Trading & Options Glossary — 170 Terms

0–9

0DTE (zero days to expiration)

Options that expire the same day they trade. SPY and SPX list expirations every weekday, so 0DTE contracts trade daily.

With only hours left, gamma near the money is extreme and time decay is fast. Small moves can swing a 0DTE option’s value by 100% or more within minutes, in either direction.

A

AM settlement

A settlement style in which an option’s final value comes from opening prices on expiration morning. Standard monthly SPX options use it and stop trading the business day before.

Because the settlement value is set at the open, the exposure from these contracts is gone shortly after regular trading begins on expiration day. SPY options and SPX’s PM-settled weekly and daily contracts run until the close.

American vs European style

American-style options can be exercised any day up to expiration; European-style only at expiration. SPY options are American-style; SPX options are European-style and settle in cash.

Cash settlement pays the option’s intrinsic value in dollars instead of delivering shares. That means an SPX position can’t leave you holding shares after expiration, while a SPY position can.

Annual percentage rate (APR)

The yearly cost of borrowing, shown as a percentage. Fees and how interest is charged can make the actual cost higher, so read the terms.

Carrying a $2,000 credit card balance at 24% APR costs roughly $40 of interest a month. That cost is one reason many money plans pay down high-rate debt before investing.

Ask (offer)

The lowest price a seller is currently willing to accept. If you buy with a market order, you usually pay the ask.

Asset allocation

The mix of categories you hold, such as stocks, bonds and cash.

A 60/40 mix holds 60% in stocks and 40% in bonds. The right mix depends on your time horizon and risk capacity, and no mix removes the chance of loss.

Assignment

When an option seller must fulfill the contract because a holder exercised: delivering shares on a call, or buying them on a put.

American-style options can be assigned any day before expiration, most often when little extrinsic value remains or just before a dividend. The OCC allocates exercises to brokerage firms, which assign them to customer accounts.

B

Backtest

Testing a set of trading rules on past data to see how they would have performed. The results are hypothetical and describe the past.

A backtest is only as honest as its data and assumptions. Overfitting, look-ahead bias and survivorship bias are the usual ways it flatters a strategy.

Backwardation

An inverted term structure: near-term implied volatility sits above longer-dated implied volatility, so the curve slopes down. For an index with no scheduled event, it often accompanies stress.

Benchmark

A reference, such as a broad stock index, used to compare investment results over the same dates.

Beta

How much a stock has tended to move relative to the market. A beta of 1.5 means about a 1.5% move for each 1% move in the index.

Bid

The highest price a buyer is currently offering. If you sell with a market order, you usually get the bid.

Bid-ask spread

The gap between the bid and the ask. It’s a cost you pay every time you enter and exit a trade.

If an option is $1.20 bid and $1.30 ask, the spread is $0.10, or $10 per contract. Buying at the ask and selling at the bid right away loses that $10 even if nothing moves.

Block trade

One very large trade, traditionally 10,000 shares or more, often negotiated privately and printed as a single transaction.

Bond

A loan to a government or company that usually pays interest and repays the amount borrowed at maturity, if the borrower meets its obligations. Bonds can lose value.

When interest rates rise, existing bonds that pay lower rates usually fall in price. A borrower in trouble can also miss payments, so a bond isn’t automatically safe.

Break-even price

The underlying price at expiration where an option trade neither makes nor loses money. Long call: strike plus premium. Long put: strike minus premium.

A $500 call bought for $3.00 breaks even at $503 at expiration. Before expiration, remaining time value shifts the real break-even.

Brier score

A score for probability forecasts: the average squared gap between your stated confidence and what happened. 0 is perfect; always saying 50% scores 0.25.

Say you give 70% and it happens: (0.7 − 1)² = 0.09. If it doesn’t happen: (0.7 − 0)² = 0.49. Academy simulators use it to score calibration, not profit.

Build-up

The percentage change in a Strength Zone’s strength since the open, or since its first reading, with the basis always labeled.

A Build-up of “▲312% since open” means the estimated gamma in that zone is about four times its opening level. Build-up shows change in strength, not which way price will go.

Butterfly

Three strikes, one expiration: buy one low, sell two in the middle, buy one high. It costs little and pays most if price finishes at the middle strike.

A $495/$500/$505 call butterfly might cost $1.00 ($100). Its best case at expiration is $4.00 ($400) with the stock exactly at $500; below $495 or above $505 it loses the $100.

C

Calibration

How well your confidence matches reality. If the things you call 70% likely happen about 70% of the time, you’re well calibrated.

Call option

The right to buy 100 shares at the strike price until expiration. A long call gains value when the underlying rises enough.

Buy a $500 call for $3.00, which costs $300. If the stock is at $506 at expiration, the call is worth $6.00 ($600); at $500 or below it expires worthless and the $300 is gone.

Candlestick (candle)

A chart bar showing one period’s open, high, low and close. The thick body spans open to close; thin wicks reach the high and low.

A green or hollow candle closed above its open; a red one closed below it. A long upper wick means price rose during the period but sellers pushed it back down by the close.

Cash flow

Income minus all expenses over a period, such as a month.

Take-home pay of $4,200 and expenses of $3,900 leave $300 of monthly cash flow. Negative cash flow means savings or debt are covering the gap.

Cash-secured put

Selling a put while holding enough cash to buy the shares at the strike if you’re assigned.

Sell a $95 put for $2 on a $100 stock and set aside $9,500. If assigned, you buy 100 shares at an effective $93; if not, you keep the $200. The risk is the stock falling well below $93.

Ceiling

StratosHedge’s name for the strike with the largest positive net gamma exposure, where rallies often slow. Pros call it the call wall.

Dealer hedging near this strike tends to lean against rallies, so price often stalls or chops as it approaches. It’s a zone, not a wall: it can break, and it can move as positioning changes.

Charm

How delta changes as time passes, with price and volatility unchanged. It speeds up near expiration and can shift dealer hedging late in the day.

Out-of-the-money options lose delta as expiration approaches, so hedges tied to them unwind. On 0DTE-heavy days the effect can be noticeable into the afternoon.

Compounding

Earning returns on your earlier returns, so growth builds on itself over time.

Losses compound too: a 50% loss needs a 100% gain just to get back to even. That lopsided math is why protecting capital comes first.

Confirmation

Price itself behaving the way your plan expects, such as holding a zone or closing beyond it, before you act on a level.

Confirmation bias

Noticing evidence that supports what you already believe and discounting what doesn’t. It makes traders hold on to broken ideas too long.

Contango

A term structure where longer-dated implied volatility sits above near-term implied volatility, so the curve slopes upward. It’s the usual shape in calm markets.

Contract multiplier

The number of shares one option contract covers, which is 100 for standard US stock and ETF options.

A quote of $1.85 means $185 per contract. Contracts adjusted after splits or mergers can cover a different deliverable, so check the details before trading them.

Correlation

How closely two prices move together, from −1 (opposite) to +1 (in step). Correlations often rise in sell-offs, just when diversification matters most.

Covered call

Owning 100 shares and selling a call against them. You collect premium but give up gains above the strike.

Own 100 shares bought at $100 and sell a $105 call for $1.50: you keep $150, and if the stock finishes above $105 your shares may be called away at $105. You still carry nearly all of the downside of owning the stock.

Credit spread

A spread that pays you to open. Its maximum profit is the credit collected, and its maximum loss is the width between strikes minus that credit.

Sell a $495 put for $1.50 and buy a $490 put for $0.70: you collect $0.80 ($80), and the most you can lose at expiration is $5 − $0.80 = $4.20 ($420). The short leg can be assigned early.

D

Dark pool

A private trading venue where large orders execute without showing quotes beforehand. Trades are reported after the fact and show activity, not intent.

A big print can be a buyer, a seller, a hedge or a fund rebalancing; the report doesn’t say which. Some prints also arrive late.

Dark pool level

A price where large off-exchange trades printed, marked on the chart with the dollar size, such as “DP $1.9B”.

It marks heavy past activity at that price. Whether price reacts there later is uncertain, so traders treat it as context alongside other levels.

Days to expiration (DTE)

How many days remain until an option expires. Fewer days means faster time decay and more sensitive gamma near the strike.

Dealer (market maker)

A firm that quotes bids and asks and takes the other side of customer trades, then hedges so it isn’t betting on direction.

Dealers aim to earn the spread, not to guess direction, so they often offset an option’s delta by trading shares. Those hedging trades are what the positioning map tries to estimate.

Dealer-side sign assumption

The model’s assumption that dealers are net long calls and net short puts, so calls count as positive gamma and puts as negative.

Real dealer inventory isn’t public. When customers heavily sell puts or buy calls, the assumption can be wrong, and the map can mislabel levels or the regime.

Debit spread

A spread that costs money to open. Its maximum loss is the debit paid, and its maximum profit is the width between strikes minus that debit.

Buy a $500 call for $4 and sell a $505 call for $2: the $2 debit ($200) is the most you can lose, and $5 − $2 = $3 ($300) is the most you can make at expiration.

Defined risk

A position whose maximum loss is known and capped when you open it, such as a long option or a vertical spread.

Undefined-risk positions, like a short call with no shares or long call behind it, can lose far more than the premium collected. Brokers require higher approval levels and margin for them.

Delta

How much an option’s price changes for a $1 move in the underlying. A 0.50 delta call gains about $0.50 per share ($50 per contract) on a $1 rise.

Calls have delta between 0 and 1; puts between 0 and −1. Delta is often used as a rough stand-in for the chance an option finishes in the money, though the two aren’t the same.

Delta hedging

Trading the underlying to cancel an option position’s delta. A dealer short one 0.40-delta call buys about 40 shares to stay neutral.

As price moves, delta changes (that’s gamma), so the hedge needs constant adjusting. Those adjustments are the buying and selling that can dampen or amplify moves.

DEX (delta exposure)

An estimate of the dollar delta in the modeled dealer options position, showing which way hedges lean. It uses the same sign assumption as GEX.

Diversification

Spreading money across different assets so that one bad outcome can’t sink the whole portfolio.

Ten tech stocks are less diversified than they look because they often move together. Diversification lowers the damage from any single position; it doesn’t remove market risk.

Dividend

A payment a company may make to its shareholders, often quarterly. It isn’t promised and can be reduced or stopped.

A $0.50 quarterly dividend on 100 shares pays $50. All else equal, the share price tends to drop by about the dividend amount on the ex-dividend date, so it isn’t extra money on top of the price.

Drawdown

The drop from an account’s peak value to its later low, usually shown as a percentage.

An account that falls from $12,000 to $9,000 is in a 25% drawdown. Getting back to $12,000 needs a 33% gain, which is why deep drawdowns are so hard to climb out of.

E

Earnings per share (EPS)

A company’s profit for a period divided by its number of shares outstanding.

A company that earns $2 billion with 1 billion shares outstanding has EPS of $2. Reported EPS can differ from “adjusted” figures, so check which one you’re reading.

Emergency fund

Cash set aside for surprises like a job loss or a repair, often three to six months of essential expenses, kept apart from money you trade.

Trading with money you may need next month pushes you into rushed decisions. An emergency fund lets a losing trade stay a lesson instead of becoming a crisis.

ETF (exchange-traded fund)

A fund that holds a basket of assets and trades on an exchange like a single stock. SPY, for example, tracks the S&P 500.

Ex-dividend date

The first day a stock trades without its next dividend. Short in-the-money calls face a higher chance of early assignment the day before, as holders may exercise to collect it.

Early exercise tends to make sense for a call holder when the dividend is larger than the call’s remaining extrinsic value. Anyone assigned on a short call without shares behind it ends up short stock and owes the dividend.

Exercise

Using an option’s right: buying shares at the strike with a call, or selling them at the strike with a put.

Most traders close options by selling them instead of exercising, because selling also captures any remaining extrinsic value. Exercising early usually throws that value away; one exception is a call just before a dividend.

Expectancy

The average a set of trades makes or loses per trade over many trades: win rate × average win minus loss rate × average loss.

With a 40% win rate, a $300 average win and a $100 average loss: 0.40 × $300 − 0.60 × $100 = $60 per trade. Small samples are noisy, so expectancy needs dozens of trades before it means much.

Expected move

The size of move option prices imply by a given expiration, often estimated from the at-the-money straddle’s price. It’s a range, not a direction.

If the at-the-money straddle on a $500 stock costs $10, the market is pricing roughly a $10 move either way by expiration. Another shortcut is price × IV × √(days ÷ 365); price often finishes inside the range but breaks out of it regularly.

Expense ratio

A fund’s annual operating cost as a percentage of your money in it. At 0.50%, an unchanged $10,000 costs about $50 a year.

Expiration

The date an option contract ends. After it, the contract no longer exists and any remaining rights are gone.

Stock and ETF options that finish at least $0.01 in the money are generally exercised automatically unless the holder says otherwise. Options that finish out of the money expire worthless.

Extended hours

Trading before the 9:30 a.m. ET open (pre-market) and after the 4:00 p.m. ET close. Volume is thinner and spreads wider, so prices jump more easily.

Regular hours run 9:30 a.m. to 4:00 p.m. Eastern, which is 6:30 a.m. to 1:00 p.m. Pacific. When a chart includes extended hours, StratosHedge can mark the Pre-Mkt High and Pre-Mkt Low.

Extrinsic value (time value)

The part of an option’s price above its intrinsic value: what you pay for time and the chance of movement. It shrinks to zero by expiration.

A $500 call priced at $7 with the stock at $505 has $5 of intrinsic value and $2 of extrinsic value. Time decay and falling implied volatility eat away the extrinsic part.

F

Flip Line

StratosHedge’s name for the price near which estimated net dealer gamma turns from negative to positive, separating calmer from more volatile behavior. Pros call it the gamma flip.

It’s found at the strike gap nearest price where net GEX turns from negative below to positive above, which is a proxy and sometimes isn’t available. Above it the regime tends to be Calm; below it, Volatile.

Floor

StratosHedge’s name for the strike with the most negative net gamma exposure, often watched as support. Pros call it the put wall.

Declines often slow near it, but it can break. Below it, hedging tied to puts can add to selling, so moves through it can be fast.

G

Gamma

How fast delta changes for a $1 move in the underlying. It’s largest for at-the-money options close to expiration.

A call with 0.50 delta and 0.05 gamma has about 0.55 delta after a $1 rise. Dealers must adjust their hedges as delta changes, which is why gamma sits at the heart of the positioning map.

Gamma exposure (GEX)

An estimate of how many dollars of stock dealers may need to trade for each $1 move, per strike and in total, based on open interest.

StratosHedge estimates per-strike GEX as gamma × open interest × 100 × spot, with calls counted positive and puts negative; that sign is a model assumption, not observed dealer inventory. The largest positive strike is the Ceiling and the most negative is the Floor.

Gamma profile

A chart of estimated gamma exposure at each strike, showing where positive and negative gamma cluster around price.

StratosHedge builds it from the nearest expiration (0DTE for SPY on most days) and about 30 strikes on each side of price. Its tallest bars become the key levels.

Gamma regime

The backdrop StratosHedge labels from estimated dealer gamma: Calm, Volatile, or Mixed when price is near the Flip Line.

StratosHedge shows it as “Positive Gamma · Calm”, “Negative Gamma · Volatile” or “Near Flip Line · Mixed”, with a buffer so it doesn’t flicker while price hovers near the line. It describes conditions; it isn’t a forecast.

The Greeks

Measures of how an option’s price responds to changes in price, time, volatility and interest rates, named mostly after Greek letters.

They come from pricing models such as Black-Scholes, so they are estimates that shift as conditions change. Think of them as dials, not fixed facts.

H

Hedge

A position taken to offset risk in another position, such as buying a put to protect shares you own.

I

Implied volatility (IV)

The future volatility that option prices imply, quoted as an annual percentage. Higher IV means pricier options.

A rough rule: divide IV by 16 for a typical one-day move. SPY at 16% IV implies a daily move of about 1%, roughly $5 on a $500 price; it’s the market’s estimate, not a promise.

Index

A rule-based basket that measures a slice of the market, such as the S&P 500. You can’t buy an index directly, but funds and options track it.

Index options such as SPX settle in cash, while ETF options such as SPY settle in shares. Both trade in huge size, which is why traders watch their positioning closely.

Index fund

A fund that tries to follow a particular index, such as the S&P 500, instead of having a manager pick investments. It can be a mutual fund or an ETF.

Inflation

A general rise in prices over time, so the same dollars buy less.

At a hypothetical 3% a year, something that costs $100 today costs about $134 in ten years. Cash that earns less than inflation loses buying power.

Intrinsic value

What an option would be worth if exercised right now: price minus strike for a call, strike minus price for a put, never below zero.

With the stock at $505, a $500 call has $5 of intrinsic value and a $510 call has none. Out-of-the-money options have zero intrinsic value, so their whole price is extrinsic.

Invalidation

The price or condition that proves your trade idea wrong. It sets where you exit and, with your risk budget, how big you trade.

It belongs where the idea is clearly broken, not at a round number that only limits pain. A plan built on the Floor holding might be invalidated by a 5-minute close well below its zone.

Iron condor

A short put spread below price plus a short call spread above it, same expiration. It collects a credit and does best if price stays between the short strikes.

With a stock at $500, selling the $490/$485 put spread and the $510/$515 call spread for $1.50 risks $3.50 ($350) to make $1.50 ($150). Some traders compare the short strikes with the Floor and Ceiling, but levels can break.

IV crush

A sharp drop in implied volatility after a known event such as earnings passes, which deflates option prices even if the stock moves.

A call bought for $6 before earnings can be worth $4 the next morning after a small rise, because the event premium vanished. You can be right on direction and still lose money.

IV percentile

The share of days over the past year when implied volatility was lower than it is today. Unlike IV rank, a single spike barely moves it.

If IV was lower than today on 200 of the last 252 trading days, IV percentile is about 79. One extreme day can drag IV rank down for months but counts as just one day in IV percentile.

IV rank

Where today’s implied volatility sits within its range over the past year, from 0 (the low) to 100 (the high).

If IV ranged from 12% to 32% and is now 17%, IV rank is (17 − 12) ÷ (32 − 12) × 100 = 25. IV percentile is a cousin: the share of past days with lower IV than today.

L

Leverage

Controlling more market exposure than the cash you put up, through borrowing or derivatives like options. It magnifies gains and losses alike.

With 4× leverage, a 5% move against you costs 20% of your capital. Options are leveraged too: on a $500 stock, a call with a 0.50 delta moves like 50 shares, about $25,000 of stock, for a few hundred dollars.

Limit order

An order that fills only at your price or better. It controls the price but may not fill at all.

Options traders use limit orders by default because spreads can be wide. A limit near the midpoint between bid and ask often gets a better price than a market order, if it fills.

Liquidity

How easily you can trade without moving the price. Liquid markets have tight spreads and plenty of size at each price.

Near-the-money SPY options are among the most liquid in the world, often a penny or two wide. A thinly traded stock’s options can have spreads of 10% or more of the option’s price.

Look-ahead bias

Using information in a backtest that wouldn’t have been available at the time, such as the day’s close or tomorrow’s open interest.

Example: a rule that trades at 10 a.m. using open interest that wasn’t published until the next morning. Because open interest settles overnight, a real 10 a.m. map was built from the prior day’s numbers.

M

Magnet

StratosHedge’s name for the strike with the most gamma, where price often gravitates or pins, especially into expiration. Pros call it the gamma magnet.

StratosHedge’s Magnet uses a volume-based gamma estimate from its data provider. Pinning is a tendency, not a rule: news and heavy flow can pull price away.

Margin

Money borrowed from your broker against your account, or the collateral a broker requires for positions such as short options.

If your account value falls too far, the broker can issue a margin call and may close positions without asking. Regulators set minimums, and brokers often require more.

Market capitalization

Share price multiplied by shares outstanding: a measure of a company’s size that share price alone can’t give you.

A $10 stock with 1 billion shares is a $10 billion company; a $100 stock with 50 million shares is a $5 billion company. The lower share price belongs to the bigger business.

Market order

An order to buy or sell right away at the best available price. It fills fast, but you don’t control the price, which can hurt in fast or thin markets.

Mean reversion

The tendency of price to drift back toward an average or a central level after stretching away. Hedging in a positive-gamma backdrop can add to it.

Model risk

The chance that a model’s assumptions or inputs are wrong, so its output misleads. Every positioning map carries it.

For GEX the main sources are the dealer-side sign assumption, open interest that is a day old, a single-expiration window and the strike-gap proxy behind the Flip Line. Treat levels as areas to watch, then let price confirm.

Momentum

The tendency of a move to keep going in the same direction for a while. Hedging in a negative-gamma backdrop can add to it.

Moneyness (ITM, ATM, OTM)

Where a strike sits versus price. In the money (ITM) has intrinsic value; at the money (ATM) is near price; out of the money (OTM) has none.

With the stock at $500, a $490 call is in the money, a $500 call is at the money and a $510 call is out of the money; for puts it’s the reverse. At-the-money options carry the most time value and, near expiration, the most gamma.

Moving average (SMA, EMA)

The average closing price over the last N candles, updated as each candle closes. It smooths noise so the trend is easier to see.

A simple moving average (SMA) weights every candle equally; an exponential moving average (EMA) weights recent candles more, so it reacts faster. Both lag price because they look backward.

Mutual fund

A fund that pools investors’ money. Purchases and redemptions are generally processed at a price calculated after the market closes, unlike an ETF, which trades all day.

N

Negative gamma

A backdrop where dealers are estimated to be short gamma, so their hedging buys rallies and sells declines. Moves tend to be amplified; StratosHedge calls it Volatile.

Wider ranges, faster drops and sharper reversals are more common here. Many traders use smaller size and leave more room for invalidation in this regime.

Net GEX

All per-strike gamma exposure added together. Positive totals suggest a calmer backdrop; negative totals suggest a jumpier one.

Net GEX at each strike also places the Flip Line: the strike gap nearest price where it turns from negative below to positive above. When no crossing exists, StratosHedge labels the regime from the sign of total net GEX instead.

Net worth

What you own (assets) minus what you owe (liabilities).

With $8,000 in savings, a $12,000 car and a $9,000 car loan, net worth is $8,000 + $12,000 − $9,000 = $11,000.

Notional value

The dollar value of the shares an option position controls: contracts × 100 × the underlying price.

Ten SPY contracts with SPY at $500 control $500,000 of notional, even if the options cost only $2,000. Notional shows exposure, not the money at risk.

O

Open interest (OI)

The number of option contracts still open at a strike, not yet closed, exercised or expired. It’s published once a day.

Open interest rises when both sides of a trade open new positions and falls when both close. Because it settles overnight, intraday changes in StratosHedge levels come from price and time reshaping gamma; new positions show up the next morning.

Opening vs closing trade

Whether a trade starts a new position or exits an existing one. A single print rarely tells you; the next day’s open interest change gives clues.

OPEX (options expiration)

Options expiration day, most often the monthly standard expiration on the third Friday. Large amounts of open interest can expire at once and reshape the map.

When a big expiration rolls off, the gamma behind some Strength Zones disappears, so the next day’s levels can look very different. Quarterly expirations in March, June, September and December are often the largest.

Option

A contract giving the buyer the right, not the obligation, to buy or sell an asset at a set price by a set date. The seller takes the obligation.

Standard US stock and ETF options cover 100 shares each. Options carry real risks, including losing the full premium you paid, so read the Options Disclosure Document before trading them.

Options chain

The table of every available strike and expiration for an underlying, with bid, ask, volume, open interest and implied volatility for each contract.

Options Disclosure Document (ODD)

The OCC booklet “Characteristics and Risks of Standardized Options.” Brokers must provide it before you can trade options.

It explains how options work and the specific risks of buying and selling them. Reading it is one of the best free steps a new options trader can take.

Options flow

The stream of individual options trades, with size, price, time and an estimate of whether each traded nearer the bid or the ask.

Flow shows activity, not intent: a large call purchase may hedge a short stock position. Because open interest updates only once a day, StratosHedge also uses volume-based flow for its intraday estimate.

Overfitting

Tuning rules so closely to past data that they capture noise instead of a real pattern. Overfit rules look great in a backtest and fail on new data.

The main defense is an out-of-sample test: check the rules on data that wasn’t used to build them. Fewer rules and fewer tuned settings also help.

P

Paper trading

Practicing with simulated money instead of real money. It builds process, but fills, slippage and emotions are gentler than in real trading.

Payoff ratio

Average win divided by average loss over a set of trades. It’s the realized version of reward-to-risk and sets the break-even win rate: 1 ÷ (1 + payoff ratio).

With a $300 average win and a $150 average loss, the payoff ratio is 2, so you need to win more than 1 ÷ 3, about 33% of trades, to come out ahead before costs.

Pin risk

The uncertainty facing anyone short a physically settled option, such as an SPY option, when price sits at the strike near expiration: they can’t be sure they’ll be assigned shares.

Price can keep moving after the close while holders decide whether to exercise, so someone short a $500 call with SPY at $500.02 may or may not wake up short 100 shares. Cash-settled index options such as SPX don’t deliver shares.

Pinning

The tendency of price to settle near a heavily traded strike as expiration approaches, often linked to dealer hedging around that strike.

Position size

How many shares or contracts you trade. Many traders size so that reaching their invalidation loses a fixed small slice of the account.

With a $10,000 account and 1% risk per trade, you can lose $100. If your invalidation is $0.50 per share away, that’s 200 shares; risking the same percentage every time is called fixed-fractional sizing.

Positive gamma

A backdrop where dealers are estimated to be long gamma, so their hedging sells rallies and buys dips. Moves tend to be dampened; StratosHedge calls it Calm.

Ranges, pullbacks toward the Magnet and quieter days are more common in this regime. Trends still happen, especially on news.

Premium

The price of an option, quoted per share. Multiply by 100 for one standard contract: a $2.50 quote costs $250.

Premium equals intrinsic value plus extrinsic value. A buyer’s maximum loss is the premium paid; a seller collects it in exchange for taking on the obligation.

Price-to-earnings ratio (P/E)

Share price divided by earnings per share. It depends on which earnings period is used and doesn’t tell you on its own whether a stock is fairly valued.

A $50 stock with $2.50 of EPS has a P/E of 20. A trailing P/E uses the past year’s earnings; a forward P/E uses estimates, which can be wrong.

Print

The public record of a trade that has executed, showing its price, size and time. It doesn’t show who started the trade or why.

Off-exchange prints, including dark pool trades, are reported after the fact, and some arrive late. A large print can be a buyer, a seller, a hedge or a rebalance.

Put option

The right to sell 100 shares at the strike price until expiration. A long put gains value when the underlying falls enough.

Buy a $500 put for $2.50, which costs $250. If the stock is at $492 at expiration, the put is worth $8.00 ($800); at $500 or above it expires worthless.

R

R (R-multiple)

A trade’s result measured in units of the risk you planned. If you risk $100 and make $250, that’s +2.5R.

A loss that exits exactly at your invalidation is −1R. Measuring in R lets you compare trades of different sizes and spot losses that ran past plan, such as −1.8R.

Realized volatility

How much a stock actually moved over a past period, quoted as a yearly percentage so it can be compared with implied volatility.

If a stock’s IV is 30% but it has been moving at 20% realized volatility, its options are pricing in more movement than has recently occurred. That gap can close either way.

Realized vs unrealized

A realized result comes from a position you’ve closed and is settled. An unrealized one belongs to a position you still hold and changes with price.

Buy at $30 and the stock trades at $34: you have a $4 unrealized gain per share. It becomes realized only when you sell, and it can grow or shrink before then.

Rebalancing

Moving your mix back toward its intended allocation as prices or circumstances change. Selling to rebalance can create costs or taxes.

If a 60/40 mix drifts to 70/30 after a stock rally, rebalancing sells some stocks or adds to bonds to get back near 60/40. Large funds rebalance too, which can show up as big trades.

Resistance

A price area where rising prices have tended to stall or turn back because sellers stepped in before. Like support, it’s a zone.

If a stock turned lower near $105 several times, that area is resistance. When price finally closes well above it, the old resistance often gets watched as new support.

Revenge trading

Taking impulsive, often larger trades to win back a recent loss. It abandons the plan right when judgment is weakest.

Reward-to-risk ratio

Potential gain to your target divided by potential loss to your invalidation. Risking $100 to make $200 is 2:1.

Results are often measured the same way, in units of planned risk: risking $100 and making $250 is a +2.5R trade. A higher ratio needs fewer winners to break even.

Rho

How much an option’s price changes for a 1-percentage-point change in interest rates. It matters most for long-dated options.

Risk capacity

How much loss your finances can actually absorb while you still pay your bills.

Someone who loves bold bets but has only one month of expenses saved has high risk tolerance and low risk capacity. When the two disagree, planning around the lower one is safer.

Risk of ruin

The chance that a run of losses shrinks your account to a point where you can’t keep trading. Risking less per trade lowers it sharply.

At 10% risk per trade, ten straight losses leave about 35% of the account. At 1% risk, the same streak leaves about 90%, and streaks like that happen more often than most people expect.

Risk tolerance

How much uncertainty and swinging account value you can emotionally handle without making rushed decisions.

Roll (a position)

Closing an option position that is about to expire and opening a similar one in a later expiration, often at a new strike.

Rolling a short $500 call from this Friday to next Friday shows up as two trades at once. On a flow tape, rolls can look like fresh bets when they only extend an existing position.

S

Sample size

How many trades or observations a result rests on. Ten trades can’t separate skill from luck; results usually need dozens to hundreds.

Second-order Greeks

Greeks that describe how a first-order Greek changes. Vanna (delta’s response to implied volatility) and charm (delta’s response to time) are the most discussed in dealer hedging.

Gamma is technically second-order too, since it measures how delta changes with price. Traders usually group it with the main Greeks and save “second-order” for cross effects like vanna and charm.

Secondary levels

The next-strongest positive and negative strikes, shown as Ceiling 2 and Floor 2. Traders often look to them next if a main level gives way.

Session levels

Reference prices from recent trading that many traders watch, such as the Prev High, Prev Low, Prev Close, Pre-Mkt High and Pre-Mkt Low.

They come from price alone, not from options positioning. When a session level lines up with a Strength Zone, traders treat that area with extra attention.

Short selling

Borrowing shares and selling them, hoping to buy them back cheaper later. Losses can exceed what you put in because a price can keep rising.

Skew

How implied volatility differs across strikes for one expiration. For indexes, downside puts usually carry higher IV than equally distant calls.

Plotted against strike, IV forms a curve often called the volatility smile. Steep put skew means protection is in demand; single stocks can tilt the other way during speculative rallies.

Slippage

The difference between the price you expected and the price you actually got.

If you plan to buy at $2.00 and fill at $2.05, that’s $0.05 of slippage, or $5 per contract. Simulators that ignore slippage make results look better than real trading.

Spot price

The current trading price of the underlying itself, as opposed to the price of its options.

Standard deviation (1σ)

A measure of how spread out outcomes are. Under a bell-curve model, about two in three outcomes land within one standard deviation of the average.

If SPY at $500 has a one-day 1σ move of $5, a bell-curve model puts about 68% of days within $495–$505 and about 95% within $490–$510. Real markets have fatter tails, so big moves happen more often than the model suggests.

Stock (share)

A unit of ownership in a company. Its price moves as buyers and sellers trade it on exchanges.

Stop order (stop-loss)

An order that becomes a market order once price touches your stop price, often used to exit a losing trade at a preset point.

In a fast drop, a stop can fill well past your stop price. A stop-limit order avoids that by becoming a limit order instead, but then it may not fill at all.

Stop-limit order

An order that becomes a limit order once its stop price is reached. It controls the price you accept but may not fill after a fast move.

With a stop at $48 and a limit at $47.50, the order activates at $48 but won’t sell below $47.50. If price gaps from $49 to $46, it may not fill at all and the position stays open.

Straddle

A call and a put at the same strike and expiration. Bought, it gains from a big move either way; sold, it gains if price stays near the strike.

A short straddle has large, open-ended risk if price moves sharply. The at-the-money straddle’s price is also a common way to estimate the expected move.

Strangle

An out-of-the-money call plus an out-of-the-money put with the same expiration. It costs less than a straddle, but price must move further to pay off.

Strength Zone

A translucent band StratosHedge draws around a key level instead of a thin line. Its height reflects how concentrated gamma is around the strike.

Through the day, the band’s thickness shows its relative strength at each moment, so a zone that thins out has less estimated gamma behind it. A level’s zone history lets you see whether it built, faded or moved.

Strike price

The fixed price at which an option lets you buy (call) or sell (put) the underlying. Each expiration lists many strikes.

Support

A price area where falling prices have tended to slow or bounce because buyers stepped in before. It’s a zone, not an exact line.

If a stock bounced between $98 and $99 three times, traders treat that range as support. Support often breaks eventually, and once broken it can act as resistance.

Survivorship bias

Studying only what survived, such as stocks still listed today or traders still in business, which makes results look better than reality.

Sweep

An order that fills across several exchanges at once, taking available size at successive prices. Traders often read it as urgency.

A sweep shows someone wanted to trade fast, not why. Many sweeps are hedges or parts of larger strategies.

T

Tail risk

The risk of rare, extreme moves far outside normal ranges. Short-option and highly leveraged positions are the most exposed.

Term structure

Implied volatility across expirations, from nearest to furthest. In calm markets it usually slopes upward.

An upward slope is called contango. When near-term IV rises above longer-term IV the curve is inverted (backwardation), which often happens during stress or just before a known event.

TEX (theta exposure)

An estimate of how much the modeled options position’s value changes as one calendar day passes.

Theta (time decay)

How much value an option loses each day from time passing, with everything else unchanged. Long options usually have negative theta.

A theta of −0.08 means about $8 per contract lost per day. Decay speeds up as expiration nears, especially for at-the-money options.

Ticker

The short symbol that identifies a listed security, such as SPY.

Time horizon

How long you can leave money invested before you need it.

Money for a car next year has a short horizon; retirement savings decades away has a long one. A longer horizon gives more time to ride out swings, but it doesn’t promise a profit.

Timeframe

How much time each candle covers, such as 1 minute, 5 minutes or 1 day. The same move can look very different on different timeframes.

Five 1-minute candles merge into one 5-minute candle: the first open, the highest high, the lowest low and the last close. Traders often check a higher timeframe for context and a lower one for timing.

Total return

An investment’s result including both price change and income such as dividends or interest.

Buy at $100, collect $3 in dividends and sell at $105: the price gain is 5%, but the total return is $8, or 8%, before fees and taxes.

Trade plan

A written plan, made before you enter, that states your idea, the trigger, where you’re wrong, your size and how you’ll exit.

Writing it first keeps decisions out of the heat of the moment. A common rule of thumb: no written plan, no trade.

Trading journal

A record of each trade’s plan, entry, exit, result and what you were thinking. Reviewing it reveals patterns no single trade can show.

Trend

The general direction of price over a timeframe: higher highs and higher lows in an uptrend, lower highs and lower lows in a downtrend.

Trigger

The specific, observable event that tells you a plan is active, such as a 5-minute close back above a Strength Zone.

Triple witching

The quarterly expiration on the third Friday of March, June, September and December, when stock options, index options and index futures expire together. It’s often among the year’s largest.

U

Underlying

The stock, ETF or index an option is based on. For a SPY call, the underlying is SPY.

V

Vanna

How delta changes when implied volatility changes. It means dealer hedges can shift even while price stands still.

When IV falls, out-of-the-money options lose delta. If dealers are short those puts, as the model assumes, they need less short stock as a hedge and may buy some back, which can support price as a volatility spike fades; this is a tendency, not a rule.

Vega

How much an option’s price changes for a 1-percentage-point change in implied volatility.

An option with $0.20 vega gains about $20 per contract if IV rises from 20% to 21%. At the same strike, longer-dated options have more vega than short-dated ones.

Vertical spread

Buying one option and selling another of the same type and expiration at a different strike. Both the maximum gain and maximum loss are capped.

Buy a $500 call for $4 and sell a $505 call for $2: you pay $2 ($200), a debit spread. The most you can make is $5 − $2 = $3 ($300); a spread that pays you to open is a credit spread, whose maximum loss is the strike width minus the credit.

VEX (vega exposure)

An estimate of how much the modeled options position’s value changes for a 1-point move in implied volatility.

VIX

Cboe’s volatility index: the 30-day implied volatility of the S&P 500, calculated from SPX option prices. Higher readings mean pricier index options.

It often rises when stocks fall quickly, which is why people call it a fear gauge. It measures expected volatility, not direction.

VIX3M

Cboe’s three-month counterpart to the 30-day VIX, measuring expected S&P 500 volatility over the next three months. A VIX reading above VIX3M signals an inverted term structure.

Volatility

How much and how fast a price moves. Realized (historical) volatility measures past moves; implied volatility is what option prices expect.

Both are usually quoted as an annualized percentage. A stock with 30% volatility tends to swing much more day to day than one with 15%.

Volatility risk premium

The tendency for implied volatility to run above the volatility that later occurs, on average. Option sellers earn it in exchange for occasional large losses.

The premium is an average across many periods, not something collected every time. In sudden sell-offs, realized volatility can far exceed what was implied.

Volatility smile

The curve you get by plotting implied volatility against strike for one expiration. Index smiles usually lean, with downside puts carrying higher IV than equally distant calls.

Volatility surface

A 3D map of implied volatility across both strikes and expirations, combining skew and term structure in one picture.

Volume

How many shares or contracts traded during a period. Rising volume shows more participation behind a move.

Option volume counts contracts traded today, while open interest counts contracts still open. A strike can trade 10,000 contracts in a day while open interest barely changes if many of those trades close existing positions.

VWAP (volume-weighted average price)

The average price traded so far today, weighted by volume. It resets each session and is a common intraday reference line.

If most of today’s volume traded near $500, VWAP sits near $500 even if price briefly spiked to $505. Large institutions often judge their fills against it.

W

Win rate

The share of trades that make money. On its own it says little: a 70% win rate still loses if the losses are much bigger than the wins.

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Data intelligence.Visualization with context.

Data intelligence.
Visualization with context.