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Trading
Glossary
162 futures and options terms in plain English, tagged FUTURES, OPTIONS or BOTH.
A
AbsorptionFUTURES Heavy trading at a price without the price moving, as resting orders take in market orders.
AskBOTH The lowest price at which a seller is willing to sell right now (also offer).
Assignment When an option seller is required to fulfil the contract after the buyer exercises.
At the money (ATM) An option whose strike is at or very near the current price of the underlying.
ATR (Average True Range)BOTH An indicator showing the average size of recent price ranges, often used to judge stop distance.
Auction market theoryFUTURES The idea that markets move to find prices where trade is fair and then to explore for new value.
Average downBOTH Adding to a losing position at a lower price, which increases risk on a position already wrong.
B
BackwardationFUTURES When futures prices for later months are lower than for nearer months.
Balance (market)FUTURES A period when price rotates within a range and neither side controls.
BarBOTH One period of price data showing open, high, low and close.
BasisFUTURES The difference between a futures price and the price of the underlying.
Bear marketBOTH A prolonged decline, often defined as a fall of 20% or more from a high.
Bear put spread Buy a put and sell a lower-strike put with the same expiry; defined risk and reward.
BidBOTH The highest price at which a buyer is willing to buy right now.
Bid/ask spreadBOTH The gap between the bid and the ask; a cost to trade.
Black-Scholes A mathematical model often used to price options.
Break of structureBOTH Price breaking the last swing that defined a trend.
Breakeven (options) The underlying price at expiry where an option position has neither profit nor loss.
BreakoutBOTH Price moving beyond a level such as a range high or support.
Bull call spread Buy a call and sell a higher-strike call with the same expiry; defined risk and reward.
Bull marketBOTH A prolonged rise in prices.
Buy to close An order that closes an existing short option position.
Buy to open An order that opens a new long option position.
C
Call option A contract giving the buyer the right, not the obligation, to buy 100 shares at the strike by expiry.
CandlestickBOTH A chart symbol showing open, high, low and close for one period.
Cash settlementBOTH Settling a contract with a cash payment instead of delivering the asset.
Confirmation biasBOTH Looking only for information that agrees with what you already believe.
ContangoFUTURES When futures prices for later months are higher than for nearer months.
ContractBOTH The standard unit of a futures or options trade.
Contract multiplierBOTH The dollar value of one point (ES $50, MES $5, NQ $20, MNQ $2); options normally 100.
Covered call Owning 100 shares and selling a call against them.
Credit spread A spread where you receive a net credit when opening it.
Cumulative delta (CVD)FUTURES A running total of buy-side minus sell-side volume differences over time.
D
Daily loss limitBOTH A preset dollar or R amount of loss after which you stop trading for the day.
Day tradeBOTH A position opened and closed within the same session.
Debit spread A spread where you pay a net debit when opening it.
Delta (futures)FUTURES The difference between ask-side and bid-side volume at a price or bar.
Delta (option Greek) How much an option price is expected to change for a $1 move in the underlying; roughly its sensitivity to price.
Delta divergenceFUTURES Price making a new high or low while delta does not.
Depth of market (DOM)FUTURES A display of resting buy and sell limit orders at each price.
Diagonal spread Options at different strikes and different expiries combined in one position.
DojiBOTH A candle whose open and close are nearly equal.
DrawdownBOTH The fall in account value from a peak to a later low.
E
E-miniFUTURES A smaller electronic futures contract, such as ES and NQ.
Early exercise Exercising an American-style option before expiry.
Earnings A company's periodic profit report, often moving options and implied volatility.
Equity curveBOTH A chart of account value over a series of trades.
ESFUTURES The E-mini S&P 500 futures contract; tick $12.50, point $50.
ETFBOTH An exchange-traded fund, a basket that trades like a stock (for example SPY).
Exercise Using an option's right to buy or sell at the strike.
ExpectancyBOTH The average result per trade in R, from win rate and average win and loss.
ExpirationBOTH The date an option or futures contract ends.
Extrinsic value The part of an option price above its intrinsic value, mostly time value and volatility.
F
FadeBOTH To trade against the current move.
FillBOTH The execution of an order.
Float The number of shares available to trade for a stock.
FOMOBOTH Fear of missing out; entering because price is moving.
Footprint chartFUTURES A chart that shows bid and ask volume at each price inside each bar.
Futures contractFUTURES A standardized agreement to buy or sell an asset at a set price on a future date.
G
Gamma How fast an option's delta changes when the underlying moves.
GapBOTH A jump between the prior close and the next open.
GlobexFUTURES The CME's electronic overnight trading session.
Greeks Measures of option price sensitivity: delta, gamma, theta, vega and rho.
H
HedgeBOTH A position taken to reduce the risk of another position.
High volume node (HVN)FUTURES A price area where a lot of volume traded.
Higher high / higher lowBOTH A swing peak above the prior peak / a swing valley above the prior valley.
I
ImbalanceFUTURES A large difference between buy-side and sell-side volume at adjacent prices.
Implied volatility (IV) The market's expected size of future price movement as built into an option's price.
In the money (ITM) A call with strike below the price, or a put with strike above it.
Initial balanceFUTURES The range of the first hour of the regular session.
Intrinsic value The in-the-money amount of an option if exercised now.
InvalidationBOTH The price at which a trade idea is wrong.
Iron butterfly A four-leg options spread selling an at-the-money call and put and buying wings.
Iron condor A four-leg options spread with a short call spread and short put spread; defined risk.
IV crush A sharp fall in implied volatility, often after an event such as earnings.
IV percentile / IV rank Where current implied volatility sits compared with its past range.
J
JournalBOTH A log of your trades, plans, results in R and notes.
L
LeverageFUTURES Controlling a large position with a smaller amount of capital.
Limit orderBOTH An order to buy or sell at a set price or better.
LiquidityBOTH How easily you can trade without moving the price.
Liquidity poolFUTURES An area where many stop orders tend to cluster, such as above equal highs.
LongBOTH Owning a position that profits if price rises.
Low volume node (LVN)FUTURES A price area where little trading happened.
Lower high / lower lowBOTH A swing peak below the prior peak / a swing valley below the prior valley.
M
Maintenance marginFUTURES The minimum account balance that must be kept to hold a futures position.
MarginBOTH A deposit held by a broker to support leveraged positions; not your maximum loss.
Margin callBOTH A broker's demand to add funds when margin falls too low.
Market makerBOTH A firm that continuously quotes bids and asks.
Market on closeBOTH An order executed at or near the close.
Market orderBOTH An order to trade immediately at the best available price.
Market profileFUTURES A chart that shows how much time price spent at each level using letters.
MESFUTURES Micro E-mini S&P 500 futures; tick $1.25, point $5.
Micro contractFUTURES A futures contract one tenth the size of the standard one (MES, MNQ).
MNQFUTURES Micro E-mini Nasdaq-100 futures; tick $0.50, point $2.
Moneyness Whether an option is in, at or out of the money.
Moving averageBOTH The average price over a set number of periods, plotted as a line.
N
Naked option A short option with no offsetting position, so loss is not capped the same way.
Notional valueFUTURES The full value of the position's underlying (price x multiplier x contracts).
NQFUTURES The E-mini Nasdaq-100 futures contract; tick $5.00, point $20.
O
Open interestBOTH The number of outstanding contracts not yet closed.
Opening rangeFUTURES The high and low of the first few minutes of a session.
Option chain A table of available options by strike and expiry with prices.
Order bookBOTH The list of resting buy and sell orders.
Out of the money (OTM) A call with strike above the price, or a put with strike below.
OvertradingBOTH Taking more trades than your plan calls for.
P
Paper tradingBOTH Simulated trading with no real money.
Pin risk The risk that the underlying closes near a strike at expiry, making assignment uncertain.
PointFUTURES A full unit of price movement, four ticks in ES.
Point of control (POC)FUTURES The price with the most volume (or most time) in a profile.
Position sizeBOTH The number of contracts or shares in a trade.
Pre-marketBOTH Trading before the regular session opens.
Premium The price paid for an option, per share (multiply by 100 for the dollar cost per contract).
Prior day high / low / closeBOTH The previous session's high, low and closing price, used as reference levels.
Put option A contract giving the buyer the right, not the obligation, to sell 100 shares at the strike by expiry.
Put-call ratio The ratio of put volume to call volume, used as a sentiment measure.
R
R-multipleBOTH A trade's result divided by the amount risked on it.
RangeBOTH A market moving sideways between a high and a low.
Regular trading hours (RTH)BOTH The main stock session, 9:30 AM to 4:00 PM ET.
ResistanceBOTH A price area where selling has tended to appear.
Revenge tradingBOTH Trading to win back a loss rather than following your plan.
Reward:riskBOTH The distance to target divided by the distance to the stop.
Rho How much an option price changes for a one percentage point move in interest rates.
Risk of ruinBOTH The chance of losing so much that you can no longer trade.
RollBOTH Closing a position in an expiring contract and opening the next one.
S
ScalpingBOTH Very short-term trading for small moves.
SessionFUTURES A part of the trading day, such as Asia, London or New York.
Settlement priceFUTURES The official price used to compute daily gains and losses on futures.
ShortBOTH A position that profits if price falls.
Short squeezeBOTH A rapid rise as short sellers rush to close positions.
SlippageBOTH The difference between the expected and actual fill price.
Spread (bid/ask)BOTH The difference between the bid and the ask.
Spread (options) A position that combines two or more options.
SPY An ETF that tracks the S&P 500 index.
Stop orderBOTH An order that becomes a market order once a set price is reached; the fill is not promised at that price.
Stop runFUTURES A quick move beyond an obvious level that triggers stops before reversing.
Straddle Buying a call and a put at the same strike and expiry, a bet on a big move either way.
Strangle Buying a call and a put at different strikes and the same expiry.
Strike price The price at which an option can be exercised.
SupportBOTH A price area where buying has tended to appear.
Swing high / lowBOTH A peak or valley in price with lower or higher prices on both sides.
Swing tradeBOTH A trade held for days to weeks.
T
Theta How much an option loses in value each day from the passage of time.
TickFUTURES The smallest price move of a contract (0.25 in ES = $12.50).
TiltBOTH Trading worse because of emotion, usually after a loss.
Time decay The loss of an option's time value as expiry approaches.
Time value The part of an option's price that exceeds its intrinsic value.
TPOFUTURES Time Price Opportunity; one letter on a Market Profile chart.
Trailing stopBOTH A stop that moves with price in your favor.
TrendBOTH A series of higher highs and higher lows, or lower highs and lower lows.
U
UnderlyingBOTH The asset an option or future is based on.
V
Value areaFUTURES The price range where about 70% of the trading occurred.
Value area high (VAH) / low (VAL)FUTURES The upper and lower edges of the value area.
Vega How much an option price changes for a one point change in implied volatility.
Vertical spread Options at two strikes with the same expiry, a defined-risk structure.
VIX An index of expected 30-day volatility in the S&P 500 derived from options prices.
VolatilityBOTH How much and how fast price moves.
VolumeBOTH The number of contracts or shares traded in a period.
Volume profileFUTURES A chart showing the volume traded at each price.
VWAPBOTH Volume-weighted average price, the average price weighted by volume.
W
Wick (shadow)BOTH The thin line on a candle showing the high or low beyond the body.
Win rateBOTH The percentage of trades that are winners.
Z
Zero-day option (0DTE) An option that expires the same day, with very fast time decay.
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