Glossary of options trading

Options trading glossary - terms with clear, concise definitions to help you better leverage options trading strategies in your overall portfolio. Check out our glossary of the most common types of terms and phrases in options trading.

Glossary of options trading

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A record of all transactions or a special personal account opened by a trader in the company. This account is used to offset the obligations of the trader and the dealer arising from transactions entered into in accordance with this agreement.

Ask
This is the price at which an investor can buy an asset in the financial markets. On the other hand, the price at which a seller is offering to sell an option or a stock. The ask price is a part of the formula which is used to calculate the expiry level of an asset.

Asset types
The types of assets that can be traded through the platform such as commodities, currencies, stock and indices.

At the money
When the option expiry price is the same as the buying price. In this case, the trader's investment amount will be returned.

Bear
An Investor who predicts that the price of an asset or a market in general will decline.

Bid
This is the price at which an investor can sell an asset in the financial markets. The bid price is part of the formula which uses to calculate the expiry level of an asset.

Binary options
It is a prediction of a stock, commodity, indices, or currencies direction by a designated expiry time. Investors are able to earn a fixed amount if they correctly predict whether the value of the underlying asset will reach above or below the strike price when it expires. If traders incorrectly predict the direction of the asset's value, they lose their investment.

Bull
An Investor who predicts that the price of an asset or a market in general will rise.

Buy
When an investor thinks that the price of an asset will rise, he/she "buy" in order to have a profit from an increase in value of the underlying asset above the strike price of the option. It is another term in Options for a “call”.

Call
When the investor predicts that the price at the expiry time will be higher than the strike price of the option. A call option gives the investor the chance to profit if the assets value become higher than the open price of the call option.In case that the expiry rate is the same as the open rate, the investment amount will be refunded to the investor.

Commodity
A commodity is a general name given to raw resources that human needs such as food, metals and energy which can be traded on an exchange.

Digital option
Another name for a option.

Double up
An option available in the trading platform which the investor can use to double his/her investments.

Equity
A financial instrument which shows the partial ownership of a company. Known as stocks, equities, or shares.

Execution rate
The investor entery level of to the trade.

Expiry level
This term refers to the value of an underlying asset when the option expires.

Expiry price
The price of the underlying asset at its expiry time. This price determines if the option has expired in-the-money or out-of-the-money.

Expiry time
The time and date at which an option expires.

Forex option
These kind of options utilize underlying assets based on currency pairs traded on Forex.

Hedge
A strategy to manage the risk of contradictory price movements in the underlying asset. Typically this involves taking equal yet opposite positions in two diverse markets. For example, an investor holding a long profitable open position in a certain security and is uncertain on its future movement can place a "Call" or "Sell" option in order to offset any loss of the profits.

High/low option
When a trader invests in a High / Low option, he/she predicts whether the underlying asset's value will expire higher (above) or lower (below) than the target price. The trader will profit if his/her prediction comes true.

Indices (Index)
Collection of stocks assembled according to a certain criteria. On the other hand, a compilation of several stock prices into a single number, for example, the S&P 100 Index.

Instrument
Another term used for assets such as a stock, currency pair indices or commodity.

Interest
A charged applied for borrowing money which is generally specified as a percentage. Please note there is no interest charged with Options.

In the money
When the investor's prediction was correct on the direction. On the other hand when the trader has profited from his/her trade, then the trader is in-the-money.

Investment
The amount of money invested in an option with the intent to make profit.

Liquidity
A trading environment specified by high trading volume. It is the capacity to convert cash quickly. The more liquid the market the more available both buy and sell prices are.

Long
To "Call" or "Buy" an asset in option with the anticipation of a rise in value of the underlying asset.

Mid market
The average of the bid and ask, this price represent the real price of the market with no spreads between bid and ask.

Out-of-the-money
When the investor's prediction was incorrect on the direction which means the option in not profitable. A Digital option Call Option is “out of money” when the asset's expiry price level is lower than the option's buying price. A digital option put option is “out of money” when the asset's expiry price level is higher than the option's buying price.

One touch option
An option which gives the investor a predetermined fixed payout once the price of the underlying asset reaches or surpasses a predetermined level. To be eligible for payout, it is sufficient that the option touches or surpasses the predetermined level just once throughout the option's life cycle. If the predicted level is not reached or surpassed even once, the initial investment is lost.

Offer price
It is the same as ask price. The price at which you can buy a specified asset or the price at which a seller is offering to sell a specified asset.

Payout
The percentage amount that the trader will receive at option expiry.

Position
A position is referred to a trade that is currently open.

Put
When the investor predicts that the price at the expiry time will be lower than the strike price of the option. A put option gives the investor the chance to profit if the assets value drops below the open price of the put option. In case that the expiry rate is the same as the open rate, the investment amount will be refunded to the investor.

Quote
The current price offered to buy or sell a financial instrument.

Resistance
A price level at which the price of an asset rises but has difficulty going beyond. The opposite of a resistance is support.

Return
This refers to the amount of money a trader is given back if the option expires in the money.

Reuters
Reuters is one of the world's leading providers of financial information. It is also the system which Interactive Option takes its expiry rates from.

Risk management
An attempt to control the outcome of a particular investment such as protecting profits and limiting losses using various tools and strategies.

Security
An investment instrument typically known as Stocks and Bonds.

Settlement
Financial instruments that represent partial ownership of a company. Also known as stocks, equities or shares.

Strike price
The strike price is determined by the price of the underlying security at the moment at which the option is purchased. When the option expires, the price of the underlying security is compared to the strike price to determine whether the option was profitable or not.

Support
A price level at which the price of an asset falls but has difficulty going beyond. The opposite of a support is resistance.

Tie
A financial term, which means that the current price of the underlying asset is the same as the price when the option was purchased.

Trading hours
Each asset has it's own trading hours and trading days and holidays. To see the trading hours for assets, click the "Asset Index". Sometimes you will see that even though the asset is supposed to be traded it's not listed. In such a case simply press refresh.

Underlying asset
An asset which is owned and can be traded in one of these categories: commodities, currencies, stock and indices.

Value date
The date at which a trade will be settled.

Vanilla option
An ordinary option with no special features.

Volatility
This is a measure of price variation of an underlying asset.