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 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 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 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 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 definitionThe contract multiplier converts quoted premium into actual cash value. In standard U.S. equity options, the article notes that one contract generally represents 100 shares, so one point of premium usually equals $100 per contract.
Open definitionThe contract multiplier converts a displayed per share option Greek or price into the actual per contract exposure. Adjusted contracts can use a different multiplier, so assuming the standard 100 can misstate risk.
Open definitionThe contract multiplier converts the quoted premium into the contract’s real cash value, and tick size sets the minimum price increment. Both are basic specification details that materially affect cost and execution.
Open definitionA covered call is a stock-plus-options structure in which an investor who already owns shares sells a call against them for premium income. In the article, it fits when income and a pre-accepted sale price matter more than unlimited upside.
Open definitionInvalidation is the point at which a trade idea is considered wrong enough that the original thesis no longer holds.
Open definitionA drawdown is a decline from a previous equity peak to a later trough. It is a normal part of uncertain trading outcomes and a reminder that trading is not guaranteed income.
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 definitionLeverage is using a smaller capital base to control a larger market exposure. It can amplify gains, but in a risk first framework its main importance is that it can also magnify losses and make small moves matter much more in account terms.
Open definitionResistance is a price area where selling is likely to emerge and dampen further rise. As with support, the article treats it as a zone rather than an exact line.
Open definitionMargin is the collateral or deposit required to open and maintain certain leveraged positions. It is important because it is not the same as maximum loss, and traders can confuse a small deposit with limited downside.
Open definitionSupport is a price area where buying is likely to emerge and slow or stem decline. In this article, it is best treated as a zone rather than a single exact price.
Open definitionLower highs and lower lows are a common way to recognise a downtrend on a chart. They matter because they describe declining structure in a concrete, observable way.
Open definitionA candlestick chart shows the open, high, low, and close for each chosen interval in a body-and-wick format. In this article, it matters because it is one of the clearest ways to read structure before making any interpretation.
Open definitionA stop order is an order that is triggered when the stop price is reached and then becomes a market order. That means the stop price is not a guaranteed exit price.
Open definitionA trend is a directional market structure. In plain chart reading, it is commonly recognised by rising swing highs and lows in an uptrend or falling swing highs and lows in a downtrend.
Open definitionA range is a period where price fluctuates within an upper and lower area instead of making sustained directional progress. It matters because a chart in range behaves differently from a chart in trend.
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Before You Trade