1-mo HV: One-month historical volatility is a measure of actual stock price changes over a period of one month.
1-mo IV: A measure of the expected volatility of the underlying stock as determined by using the prices of the one-month options. This is an “instantaneous” volatility, meaning you use the current option prices, rather than using historical data on the price changes of the underlying stock.
Academic Algorithms: In OptionApps, these are one-click scans that search for situations where the options meet the criteria described in published financial journal articles and important working papers. Each of the options-based methods upon which these scans are built have undergone extremely rigorous testing. Furthermore, most of the methods experienced something few other systems ever do: they were refereed before publication, meaning that independent undisclosed reviewers checked the authors’ work.
Advantage %(Percentage): Pertains to Covered Calls & Collar strategies. It’s where these strategies lose their advantage over owning the stock. For more info, watch this VIDEO.
Bid IV: The implied volatility of the option’s bid price
Breakeven: The stock price(s) at which an options strategy results in neither a profit nor a loss.
Breakeven % (Percent): The breakeven percent is how far the breakeven price is from the current stock price, in percentage terms.
Breakeven Down % (Percent): The breakeven down percent is how far the breakeven price is below the current stock price, in percentage terms.
Breakeven Up % (Percent): The breakeven up percent is how far the breakeven price is above the current stock price, in percentage terms.
Buy Ask: The price at which a seller is offering to sell an option that you are buying. Generally speaking this is the price a retail trader can expect to pay when purchasing a put or a call.
Buy Call: (Unlimited Profit, Limited Risk) – Buying an option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. Also known as a ‘Long Call’. Risk in a long call is equal to the maximum loss. For more info, watch this VIDEO.
Buy Call Ask: The price at which a seller is offering to sell a call that you are buying. Generally speaking this is the price a retail trader can expect to pay when purchasing a call.
Buy Call Strike: The price at which the owner of a call option can purchase the underlying stock upon exercise.
Buy Put: (Substantial Profit, Limited Risk) – Buying an option contract that gives you the right to sell the underlying security at a specified price for a certain fixed period of time. For more info, watch this VIDEO.
Buy Put Ask: The price at which a seller is offering to sell a put that you are buying. Generally speaking this is the price a retail trader can expect to pay when purchasing a put.
Buy Straddle: (Unlimited Profit, Limited Risk) – The purchase of an equal number of puts and calls having the same strike price and expiration date.
Buy Strike: Purchase of an option with a stated price per share for which the underlying security may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
Call Ask: The price at which a seller is offering to sell a call. Generally speaking this is the price a retail trader can expect to pay when purchasing a call.
Call Bid: The price at which a buyer is willing to buy a call. Generally speaking this is the price a retail trader can expect to receive when selling a call.
Call Credit Spread: (Limited Profit, Limited Risk) – The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price, for a specified net credit. This results in money received in your account increasing the account’s cash balance.
Call Debit Spread: (Limited Profit, Limited Risk) – A bull spread strategy that decreased the account’s cash balance when established.
Call Strike: The price at which the owner of an option can purchase the underlying stock.
Called Annualized [Return]: This measurement applies to covered calls only. To calculate the Called Annualized Return, one first measures how much the covered call would earn if the stock were above the strike price at expiration. In this case, the stock would get “called” away. You then annualize that return.
Called Return: Is the maximum profit you can make in a Covered Call. For more info, watch this VIDEO.
Close Price: The final price of a security at which a transaction was made.
Collar: (Limited Profit, Limited Risk) – A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corp. at $46 and it rose to $62, a ‘collar’ involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corp. stock position. The reverse- a long call combined with a written put – might also be used if the investor has previously established a short stock position in XYZ Corp.
Covered Call: (Limited Profit, Substantial Risk) – An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. If the stock price stays where it is, the covered call makes money. If the stock rise is large, the Covered Call loses its advantage. The difference is called the ‘advantage %’. Beyond the advantage %, just owning the stock is better. For more info, watch this VIDEO.
Delta: A measure of the rate of change in an options theoretical value for a one-unit change in the price of the underlying stock.
Dividend Amount: A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is often quoted in terms of the dollar amount each share receives, but can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Dow Jones: DJIA – stands for Dow Jones Industrial Average, which is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.
Energy: A category of stocks that relate to producing or supplying energy.
exDate: The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day’s closing price is reduced by the amount of the dividend because purchasers of the stock on the ex-dividend date will not receive the dividend payment.
Expire: The date on which an option and the right to exercise it cease to exist.
Finance: A category (or sector) of stocks containing firms that provide financial services to commercial and retail customers.
Healthcare: A category (or sector) of stocks relating to medical and healthcare goods or services.
Industrial: A category (or sector) of stocks that relate to producing goods used in construction and manufacturing. This can include companies involved in aerospace and defense, industrial machinery, tools, lumber, construction, cement and metal fabrication.
Iron Condor: (Limited Profit, Limited Risk) A strategy involving four strike prices that has both limited risk and limited profit potential.
ITM: A term used to describe an option with intrinsic value. A call option is in-the-money if the stock price is above the strike price. A put option is in-the-money if the stock price is below the strike price.
Low Volatility: 1) When the measurement of stock price fluctuation, created by annualizing the standard deviation of a stock’s daily price changes, is extremely low. 2) In OptionApps’ Strategy section, there is a selection you can make called Low Volatility. This refers to stocks in the Russell Low Volatility Index.
Materials: A category of stocks that accounts for companies involved with the discovery, development and processing of raw materials.
Max Loss % (Percent): The maximum loss divided by the investment.
Max Profit % (Percent): The maximum profit divided by the investment.
Max Profit Annualized [Return]: This measurement applies to options strategies that have limited profit potential, like credit and debit spreads. To calculate the Max Profit Annualized Return, one first measures the maximum profit, then the maximum risk. Divide the max profit by the max risk to get the maximum return. You then annualize that return to get the Max Profit Annualized.
Max Risk: The maximum risk in a trade. In a credit spread, the maximum risk is limited to the difference between the strikes you buy and you sell, minus the credit you received. The worst that can happen is for the stock price to be below the lower strike at expiration. In that case, the investor will be assigned on the short put, now deep-in-the money, and will exercise the long put.
Max Strike Diff: This applies to strategies that have options of different strike prices, such as strangles and vertical spreads. The Max Strike Difference places a limit on how far apart those strike prices can be. For instance, in a credit spread, you may select the Max Strike Difference to be 10. This means the strike price difference of any spread can be 10 points or less. A spread with a strike price difference of 25 would exceed that limit.
Net Credit: Money received in an account either from a deposit or a transaction that results in increasing the accounts cash balance.
Net Debit: Money paid from an account either from a withdrawal or a transaction that results in decreasing the cash balance.
Option Ask: The price at which a seller is offering to sell an option or a stock. Generally speaking this is the price a retail trader can expect to pay when purchasing a put or a call.
Option Cost: The net cost of the option portion of a trade. In collar trades, this is equivalent to the call bid minus the put ask.
OTM: A term used to describe an option that has no intrinsic value, i.e. all of its value consists of time value. A call option is out-of-the-money if the stock price is below its strike price. A put option is out-of-the-money is the stock price is above its strike price.
Overwrite: An option strategy involving the writing of OTM call options against existing long stock positions.
%(Percent) to Double: How far the stock has to move for you to double your money. For more info, watch this VIDEO.
Position Delta: A measure of the rate of change in an entire trade’s theoretical value for a one-unit change in the price of the underlying stock.
Probability: Is defined as an estimation of likelihood of an occurrence of an event. Probabilities are given a value between 0 and 100. The higher the degree of probability, the more likely the event is to happen, or in a longer series of samples, the greater the number of times such event is expected to happen.
Put Ask: The price you would pay to buy a put option.
Put Credit Spread: (Limited Profit, Limited Risk) A type of options strategy that is used when the investor expects a moderate rise in the price of the underlying asset. This strategy is constructed by purchasing one put option while simultaneously selling another put option with a higher strike price. The goal of this strategy is realized when the price of the underlying stays above the higher strike price, which causes the short option to expire worthless, resulting in the trader keeping the premium.
Put Debit Spread: (Limited Profit, Limited Risk) – A bear spread strategy that decreases the account’s cash balance when it is established.
Put Strike: The price at which the owner of a put option can sell the underlying stock. Also known as the striking price, or exercise price.
Put/Call: A ratio of the trading volume of puts options to call options. The put-call ratio has long been viewed as an indicator of investor sentiment in the markets. Times where the number of traded calls options outpaces the number of traded put options would signal a bullish sentiment, and vice versa.
Range Score 1-mo: This is a proprietary measure of stock movement created by the Equity Derivative specialists at JPMorgan.
Range Score 3-mo: This is a proprietary measure of stock movement created by the Equity Derivative specialists at JPMorgan
Return: The percentage profit that one makes, or might make, on his investment.
Return Annualized: The average amount of money earned by an investment each year over a given time period.
S&P Dividend: The group of stocks that are in the S&P High Yield Dividend Aristocrats Index.
S&P Top 50: The 50 largest stocks in the S&P 500 Index.
Sell Bid: The price at which a retail trades can expect to receive from selling the option.
Sell Call Bid: The price at which a retail trades can expect to receive from selling the call.
Sell Call Strike: The price at which the owner of an option can purchase the underlying stock. Also known as exercise price.
Sell Put Strike: The price at which the owner of an option can sell the underlying stock. Also known as the exercise price.
Sell Strike: The strike price of the option you are selling as part of a combination strategy, such as a Covered Call or an Option Spread. Sometimes Sell Strike is referred to as the Short Strike
Short Put: (Limited Profit, Substantial Risk) The position of an option writer which represents an obligation on the part of the option’s writer to meet the terms of the option if it is exercised by its owner. The writer can terminate this obligation by buying back the position with a closing purchase transaction.
Spread Width: The difference between the strikes purchased and sold in a spread, in a point basis. (Example: A five point spread would be 50/45, or 5 points wide.)
Staples: An industry group of companies whose main focus is on consumer staples. Consumer staples are those companies whose products are essential to consumers. No matter how tight money might be, people just can’t eliminate spending money on the things these companies produce. Examples would be soap, toilet paper, food, even tobacco.
Static Return: The profit made in a Covered Call if the stock price stands still. For more info, watch this VIDEO.
Strike: The price at which the owner of an option can purchase (Call) or sell (Put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.
Strike Symmetry: Strike symmetry applies to Iron Condor trades. Iron Condors are actually nothing more than a bullish put credit spread and a bearish call credit spread with the same expiration date, implemented on the same stock at the same time. If the strikes are symmetrical, it means that the difference in strike prices of the put spread is identical to the difference in strike prices of the call credit spread. So, if the difference in strikes on the put side is 5, and you want the strikes to be symmetrical, then the difference in strikes on the call side must also be 5. Also, when the strikes are symmetrical, the distance of the strike prices of the options sold will be about the same for both the puts and calls.
Technology: A Category of stocks relating to the research, development and/or distribution of technologically based goods and services.
Ticker: An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. Ticker symbols for options are structured to represent the underlying stock ticker they are based on and also their expiration date and contract type (either a put or a call option).
Underwrite: An option strategy involving the writing of ITM call options against existing long stock positions.
Utilities: A category of stocks for utilities such as gas and power.