Below, you will find a few terms that are good to known for anyone interested in options and binary options trading and trading strategies. Many of them are not unique to the field of binary options; if you have any experience trading stocks, options, commodities or similar you will probably recognize quite a few of them.
|Arbitrage trading||Buying assets on one market and selling them on another to benefit from price discrepancies between markets.|
|Ask price||The price at which the owner of an asset is willing to sell.|
|At the money||When the option’s strike price is the same as the price of the underlying, the option is at the money.|
|Bear spread||An option strategy that yields its maximum profit when the underlying asset declines in price.|
|Beta||In the context of trading, beta is a measurement of historical volatility, or systemic risk, for an asset. It indicates an assets historical propensity of moving with the market as a whole.|
|Bid price||The price at which a potential buyer is willing to buy a specific asset.|
|Bid/Ask Spread||The different between Bid price and Ask price for an asset.|
|Bullish Options Strategy||Any strategy where options are utilized to profit from an upwards move in the underlying market.|
|Buy to open||To establish a position by going long|
|Call option||The call option gives its holder a right to buy the underlying from the option writer, in accordance with the conditions stipulated in the options contract.
The opposite is the put option.
|Contract Neutral Hedging||An option trading hedging technique which covers a stock holding on a share by share basis with stock options.|
|Day trader||A trader that opens and closes a position (or multiple positions) within the same trading day.|
|Delta||In the context of trading, delta measures the the amount by which an option’s price will change for a corresponding change in price by the underlying entity.|
|Derivative||In the context of trading, a derivative is a financial instrument whose value is derived in part from the value and characteristics of another financial instrument. Options and futures are two examples of derivatives.|
|Exercise an option||When the holder of an option invokes the rights granted to him or her by the options contract.
Example: The holder of the call option decided to exercise the option and buy the Apple shares for the prespecified price.
|Expiration date (for an option)||The last day in the lifetime of the option. After the expiration date, the option can no longer be exercised and is worthless.|
|Extrinsic value (for an option)||The difference between an option’s price and its intrinsic value. Also known as Premium value and Time value.|
|Fiduciary call||An option trading strategy where call options are bought as a replacement for a protective put or married put in the same proportion.|
|Frontspreads||Option strategies designed to make a profit in neutral market conditions where prices change very little.|
|Gamma (for a stock option)||The rate of change of a stock option’s delta for one unit change in the price of the underlying stock.|
|Gamma neutral||A position which has zero or almost zero gamma value.|
|Goldilocks economy||When the economy is characterized by steady growth and moderate inflation; the economy is neither too heated nor too cold.|
|Grocession||A prolonged period of time where the growth in GDP stays within the 0-2% span.|
|Hedge (in finance)||A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment.|
|Historical volatility (for an option)||The volatility of past price movements of the underlying asset.
Also known as Realised volatility.
|Horizontal Call Time Spread||An option strategy where longer-term at-the-money call options are purchased and shorter term at-the-money call options are written. The idea is to profit if the underlying remains stagnant.|
|Horizontal Put Time Spread||An option strategy where longer-term at-the-money put options are purchased and shorter term at-the-money put options are written. The idea is to profit if the underlying remains stagnant.|
|IPO||Initial Public Offering. A private company’s first offer of stock to the public. It converts the company from a private company to a public company.|
|In-the-money option||A call option is in the money if the option’s strike price is below the market price of the underlying.
A put option is in the money if the option’s strike price is above the market price of the underlying.
Just because the option you are holding is in the money, that doesn’t automatically mean that you would make a profit from exercising it right now. You need to factor in what you paid for the option (and any other associated costs) to find out if you would make a profit or not.
|Intrinsic value||The value of an option if it were to be exercised right now, with the underlying being at its current level.|