OTM Puts are where the current stock price is greater than the Put Strike Price.

P

back to top
Par The nominal value of a bond that is paid back to the bondholder at maturity.
Position Delta The sum of all positive and negative deltas within a hedged trade position.
Premium The price of an option.
Price Bar The visual representation of a securities price fluctuations for a set period of time. Price bars can be for as little as 1 minute (or less) and as much as one year (or more).
Price Earnings Ratio The price of a stock divided by the Earning per share for that stock.The same figure can be calculated by dividing the market capitalisation of a stock by the profit of that company.
Principal The purchase price of a bond
Put Calendar A neutral to bullish strategy involving buying longer expiration puts and selling shorter expiration puts with the same strike price.
Put Diagonal A neutral to bullish strategy involving buying longer expiration puts and selling shorter expiration puts with a higher strike price.
Put Option The right, not the obligation to sell an underlying security at a fixed price before a predetermined date.
Put Ratio Backspread Bearish strategy involving selling 1 or 2 higher strike puts and buying 2 or 3 lower strike puts.

Q

back to top
Quote The price being bid or offered by a market maker for a security.

R

back to top
Ratio Backspread A strategy using all puts or all calls whereby the trader buys OTM options in a ratio of 3:2 or 2:1 to the ITM options he sells. In this way the trader is always long in more options than those he is short in.
Ratio Call Spread A bearish strategy that involves the trader being short in more options than those he is long in, at a ratio of 3:2 or 2:1. In this way the trader will have an unlimited risk profile with only limited profit potential.
Ratio Put Spread A bullish strategy that involves the trader being short in more options than those he is long in, at a ratio of 3:2 or 2:1. In this way the trader will have an unlimited risk profile with only limited profit potential.
Real Time Data which is updated and received tick by tick.
Relative Strength A technical indicator comparing a security's price action as compared to that of an index or another stock.
Relative Strength Index (RSI) A technical indicator which is an oscillator that combines price action with volume. Best to use with trending stocks and can be used to indicate potential tops and bottoms.
Resistance A price threshold on a price chart which is thought to be difficult for the price to burst up through because of past price movements.
Return The income profit on an investment, often expressed as a percentage.
Reversal Stop (or Stop and Reverse) Order A stop order which, when activated, reverses the current position from long to short (or vice versa).
Rho The sensitivity of an option price to interest rates. Typically, call options increase in value as interest rates rise and puts decrease in value as interest rates rise.
Risk The potential loss of a trade.
Risk Free Rate The Interest chargeable on Treasury Bills (T-Bills) is generally known as the Risk Free Rate and it is this rate which is used as a component part of the theoretical valuation of options model.
Risk Profile The graphic depiction of a trade, showing the potential risk, reward and breakeven points as the underlying security price deviates within a range of prices.

S

back to top
Seat Membership in a stock or futures exchange.
Securities and Exchange Commission (SEC) Organization which regulates the securities markets in order to protect investors.
Security An instrument which can be traded - eg stocks, bonds etc.
Selling Short Selling a security which you don't actually own beforehand. You will eventually have to buy it back, hopefully at a reduced price, thus making profit.
Series (options) Option contracts of the same class (underlying asset), same Strike price and same Expiration date.
Shares Units of ownership in a company or organization.
Short Selling a security which you don't actually own.
Short Call A bearish strategy involving the short selling of call options.
Short Call Butterfly A 3-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike call, buying 2 middle strike calls with the same strike price and buying a higher strike call.
Short Call Condor A 4-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike call, buying 2 middle strike calls with different strike prices and buying a higher strike call.
Short Call Synthetic Straddle A 2-leg direction-neutral, strategy, requiring low volatility, involving selling 2 ATM calls for every 100 shares (US stock options) bought, thereby replicating the risk profile of a Short Straddle.
Short Combo A bearish strategy involving buying OTM puts and selling OTM calls in order to partially replicate a short stock position.
Short Guts A low volatility strategy involving selling In the Money (ITM) Calls and ITM Puts. Low volatility is required, after the position is opened, to make this a profitable strategy.
Short Iron Butterfly A direction neutral strategy constructed by combining a Bull Call Spread with a Bear Put Spread or by combining a narrow Long Strangle with a wider Short Strangle.
Short Put A bullish strategy, selling put options usually OTM (with a strike price below the current stock price).
Short Put Butterfly A 3-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike put, buying 2 middle strike puts with the same strike price and selling a higher strike put.
Short Put Condor A 4-leg direction-neutral, strategy, requiring high volatility, involving selling a low strike put, buying 2 middle strike puts with different strike prices and selling a higher strike put.
Short Put Synthetic Straddle A 2-leg direction-neutral, strategy, requiring low volatility, involving selling 2 ATM puts for every 100 shares (US stock options) sold, thereby replicating the risk profile of a Short Straddle.
Short Stock Selling shares short.
Short Straddle A low volatility direction neutral trade that involves simultaneously selling a call and put at the same strike price and with the same expiration date. Requires the underlying asset to be rangebound to make the trade profitable.
Short Strangle A low volatility direction neutral trade that involves simultaneously selling a call and put at different strike prices (the put strike being lower than the call strike - ie both OTM) and with the same expiration date. Requires the underlying asset to be rangebound in order to make the trade profitable.
Short Synthetic Future Selling calls and buying the same amount of puts with the same strike and expiration date, effectively forming the same risk profile of shorting a stock but with no net credit.
Short Selling Selling a security which you don't actually own beforehand. You will eventually have to buy it back, hopefully at a reduced price, thus making profit.
Sigma Sigma is generally a term used to represent volatility. It is generally represented as a percentage. The term "one sigma level" refers to the actual change in the underlying asset price.
Small-cap Stocks Smaller (and sometimes newer) companies which are associated with high risk and high potential rewards. Can be illiquid to trade with large bid-ask spreads.
Speculator A trader who aims to make profit by correctly assessing the direction of price movement of the security. Generally distinguished from investors in that speculators are associated with short term directional trading.
Spread The difference between the bid and ask of a traded security.A trading strategy which involves more than one leg to create a (hedged) position.A price spread is the difference between the high and the low of a price bar.
Standard & Poor's (S&P) A company that rates stocks and bonds and produces and tracks the S&P indices.
Stochastic A technical indicator, which is an oscillator based on the relationship of the open, high, low, close of price bars.
Stock A share of a company's stock is a unit of ownership in that company.
Stock Exchange or Stock Market An organised market where buyers and sellers are brought together to trade stocks.
Stock Split Where a company increases the amount of outstanding stock, thus increasing the number of shares, reducing the value per share. Generally a sign that the stock has been rising and management's way of assisting the liquidity in the stock.
Stop Orders Buy Stops: where the order price is specified above the current value of the security. Sell Stops: where the order price is specified below the current value of the security.
Straddle A neutral trade that involves simultaneously buying a call and put at the same Strike price and with the same Expiration date. Requires the underlying asset to move in an explosive nature (in either direction) in order to make the trade profitable.
Strangle A neutral trade that involves simultaneously buying a call and put at different Strike prices (the Put Strike being lower than the Call Strike - ie both OTM) and with the same Expiration date. Requires the underlying asset to move in an explosive nature (in either direction) in order to make the trade profitable.
Strap A neutral to bullish trade that involves simultaneously buying two calls and a put with the same strike price and expiration date. Requires the underlying asset to move in an explosive nature (preferably upwards) in order to make the trade profitable.
Strike Price (Exercise Price) The price at which an asset can be bought or sold by the buyer of a call or put option.
Strip A neutral to bearish trade that involves simultaneously buying two puts and a call with the same strike price and expiration date. Requires the underlying asset to move in an explosive nature (preferably downwards) in order to make the trade profitable.
Support A price threshold on a price chart which is thought to be difficult for the price to fall down through because of past price movements.
Synthetic Call Buying a share and a put, or going long a future and a put, replicating the risk profile shape of a Long Call.
Synthetic Put Buying a call and shorting a stock or future, replicating the risk profile shape of a Long Put.
Synthetic Long Stock Buying a call and shorting a put.
Synthetic Short Call Shorting a put and shorting a stock or future.
Synthetic Short Put Shorting a call and buying a stock or future.
Synthetic Short Stock Shorting a call and buying a put.
Synthetic Straddle Combining stocks (or futures) with options to create a delta neutral trade.

T

back to top
Technical Analysis Using charts and charting techniques and indicators (such as prices, volume, moving averages, stochastics etc) to evaluate future likely price movement.
Theoretical Value (options) The fair value calculation of an option using a pricing technique such as Black-Scholes options pricing formula.
Theta (decay) The sensitivity of an option price to the variable of time. Remember that options only have a finite life (until Expiration), therefore theta is an extremely important sensitivity to consider.
Tick The least amount of price movement recorded in a security. Currently the lowest being 1/32, however moves to decimalisation will eliminate the fractions structure.
Time Premium The non Intrinsic component of the price of an option.
Time Value (Extrinsic Value) The price of an option less its intrinsic value. Out of the Money Options are entire made up of Extrinsic (or Time) Value.
Treasury Bill (T-Bill) A short term government debt security with a maturity of no more than 1 year. The interest charged on these instruments is known as the Risk Free Rate.
Treasury Bond (T-Bond) A fixed interest US government debt security with 10 years or more to maturity.
Treasury Note (T-Note) A fixed interest US government debt security with between 1 to 10 years to maturity.
Triple Witching Day The third Friday in March, June, September and December when US stock options, index options and futures contracts all expire at the same time. The effect of this is often increased volume and volatility as traders look to close short and long positions.
Type The classification of an option - either a Call or a Put.

U

back to top
Uncovered Option A short position where the writer does not have the underlying security (or call option) to hedge the unlimited risk position of his naked position.
Underlying Asset / Instrument / Security An asset which is subject to purchase or disposal upon exercise.
Upside The potential for a price to increase.

V

back to top
Vega The sensitivity of an option price to volatility. Typically, options increase in value during periods of high volatility.
Volatility The measure of the fluctuation in the price movement in an security over a period of time. Volatility is one of the most important components in the theoretical valuation of an option price.Historical Volatility: the standard deviation of the underlying security (closing) price movement over a period of time (typically 21-23 days)Implied Volatility: the calculated component derived from the option price when using the Black-Scholes Option Pricing model. Where there is a significant discrepancy between Implied and Historical Volatility then there is the opportunity for the trader to take advantage of this.
Volatility Skew Whereby deep OTM options tend to have higher Implied Volatilities than ATM options. Where there are discrepancies, this, again gives the trader the opportunity to make trades whose profits are determined by volatility action as opposed to directional price action.
Volume The number of underlying securities traded on their particular part of the exchange.Where price direction and volume bars are aligned in the same direction then this is a bullish sign (ie it means that prices are rising with increased volume or that prices are falling with decreased volume).Where price direction diverges from volume bars then this is a bearish sign (ie prices rising with falling volume or prices falling with rising volume).

W

back to top
Whipsaw Where a price swing ensures a losing scenario for both sides of a position.
Witching Day When 2 or more classes of options and futures contracts expire.
Writer Someone who sells an option.

X

back to top

Y

back to top
Yield The rate of return of an investment, expressed as a percentage.

Z

back to top
Zeta An option price's sensitivity to Implied Volatility.

End of Page

Members Comment

Things sparked into life

S. Richie

"Hi Guy just thought i'd drop you a line to tell you how well your flag trader section of illuminati is working for me.

After a month or so of sitting on my hands things sparked into life a couple of weeks ago with several lovely bear flag pattens. Here are a few of my trades
  • AIR sold @1860 still in the trade having taken 50% profits
  • RYL sold @26.93 still in trade taken 50% profit
  • CTX coiled spring sold@1746 agin still in trade after taking profits
  • NM sold @11.15 profits taken still in trade
  • EK sold @1520 still in trade another flag now forming so may enter again
  • RMBS entered on a break below 200 ma hopefully this will move my way
  • AIG sold @3789 still in the tradeafter profit taking
  • LEH entry @34.36 still in trade having taken nice profits around 28
  • ADM entry below 3786 !!!!!!!
  • KEY Sold @1862 !!!!!!
  • TEN Sold @23.65 profits taken still in trade
  • UVV sold @49.54 hard work this one may get out as there are better opportunities at present.
In this period i have had 2 losing trades

The secret to flag trading is you need to be patient all the trades shown have happened in a recent two week spell but before that i had a month or so with nothing as we had a bull rally which i am not interested in as the bears are definately still in charge credit crunch bear sterns. etc etc."

All I Ever Needed

M. Green

"Up until now I didn't realize how successful a particular strategy could be, this is the moment I found out about Illuminati Trader. I have spent thousands of dollars learning when all I ever needed is in the complete set of Illuminati Trader. If you are serious about trading I suggest you buy the CDs, it has certainly changed my life."

Increased bank account by 60%!

S. Richie

"I tend to look for the easily identifiable patterns and it works for me. I started with a fairly small bank account and have increased it to date by around 60%. Maximum risk per trade is 3% and i hope eventually to get this down to 1% as my pot grows."

Keep up the Great Work!

B. Potter

"Hi Guy just thought i'd drop you a quick note regarding a few of my successes over the last couple of weeks
  • bought TS @ 45.51 still in his trade but have liquidated half my position.
  • sold USNA @31.69 still in this position @ 29.51 will liquidate part position before it comes close to double bottom.
  • sold SIGMA just below 35 liquidated part position around 30 and still in market with a fairly tight stop but may enter again if it clears 25.
  • OMTR entered @21.84 exited part position @2015 part position still running.
All the trades were found on the flag pattern section in TradeFinder which is an absolute revelation.

Keep up the great work"

Straddles from Bull Flags

B. Dhillon

"The following trades I picked from the `Bull Flags' with an exception for ANR.
  • [PCX] June $100/$95 Strangle -- profit £535.01+
  • [VRGY] July $25 Straddle 316.98 -- loss $64.98
  • [NSM] June $20 Straddle -- profit $516.89
  • [FMCN] June $35 Straddle -- $501.00
  • [ANR] June Straddle -- profit $200.00
  • [BIG] June Straddle -- profit $201.14
Amazed with the passion and committment on your side Guy -- am so looking forward to the Flag course, please let me know the second it's ready!"

Profitable Trading

J. Fletcher

"I would like to thank you for the incredible tools Illuminati Trader has given me. In the past, I have lost several thousand dollars on large trades that went wrong, so by comparison, investing in Illuminati Trader was an easy decision to make, taking into account I am now making a significant number of profitable trades."

Best Software I've ever seen

James A

"I had to drop you an e-mail to say what you have created here so far looks like the best software I've ever seen for choosing the best stocks - this is truly amazing stuff."

186% in One Month!

A. Abdirazak

"In one month I made over 186% on my investments and the money just keeps rolling in. It is hard to find a strategy that is low risk with high rewards. Guy Cohen gave me the confidence and the understanding I needed to trade successfully."

Outstanding Success

N. Blake

"I must say how impressed I was with Illuminati Trader. I was totally absorbed by it when I first watched it and couldn't wait to start applying it. I can categorically say that I am having some outstanding success with it. I look at the markets in a completely different way to how most people do and again would like to thank you for sharing this with me."

Truly Amazed

D. Howie

"I have gone through Illuminati Trader, and I am truly amazed at the way Guy spots the trades with such ease, and how I now can too."

A Lot Of Fun

P. Sheppard

"I received the Illuminati Trader CD-ROMS last week. I have been through the CD-ROMS once already and let me tell you it is dynamite! I could not stop watching them! This approach is a license to pillage the markets and have a lot of fun doing it!!!"

Terrific Tools

C. Green

"Armed with this knowledge and these tools I feel like I'm in a very exclusive band of Market Highwaymen! I can now put my time to good use in picking out the best opportunities as they reveal themselves via the terrific tools. Thank you Guy Cohen!"

Flags - Brilliant!

B. Dhillon

"Yesterday I bought following my new trading plan rule [5] contracts in the following:
  • ADM - up 67%
  • RECN - up 25%
  • JAS - Lost $118 dollar it turned against me
I am so, so looking forward to getting my hands on the Flag course now even more...I can see huge potential here."

Best Teacher in this Field

A. Abdirazak

"I read your email about the flag pattern and I would like to admit that you are the best teacher in this field. I did some trade on flag but I like straddle. So far all my straddles I made profit. First I watch the cnbc about the market news then i select from illuminati those stocks that I think will move up/down like banks, morgage and medical. "

$2,600 profit in Two Days!

A. Abdirazak

"I straddled AIG on Wednesday, February 27, 2008 and I bought 20 cont at total cost $7.90. I sold on Friday, February 29,2008 at $ 9.20. I made a profit of $ 2,600.00 in two days! "

'Options Made Easy' by Guy Cohen

A. Abdirazak

"This book changed the way I think and feel about stocks with the realization that my investments are safe, my strategies are effective and most importantly, I can sleep well at night. I highly recommend this powerful book to anyone who is a disciplined investor." More Info

Amazing!

J. Alliss

"Guy, this may be a bit premature but I managed to get some time to scan for stocks using your software a couple of days a go after we spoke and I made a note of some stocks that I felt had good breakout potential. CTV, CELG and ATVI are just three stocks that I was watching. Well, all three broke out so I could have easily made some money here if I could only keep my eye on the price action whilst I'm working. I had to drop you an e-mail to say what you have created here so far looks like the best software I've ever seen for choosing the best stocks - this is truly amazing stuff Sir."

None have met my strict standards...

J. Alliss

"I have to say that Guy Cohen is an honest and genuine person and I'd recommend the product based on that alone. He's an outstanding individual with superb customer service skills. I have purchased many products and none have met my strict standards apart from Guy."

Brilliant!

A. Hari

"I was about to give up trading altogether as it was all just too hit and miss when this amazing course was recommended to me. It showed me exactly how, when and why stocks move and when and how to get involved. Brilliant!"

Product Feedback

A. Caro

"I have attended various courses having learnt various ways of trading the markets. Up until now I didn't realize how successful a particular strategy could be, this is the moment I found out about Illuminati Trader. I have spent thousands of dollars learning when all I ever needed is in the complete set of Illuminati Trader. I would say to anybody, that if you are serious about trading I suggest you buy the CDs, it has certainly changed my life."

A Thank You Testimonial

A. Popbert

"Guy Cohen has taken professional concepts of trading volatility, and put them together to form a tool that works for ordinary traders who want to play with the pros. For sure, "Illuminati Trading" requires patience and discipline to only go for the best opportunities. I'm just very grateful that Guy has produced this material."

Flag Success

B. Dhillon

"This is just to say that I bought a put on MGM invested $5,500 and sold it a week later for over $11,000. I am truly enjoying trading flags all thanks to your genius self. Keep up the great work."

TradeFinder - Flags

B. Dhillon

"You are truly making an immense change to my mindset, skills, and the way I am trading. Keep up the amazing work."

MGM 101% Up

B. Dhillon

"Made 101% in one day on 10 contracts, will give you full and proper on all trades towards the end of the month. I am loving trading flags on breakouts, its a totally different story when you entering at breakouts. Once again a BIG THANK YOU and may god bless you brother with long life and excellent health!"

Thank You!

C. Green

"Armed with this knowledge and these tools I feel like I’m in a very exclusive band of Market Highwaymen! I can now put my time to good use in picking out the best opportunities as they reveal themselves via the terrific tools. Thank you Guy Cohen"

Made an average return of 18%

C. Howard

"I would just like to pass on my thanks to the Illuminati system of finding flag patterns.

Recently I have been spending my Sunday evenings looking through the trade finder flags section of Illuminati and inputting all the ticker symbols into Telechart that show Bear flag patterns remembering that 'trend is your friend'

During the past two weeks I have sold short 8 x different stocks and made an average return of 18%!!

I currently still hold 4 of them and all 4 are down today! perfect!"

...biggest gain so far today...

D. Sparling

"...biggest gain so far today on a bear flag trade: UNH put ... +90% in 2 days ! Tempted to let it all run... but I'll resist & take off half and let the rest run.. !"

Find Out for Yourself

D. Sparling

"Its one thing for someone to tell you that a system works..... its another thing to find out for yourself that it really does! I started trading during Jan 08...and after not one but a few(!) initial silly straddle and strangle trades ( i.e.not following the Illuminati system/rules), I took a break and started over again in April 08... since then, I'm up a respectable 25% over a 2 month period exploiting bull and bear flag patterns....more importantly, I am confident that I can significantly improve on these results with Illuminati over the coming months."

Thanks for your help

E. Bedford

"I would like to thank you for the incredible tools Illuminati Trader has given me. In the past, I have lost several thousand pounds on large trades that went wrong, so by comparison, investing in Illuminati Trader was an easy decision to make, taking into account I am now making a significant number of profitable trades"

111% profit!

K. Forward

"On the 31st January we reentered the trade at a stock price of $14.95. Before earnings it went up to about $16 and then on earnings day gapped down to $8. We came out with a profit of 111% on that day although it did over the next few days drop a bit further to around $7.50.

Coincidentally the 111% profit came from SIRF which is the stock featured in your CD no.5 when it gapped up on earnings from $23.50 to nearly $30."

Privileged Illuminati-Trader

J. Muller

"I feel privileged to have become an Illuminati Trader. I now don’t worry about the direction of any stock that I trade and I don’t have to be glued to my screens every day. I literally just log on and scan for the best opportunities at the best times and only select the very best of the best … to devastating effect! I’ve stopped over-trading and I now look forward to trading without pressure as a result. I still have my main job, and use my Illuminati Trading to generate another substantial pot on the side. In the last quarter cycle my broker must have thought I had a complete transplant as I was trading a completely new style to before … and with completely different results!"

Finding more exciting flags...

S. Richie

"As i am sitting writing this i have identified another 20 plus flags which look very exciting."

Early trading days

K. Forward

"My Son, Steven, and I only started trading in the middle of January. I am ashamed to admit that we made an elementary mistake on our first three trades by placing strangles as well as straddles.
However on a recent trade we made a profit of 111% and to date, after three weeks, we are $751 up. A useful start !

Thanks again for your expert tuition."

Disciplined and Loving it

M. Hobbs

"...Using lots of things you taught me and doing really well. Still being cautious and learning from my mistakes. Only been trading consistently for the last 6 weeks or so and has taken a while for me to get set up. I am now trading daily and being really disciplined, I am actually loving it."

As it moves I’m making profits!

O. Broeckl

"I was about to give up trading altogether as it was all too difficult to spot highs, lows and turning points when this amazing course was recommended to me. It showed me exactly how to trade the volatility of the markets and now I never have to worry about which direction the stock might be going in. So long as it moves I’m making profits … and sometimes massive profits."

I could not stop watching the CDs!

P. Conti

"I received the Illuminati Trader CD-ROMS last week. I have been through the CD-ROMS once already and let me tell you it is dynamite! I could not stop watching the CDs! Teamed with money management, position sizing and risk management, this approach is a license to pillage the markets and have a lot of fun doing it!!! "

Gained 2 years of experience

T. Duncan-Smith

"The beauty with these CDs is that it is like having personal tuition with Guy himself. He even shows you where he made mistakes in the past. He shows you how to avoid the pitfalls and how to be selective for the very best opportunities. If you went on a course to learn this, you would inevitably forget vital elements during the day, but by owning the CD-ROMs, I watch them as many times as I like. It's as if I've gained 2 years of experience watching Guy go through all those trades with me on the CDs."

Having Some Outstanding Success

R. Stern

"I must say how impressed I am with Illuminati Trader. I was totally absorbed by it when I first watched it and couldn't wait to start applying it. Several weeks down the line, I can categorically say that I am having some outstanding success with it. I look at the markets in a completely different way to how most people do and again would like to thank you for sharing this with me."