Traders Glossary

Explore, learn, and discover all trading-related terms here in our comprehensive glossary.

Synthetic Put

Buying a call and shorting a stock or future, replicating the risk profile shape of a Long Put.

Synthetic Short Call

Shorting a put and shorting a stock or future.

Synthetic Short Put

Shorting a call and buying a stock or future.

Synthetic Short Stock

Shorting a call and buying a put.

Synthetic Straddle

Combining stocks (or futures) with options to create a delta neutral trade.

Technical Analysis

Using charts and charting techniques and indicators (such as prices, volume, moving averages, stochastics etc) to evaluate future likely price movement.

Theoretical Value (options)

The fair value calculation of an option using a pricing technique such as Black-Scholes options pricing formula.

Theta (decay)

The sensitivity of an option price to the variable of time. Remember that options only have a finite life (until Expiration), therefore theta is an extremely important sensitivity to consider.

Tick

The least amount of price movement recorded in a security. Currently the lowest being 1/32, however moves to decimalisation will eliminate the fractions structure.

Time Premium

The non Intrinsic component of the price of an option.

Time Value (Extrinsic Value)

The price of an option less its intrinsic value. Out of the Money Options are entire made up of Extrinsic (or Time) Value.

Treasury Bill (T-Bill)

A short term government debt security with a maturity of no more than 1 year. The interest charged on these instruments is known as the Risk Free Rate.

Treasury Bond (T-Bond)

A fixed interest US government debt security with 10 years or more to maturity.

Treasury Note (T-Note)

A fixed interest US government debt security with between 1 to 10 years to maturity.

Triple Witching Day

The third Friday in March, June, September and December when US stock options, index options and futures contracts all expire at the same time. The effect of this is often increased volume and volatility as traders look to close short and long positions.

Type

The classification of an option – either a Call or a Put.

Uncovered Option

A short position where the writer does not have the underlying security (or call option) to hedge the unlimited risk position of his naked position.

Underlying Asset / Instrument / Security

An asset which is subject to purchase or disposal upon exercise.

Upside

The potential for a price to increase.

Vega

The sensitivity of an option price to volatility. Typically, options increase in value during periods of high volatility.