Binary options glossary (L-Z)

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.

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LEAPS Long-Term Equity Anticipation Security


A typical LEAPS is an options contract that expires 12 months or more into the future. (In some contexts, expiring 6 months into the future will be enough for options contracts to be considered LEAPS.

Level II Quotes Real-time quotes provided by NASDAQ outlining the specific bid ask spread provided by each market maker.
LIBOR Lond Interbank Offered Rate
Listed option An option listed (traded on) an exchange.


Listed options tend to be highly standardized, e.g. when it comes to strike prices and expiration dates.

LookBack Option A type of exotic option where the holder is allowed to “look back” the price action of the underlying asset during expiration to decide the optimal price at which to exercise the option.
Market order An order to buy or sell an asset at the current market price. The order will be filled as long as there is any market for the asset.
Market On Close (MOC) An order to fill a position at or near market close.
Married Put and Stock A married put (put option) and stock are bought on the same day and the position is intended for hedging purposes.
Mini Index Option This index option is only 1/10 the size of a regular index option.
Mini Stock Option This stock option only covers 10 shares instead of the usual 100 shares.
Moneyness The strike price of the option in relation to the prevailing price of the underlying.
One Sided Market A market where there is considerably more interest in buying than in selling, or considerably more interest in selling than in buying.
Open interest The net total of your outstanding open contracts.
Option pain The stock price that will result in the largest number of options contracts expiring out-of-the-money.


Also known as Max Option Pain.

Option writer The creator of an options contract. The option writer is obliged to honour the contract, and is thus the option holder’s counterpart. The option writer is the original seller of the option.
Optionable Stocks Stocks with tradable options.
Options on Futures Options where the underlying assets are futures contracts.
Out-of-the-money option A call option is out of the money if the option’s strike price is above the market price of the underlying.


A put option is out of the money if the option’s strike price is below the market price of the underlying.

An option that is out-of-the-money has zero intrinsic value.

Over-the-Counter Option An option that isn’t a listed option.
Physically settle option An option that isn’t cash settled. With a physically settled option, the underlying asset actually exchange hands as the option is exercised.
Protective call A hedging strategy where profits made in a short stock position are protected by one or more call options.
Protective put A hedging strategy where one or more put options are used to hedge against a drop in stock price.
Pull back A temporary price fall after a rally.
Put option This option gives its holder the right to sell the underlying to the option writer, in accordance with the terms of the option contract.
Put option The put option gives its holder a right to sell the underlying to the option writer, in accordance with the conditions stipulated in the options contract.


The opposite is the call option.

Quadruple witching The third Friday of March, June, September and December. These have historically been some of the most volatile and high-volume trading days of the year. On these Fridays, a very large amount of Index Futures, Index Options, Stock Futures and Stock Options expire.


Prior to 2001, there was no Quadruple witching, only Triple witching.

Quarterly options Options with a quarterly expiration cycle. Often referred to simply as quarterlies by option traders.
Ratio Calender Spread A strategy where you sell more near-term options than the number of purchased longer-term options, and all options have the same strike. (Either put options or call options.)
Return If Exercised The return that a covered call writer would make if the underlying was called away.
Return If Unchanged The return that an option holder would make on a position if the underlying remained unchanged in price at the expiration of the option.
Reversal Using options to transform a short stock position into a long stock position. It is an alternative to closing the original short stock position.
Roll Down Closing options at one strike price and simultaneously opening other options at a lower strike price.
Roll Forward Closing options at a near-term expiration date and simultaneously opening options at a longer-term expiration date.
Roll Up Closing options at a lower strike price and simultaneously opening options a higher strike price.
Short covering Buying back assets that you have been selling short.
Stock option An option where stock (company shares) is the underlying asset.
Stock replacement strategy A strategy where you own deep in-the-money call options instead of owing the underlying stock itself, and you use the remaining cash for hedging. This trading strategy seeks to reduce risk and volatility.
Stock Repair Strategy Aiming to compensate oneself for a drop in stock price by writing call options against the stock.
Straddle Purchasing (or selling) an equal number of put options and call options with the same terms at the same time.
Strike price The price for which the underlying can be bought (call option) or sold (put option) by the option holder when the option is exercised, as specified in the option contract.
Swing trading A trading strategy where the aim is to make a profit from short-term price swings.
Theta In this context, theta measures the rate of time decay of an option contract’s premium.
Time decay The reduction of an option’s extrinsic value as we come closer to the expiry date.
Trading range The range between the highest trading price and the lowest trading price for an asset.
Triple witching See quadruple witching
Uncovered option An option is uncovered if its writer (creator) doesn’t own a corresponding position in the underlying.
Underlying Security, market or similar upon which a derivative is based.


Example: This is a callable stock option. Its underlying asset is 100 shares in Verizon Communications Inc (VZ). The holder of this option has the right to purchase 100 shares in Verizon, in accordance with the terms stipulated by the options contract.

Variable Ratio Write An option strategy where you own 100 shares of the underlying security and writes to call options against it with two different strike prices.
VIX VIX is the ticker symbol for the CBOE Volatility Index. This index is a popular measure of the implied volatility of S&P 500 index options. The VIX is calculated by the Chicago Board Options Exchange (CBOE).
VIX Option A (non-equity) option based on the CBOE Volatility Index (VIX).
Volatility crunch A sudden and significant drop in implied volatility, which results in a marked reduction of extrinsic value of options.
Write (an option) To create an option is known as writing an option. The writer of an option is the one obliged to honour the option if the holder (owner) of the option elects to exercise the option.