Technical analysisA method of predicting future stock price movements based on the study of historical market data such as the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, short selling volume and others.
Theoretical option pricing modelA formula that can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility.
Theoretical valueThe estimated value of an option derived from a mathematical model. See also
Model and
Black-Scholes formulaThetaA measure of the rate of change in an option's theoretical value for a one-unit change in time to the option's expiration date. See also Time decay.
TickThe minimum price increment for an option's bid or ask.
Time decayA term used to describe how the theoretical value of an option erodes or reduces with the passage of time. Time decay is specifically quantified by Theta.
Time spreadAn option strategy that generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread.
Time valueThe part of an option's total price that exceeds its
intrinsic value. The premium of an out-of-the-money option consists entirely of time value.
Trader1. Any investor who makes frequent purchases and sales.
2. A member of an exchange who conducts his or her buying and selling on the trading floor of the exchange.
Trading pitA specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.
Transaction costsAll of the charges associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and/or assignment, exchange fees, SEC fees and margin interest. In academic studies, the spread between bid and ask is taken into account as a transaction cost.
Type of optionsThe classification of an option contract as either a put or a call.