Browse key trading terms and concepts.
A.M. and P.M. settlement describe whether an index option’s final settlement value is based on opening or closing prices. In practice, that changes when trading stops and how the final settlement level is determined.
Open definitionAn American style option can be exercised on any business day up to and including expiration. In this article, that matters mainly for many equity options, where early exercise can lead to share delivery before expiry.
Open definitionAmerican style options can generally be exercised before expiry, while European style options are exercisable only at expiry or during a defined expiry window. The difference matters because it changes when exercise and assignment can happen.
Open definitionAmerican-style options may be exercised before expiry, while European-style options are generally exercisable only on expiration. The distinction matters because timing of exercise changes how assignment and expiry risk should be managed.
Open definitionAmerican-style options can be exercised before expiry, while European-style options can only be exercised at expiry. The distinction matters here because the article’s framework is built around standard U.S. equity options, which are generally American-style.
Open definitionAsset allocation is the process of deciding how a portfolio is divided across different asset types. In the article, it is a core investing concept rather than a short-term trading concern.
Open definitionAssignment is the process by which a writer is selected and notified to fulfil the option obligation after exercise. In centrally cleared markets, it is handled through clearing member accounts and then allocated to customer accounts.
Open definitionExercise is the holder’s decision to use an option right, while assignment is the obligation imposed on the short option writer when that happens. In this article, both matter because assignment risk can change whether a strategy is suitable before entry.
Open definitionAutomatic exercise at expiration refers to standard procedures under which expiring in-the-money options are generally exercised unless contrary instructions move through the clearing chain. In the article, this is one reason to prefer pre-written exit rules and not rely on expiry handling as the main exit method.
Open definitionThe bid is the highest price a buyer is offering, the ask is the lowest price a seller is offering, and the spread is the difference between them. The article treats that spread as a direct trading friction.
Open definitionThe bid is the highest displayed buying price, the ask is the lowest displayed selling price, and the mid price is the simple midpoint between them. In options, these figures are useful reference points, but the mid is not a guaranteed execution level.
Open definitionThe bid-ask spread is the difference between quoted buy and sell prices and is the article’s first filter for tradable liquidity. It matters because spread cost can materially change execution quality and the economics of the trade.
Open definitionThe bid-ask spread is the difference between the highest bid and the lowest ask. It matters because it is a practical trading cost and often signals how easy or hard it may be to trade efficiently.
Open definitionBid-ask spread, volume, and open interest are practical liquidity measures used to judge whether an option chain is tradable. The article treats them as exclusion checks, not optional refinements.
Open definitionBreak-even, maximum profit, and maximum loss are the core payoff measures used to compare option strategies in cash terms. The framework relies on them to separate defined-risk structures from stock-linked ones.
Open definitionBuying power and cash securing refer to the capital a strategy requires and the funds that must be set aside to support assignment or maximum loss. They are central to this framework because capital fit is one of the main exclusion checks.
Open definitionCFD margin is collateral posted to support leveraged exposure without owning the underlying asset. Retail close-out rules can require positions to be closed when equity falls too far relative to required protection.
Open definitionA call option gives exposure to upside in the underlying, while the exact obligation depends on whether the position is long or short and on the product terms. In the article, calls appear both as directional tools and as part of covered calls and debit spreads.
Open definitionA call option gives the holder the right to buy the underlying at the strike price. For the writer, it creates the matching obligation to perform if assigned.
Open definitionA cash account requires purchases to be paid for in full with available cash, while a margin account allows broker credit and broader collateral rights. The difference matters for both leverage and operational control.
Open definitionCash settlement means the option resolves through a cash debit or credit rather than delivery of the underlying. The amount depends on the product’s settlement value method, strike and multiplier.
Open definitionCash settlement resolves an option through a cash amount, while physical delivery transfers the underlying instrument. The distinction is central here because equities, indices and futures options do not all settle in the same way.
Open definitionA cash-secured put is a short put position backed by enough cash to buy the shares if assignment happens. In the playbook, it fits when the investor is willing to buy stock lower while receiving premium.
Open definitionA cash-secured put is a short put backed by enough cash to buy 100 shares if assigned. It collects premium but still carries substantial stock-like downside after assignment.
Open definitionR multiple expresses profit or loss in units of the trade's initial risk. It matters because it makes results easier to compare across trades with different prices and sizes.
Open definitionSlippage is the difference between the intended trade price and the actual execution price. It becomes important when markets move quickly or liquidity is limited.
Open definitionA stop-limit order becomes a limit order once the stop price is reached. It offers more price control than a stop order, but it may not execute.
Open definitionTrading is the repeated process of making buy or sell decisions in financial markets under uncertainty using defined rules for entry, risk, exit, and review.
Open definitionA cash account uses the trader’s own funds, while a margin account can involve borrowed funds and leveraged exposure. The article uses this distinction to explain why equity, margin and safe size should not be confused.
Open definitionStop distance is the gap between the planned entry price and the stop price. It defines the expected loss per unit used in the position sizing calculation.
Open definitionAccount equity is the net value of the account after liabilities are taken into account. In a simple long margin account, it is the market value of the position minus the margin loan.
Open definitionA margin call is a demand for additional funds or support when account resources fall short of margin requirements, and close-out is the forced reduction or closure of positions. The article presents these as consequences of leverage, not as tools for safe sizing.
Open definitionMarket structure is the broad pattern formed by price as it advances, declines, or rotates within a range. In this article, reading structure comes before prediction, pattern naming, or volume analysis.
Open definitionDrawdown is the fall from an account peak to a later low point before recovery. It shows how much damage a losing period has done and is central to judging whether the account remains healthy enough to continue.
Open definitionEx-dividend dates can increase the chance of early assignment on short calls, which is why the article flags them as a practical reason to avoid leaving certain positions unattended. This matters most when keeping shares is important or assignment would be awkward.
Open definitionExecution risk is the possibility that the actual trade will not be filled in the way the trader planned, whether because of price movement, order mechanics, or market conditions.
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