its are taxed as a short-term investment; i.e., at thehigher rate.
The bad news is that there are plenty more rules concerning trading taxes in the U.S.,even on covered calls alone. Calendar and Diagonal spreads are excellent strategies,which can augment the returns of covered calls. The anti-straddle rules can, intheory, interpret the individual legs of the trade as offsetting. You are well advisedto seek the appropriate consultants who can help you not only understand the rulesfor your preferred strategies but also consider how you self-audit your tradingresults. The better organized you are at the time of your trades, the less time you’llhave to spend at the end of each year going over each and every trade.
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AStrategy Table
Capped risk;uncapped reward;better leverage thanstock purchase.
Buy a call.
Buy a put.
Sell a call.
Sell a put.
Buy stock and sellcall.
Buy stock, buy ATMput, and sell OTMcall.
Long Call
Long Put
Short Call(naked)
Short Put(naked)
CoveredCall
CollarCan be a riskless strategy if executed correctly with the rightstock.
Protected incomestrategy. Profit assuredif stock remains staticor rises. Calls can besold on a monthlybasis to generateincome.
Short-term incomestrategy.
Short-term incomestrategy.
Capped risk;uncapped reward;better leverage thanstraight stockshorting.
Benefits
Execution
Strategy
Net debit out of youraccount. Works bestfor long-term tradeswhere you leave italone.
Uncapped risk andcapped reward.
Uncapped risk andcapped reward.
Uncapped risk andcapped reward.
Can lose entire stake ifthe put expires OTM(out of the money).
Can lose entire stake ifthe call expires OTM(out of the money).
DisadvantagesComponent Parts
Risk Profile
Execution
Sell stock (short)and sell put.
Buy stock andbuy put.
Short stock andbuy call.
Buy stock and sellput and call withsame strike andexpiration date.
Buy stock and selllower strike putand higher strikecall with sameexpiration date.
Buy lower strikecalls and sell higherstrike calls (sameexpiration).
Buy lower strikeputs and sell higherstrike puts (sameexpiration).
Strategy
CoveredPut
SyntheticCall
SyntheticPut
CoveredShortStraddle
CoveredShortStrangle
Bull CallSpread
Bull PutSpreadCapped risk; lowerbreakeven pointthan simply buyinga put; net creditinto your account.
Capped risk; lowerbreakeven point thansimply buying a call.
Enhanced income(compared withCovered Call).
Enhanced income(compared withCovered Call).
Capped risk anduncapped reward.
Capped risk anduncapped reward.Good insurancetactic.
Net credit into youraccount.
Benefits
Capped reward.
Capped reward.
Very high risk andcapped reward. Notrecommended.
Very high risk andcapped reward. Notrecommended.
More complex thansimply buying puts.
Expensive strategy.
Uncapped risk andcapped reward.
DisadvantagesComponent Parts
Risk Profile
Execution
Sell lower strikecalls and buyhigher strike calls(same expiration).
Sell lower strikeputs and buyhigher strike puts(same expiration).
Buy lower strikecalls, sell higherstrike calls, andsell even higherstrike calls (allsame expiration).
Buy lower strikeputs, buy higherstrike puts, andsell even higherstrike puts (allsame expiration).
Sell lower strikecalls, buy higherstrike calls, andbuy even higherstrike calls (allsame expiration).
Strategy
Bear CallSpread
Bear PutSpread
Bull CallLadder
Bull PutLadder
Bear CallLadderUncapped reward asthe stock rises.
Uncapped reward asthe stock falls.
Cheap strategy.
Capped risk.
Capped risk;bearish incomestrategy.
Benefits
Expensive;confusing as towhether this is abullish or bearishstrategy.
Expensive;confusing as towhether this is abullish or bearishstrategy.
Uncapped risk ifstock rises sharply;confusing as towhether this is abullish or bearishstrategy.
Capped reward.
Capped reward.
Disadvantages
Component Parts
Risk Profile
Execution
Sell lower strikeputs, sell higherstrike puts, andbuy even higherstrike puts (allsame expiration).
Buy puts and callswith same strikeprice andexpiration.
Sell puts and callswith same strikeand expiration.
Buy lower strikeputs and buyhigher strike calls(same expiration).
Sell lower strikeputs and sell higherstrike calls (sameexpiration).
Strategy
Bear PutLadder
Straddle
ShortStraddle
Strangle
ShortStrangleNet credit into youraccount; profitableif stock shows lowvolatility and doesnot move.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Net credit into youraccount; profitableif stock shows lowvolatility and doesnot move.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Cheap strategy.
Benefits
Uncapped risk oneither side.
Low volatilityrequired for entrywhereas highvolatility requiredonce you are in.
Uncapped risk oneither side.
Expensive; lowvolatility requiredfor entry whereashigh volatilityrequired once youare in.
Uncapped risk asthe stock falls;confusing as towhether this is abullish or bearishstrategy.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy two puts andone call with samestrike andexpiration.
Buy one put andtwo calls withsame strike andexpiration.
Buy one lowerstrike call, sell twomiddle strike calls,and buy one higherstrike call. Allstrikes evenly apart.
Buy one lowerstrike put, sell twomiddle strike puts,and buy one higherstrike put. Allstrikes evenly apart.
Sell one lowerstrike call, buy twomiddle strike calls,and sell one higherstrike call. Allstrikes evenly apart.
Strategy
Strip
Strap
Long CallButterfly
Long PutButterfly
Short CallButterflyCapped risk;profitable if stockshows highvolatility afteryou are in.
Capped risk and acheap strategy toenter; can be veryprofitable if stockshows low volatilityafter you are in.
Capped risk and acheap strategy toenter; can be veryprofitable if stockshows low volatilityafter you are in.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Benefits
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
Expensive; lowvolatility requiredfor entry whereashigh volatility requiredonce you are in.
Expensive; lowvolatility requiredfor entry whereashigh volatility requiredonce you are in.
Disadvantages
Component Parts
Risk Profile
Execution
Sell one lowerstrike put, buy twomiddle strike puts,and sell one higherstrike put. Allstrikes evenly apart.
Buy one lowerstrike call, sell twomiddle strike calls,and buy one higherstrike call. Middlestrike closer tohigher strike thanto lower strike.
Buy one lowerstrike put, sell twomiddle strike puts,and buy one higherstrike put. Middlestrike closer tohigher strike thanto lower strike.
Sell one or twolower strike callsand buy two orthree higher strikecalls. Buy greaternumber of higherstrike calls in ratioof 0.67 or less.
Strategy
Short PutButterfly
ModifiedCallButterfly
ModifiedPutButterfly
Call RatioBackspreadCapped risk;uncapped and highlygeared reward if stockrises significantly.
Capped risk and acheap strategy toenter; can be veryprofitable if stockshows low volatilityor rises modestlyafter you are in.
Capped risk and acheap strategy toenter; can be veryprofitable if stockshows low volatilityor rises modestlyafter you are in.
Capped risk;profitable if stockshows high volatilityafter you are in.
Benefits
Lots of volatilityrequired after entryand in the right direction (upwards) for yourtrade to be profitable.
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy two or threelower strike putsand sell one or twohigher strike puts.Buy greater number of lower strikeputs in ratio of0.67 or less.
Buy lower strikecall and sellgreater number ofhigher strike calls(ratio of 0.67 orless).
Buy higher strikeput and sell greaternumber of lowerstrike puts (ratioof 0.67 or less).
Buy lower strikecall, sell middlestrike call, sell nextmiddle strike call,and buy higherstrike call. Allstrikes evenly apart.
Strategy
Put RatioBackspread
Ratio CallSpread
Ratio PutSpread
Long CallCondorCapped risk and acheap strategy toenter; can be veryprofitable if stockremains rangeboundafter you are in.
Capped risk; uncappedand highly gearedreward if stock fallssignificantly.
Benefits
Capped reward;awkward to adjust.
Uncapped risk;capped reward.
Uncapped risk;capped reward.
Lots of volatilityrequired afterentry and in theright direction(downwards) foryour trade to beprofitable.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy lower strikeput, sell middlestrike put, sell nextmiddle strike put,and buy higherstrike put. Allstrikes evenly apart.
Sell lower strikecall, buy middlestrike call, buy nextmiddle strike call,and sell higherstrike call. Allstrikes evenly apart.
Sell lower strikeput, buy middlestrike put, buynext middle strikeput, and sell higherstrike put. Allstrikes evenly apart.
Sell one stock andbuy two ATM calls.
Strategy
Long PutCondor
Short CallCondor
Short PutCondor
Long CallSyntheticStraddleCapped risk;profitable if stockrises or fallssignificantly;uncapped reward;cheaper than doinga normal Straddle.
Capped risk;profitable if stockshows high volatilityafter you are in.
Capped risk;profitable if stockshows highvolatility afteryou are in.
Capped risk and acheap strategy toenter; can be veryprofitable if stockremains rangeboundafter you are in.
Benefits
Low volatilityrequired for entrywhereas highvolatility requiredonce you are in.
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
Capped reward;awkward to adjust.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy one stock andtwo ATM puts.
Buy one stock andsell two ATM calls.
Sell one stock andtwo ATM puts.
Buy lower strikeput, sell mid strikeput, sell next midstrike call, and buyhigher strike call.(Middle strikes canbe the same.)
Strategy
Long PutSyntheticStraddle
Short CallSyntheticStraddle
Short PutSyntheticStraddle
Long IronButterflyCheap strategy thatbrings in a netcredit to youraccount; cappedrisk; profitable ifstock doesn’t movemuch; capped risk.
Cheap strategy thatbrings in a netcredit to youraccount; profitableif stock shows lowvolatility and doesnot move.
Profitable if stockshows low volatilityand does not move.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Benefits
Capped reward;margin required.
Uncapped risk oneither side; largemargin required.
Uncapped risk oneither side; expensivebecause you arebuying the stock.
Even moreexpensive thannormal Straddle;low volatilityrequired for entry,whereas highvolatility requiredonce you are in.
DisadvantagesComponent Parts
Risk Profile
Execution
Sell lower strikeput, buy mid strikeput, buy next midstrike call, and sellhigher strike call.(Middle strikes canbe the same.)
Buy long-term calland sell shorterterm call (samestrikes).
Buy long-term putand sell shorterterm put (samestrikes).
Buy long-termlower strike calland sell shorterterm higher strikecall.
Sell shorter-termlower strike putand buy longerterm higher strikeput.
Strategy
Short IronButterfly
CalendarCall
CalendarPut
DiagonalCall
DiagonalPut
Capped risk; cansell the shorterterm calls on amonthly basis inorder to generateincome.
Capped risk; cansell the shorterterm calls on amonthly basis inorder to generateincome.
Capped risk; cansell the shorterterm calls on amonthly basis inorder to generateincome.
Capped risk; cansell the shorterterm calls on amonthly basis inorder to generateincome.
Capped risk.
Benefits
Capped reward.
Capped reward.
Capped reward; canbecome lossmaking if theunderlying assetrises too much.
Capped reward; canbecome lossmaking if theunderlying assetrises too much.
Expensive strategy.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy lower strikecalls and higherstrike puts.
Sell lower strikecalls and higherstrike puts.
Buy ATM call andsell ATM put.
Sell ATM call andbuy ATM put.
Sell OTM (lower)put and buy OTM(higher) call.
Buy OTM (lower)put and sell OTM(higher) call.
Strategy
Guts
Short Guts
LongSyntheticFuture
ShortSyntheticFuture
LongCombo
ShortComboAlmost simulatesgoing short on astock with no orvery little net debitor credit.
Almost simulatesgoing long on astock with no orvery little net debitor credit.
Simulates goingshort on a stockwith no or very littlenet debit or credit.
Simulates goinglong on a stock withno or very littlenet debit or credit.
Net credit into youraccount; profitableif stock shows lowvolatility and doesnot move.
Capped risk;profitable if stocksrises or fallssignificantly;uncapped reward.
Benefits
Same leverage asthe underlying.
Same leverage asthe underlying.
Same leverage asthe underlying.
Same leverage asthe underlying.
Uncapped risk oneither side.
Expensive becauseyou’re buying ITMoptions.
DisadvantagesComponent Parts
Risk Profile
Execution
Buy one low strikecall, sell one samestrike put; sell onehigher strike call,and buy one samehigher strike put;all same expirationdates.
Strategy
Long BoxCreate a completelyhedged positionwhere the ultimateprofit is knownwith certaintyahead of time.
BenefitsComplicated, requiresmany contracts to beeffective. Bid/Askspread makes itdifficult to guaranteea profitable position.
DisadvantagesComponent Parts
Risk Profile
BGlossary
American Stock Exchange (AMEX) Securities Exchange that handles approximately 20% of all securities trades within the U.S.American-Style Option An option contract that can be exercised at any timebefore the expiration date. Stock options are American style.Arbitrage Where the simultaneous purchase and disposal of a combination offinancial instruments is such that a guaranteed profit is made automatically.Ask The price that you buy at and the price that market makers and floor brokersare willing to sell at. The Ask stands for what the market makers and floor tradersask you to pay for the stock (or options or other instrument).At the Opening Order An order that specifies execution at the market opening orelse it is cancelled.ATM (At the Money)
Where the option exercise price is the same as the asset price.
Automatic Exercise The automatic exercise of an ITM (In the Money) option by theclearing firm at expiration.Backspread A spread where more options (calls or puts) are bought than sold (theopposite of a Ratio Spread).Bear Call Ladder A strategy using calls where the trader sells a lower strike calland buys a higher strike call and another higher strike call.Bear Call Spread A bearish net credit strategy using calls where the trader buys ahigher strike call and sells a lower strike call. The higher strike call will be cheaper,hence the net credit. Bear Call spreads have limited risk and reward, and are moreprofitable as the underlying asset price falls.Bear Put Ladder A spread using puts where the trader sells a lower strike put andbuys a higher strike put and another higher strike put.
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Glossary
Bear Put Spread A net debit spread using only puts where the trader buys a higherstrike put and sells a lower strike put. The higher strike put will be more expensive,hence the net debit. Bear Put spreads have limited risk and reward, and are moreprofitable as the underlying asset falls.Bid The price the trader sells at and the price that market makers and floor tradersare willing to buy at. The Bid stands for the price at which the market maker will bidfor your stock (or options or other instrument).Bid – Ask Spread The difference between the bid and asked prices. Generally youwill buy at the Ask and sell at the Bid. The Ask is always higher than the Bid.Breakeven
The point(s) at which a risk profile of a trade equals zero.
Breakout
Where a price chart emerges upwards beyond previous price resistance.
Brokerorder.Bull
A person who charges commission for executing a transaction (buy or sell)
Someone who expects the market to rise.
Bull Call Ladder A spread using only calls where the trader buys a lower strikecall and sells a higher strike call and another higher strike call.Bull Call Spread Long-term bullish strategy involving buying low strike calls andselling the same number of higher strike calls with the same expiration date.Bull Market
A rising market over a period of time (usually a few years).
Bull Put Ladder A spread using puts where the trader buys a lower strike put andsells a higher strike put and another higher strike put.Bull Put Spread Short-term bullish strategy involving buying lower strike putsand selling higher strike puts with the same expiration date.Butterfly Spread Three-legged direction neutral low volatility strategies involvingeither all call legs or all put legs. Suitable for rangebound stocks.Buy on Closesession.
An order stipulating to buy the security at the close of the trading
Buy on Opening session.
An order stipulating to buy the security at the opening of the trad-
Buy Stop A buy order where the price stipulated is higher than the current price.The rationale here is that the buyer believes that if the security breaks a certain resistance then the security will continue to rise.Buy-Write A bullish strategy involving buying a stock and selling near term ATMor OTM call options to generate regular income. See “Covered Call.”Calendar Spread Two-legged option trade involving buying a long-term optionand selling a shorter-term option with the same strike price. A Calendar Spread mustinvolve either all call or all put legs; you cannot mix calls and puts together for thisstrategy.Call Option The right, not the obligation, to buy an underlying security at a fixedprice before a predetermined date.Call Premium The price of a call option.
Glossary
Call Ratio Backspread Bullish strategy involving selling one or two lower strikecalls and buying two or three higher strike calls.Capital Gain The profit realized from buying and selling an asset.Capital Loss The loss taken from buying and selling an asset unprofitably.Chicago Board Options Exchange (CBOE) The largest equity options exchange inthe world.Chicago Board of Trade (CBOT) The oldest commodity exchange in the U.S.Known for listings in T-bonds, notes, and a variety of commodities.Chicago Mercantile Exchange (CME) An exchange in which many types offutures contracts are traded in an open outcry system.Class of Options Options of the same type, style, and underlying security.Clearing House A separate institution to establish timely payment and delivery ofsecurities.Close The last price quoted for the day.Closing Purchase A transaction that closes an open short position.Collar A low-risk bullish strategy involving buying a stock, buying near themoney puts, and selling out of the money calls.Closing Sale A transaction that closes an open long position.Commission
A charge made by the broker for arranging the transaction.
Commodity A tangible good that is traded on an exchange—for example, oil,grains, metals.Commodity Futures Trading Commission (CFTC) An institution charged withensuring the efficient operation of the futures markets.Condor Spread Four-legged direction neutral low volatility strategy involvingeither all call legs or all put legs. Suitable for rangebound stocks.Contract A unit of trading for an option or future.Correction A post-rise decline in a stock price or market.Covered Call A bullish strategy involving buying or owning a stock and sellingnear term ATM or OTM calls to generate regular income. See “Buy-Write.”Covered Put A bearish strategy involving shorting stock and shorting a near termput option to create regular income. Considered a high-risk strategy.Covered Short Straddle A bullish strategy involving buying (or owning) a stockand selling near term puts and calls at the same strike price and expiration date. Thisis a risky strategy, involving almost certain exercise of the put or call and a significant downside risk if the stock price falls.Covered Short Strangle A bullish strategy involving buying (or owning) a stockand selling near-term OTM puts and OTM calls at the same expiration date. This isa risky strategy, involving significant downside risk if the stock price falls.Credit Spread Where the simultaneous buying and selling of options creates a netcredit into your account (i.e., you receive more for the ones you sell than those you buy).
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Glossary
Day Order An order good for the day only.The acquisition and disposal of an asset in the same day.
Day TradeDay Trading
A trading style where positions are closed by the end of every day.
Debit Spread Where the simultaneous buying and selling of options creates a netdebit from your account (i.e., you pay more for the ones you buy than those you sell).Deep In the Money (DITM) calls Where the price of the underlying security is fargreater than the Call Strike Price.Deep In the Money (DITM) putsless than the Put Strike Price.Delayed Time Quotes
Where the price of the underlying security is far
Quotes that are delayed from real time.
Delta The amount by which an option premium moves divided by the dollar-fordollar movement in the underlying asset.Delta Hedge A strategy designed to protect the investor against directional pricechanges in the underlying asset by engineering the overall position Delta to zero.Delta Neutral Where a spread position is engineered so that the overall positionDelta is zero.Derivative A financial instrument whose value is “derived” in some way from thevalue of an underlying asset source.Diagonal Spread Two-legged option trade involving buying a long-term optionand selling a shorter-term option with a higher strike price. A Calendar Spread mustinvolve either all call or all put legs; you cannot mix calls and puts together for thisstrategy.Discount Brokers Low commission brokers who simply place orders and do notprovide advisory services.Dividend A payment made by an organization to its owners (shareholders), hopefully from profits.Dow Jones Industrial Average (DJIA) An index of 30 blue chip stocks traded onthe New York Stock Exchange (NYSE). This index is often considered a bellwetherof overall market sentiment.Downside RiskEnd of Day
The potential risk of a trade if prices decline.
The close of the trading day when prices settle.
EPS Earnings per share. The amount of profits of an organization divided by thenumber of outstanding shares.Equity Options
Same as Stock Options.
European Style Option An option that cannot be exercised before the expirationdate.Exchange
Where an asset or derivative is traded.
Exchange Ratecurrency.Execution
The price at which one currency can be converted into another
The process of completing an order to trade a security.
Glossary
Exercise The activation of the right to buy or sell the underlying security.Exercise (Strike) Price The price at which an asset can be bought or sold by thebuyer of a call or put option.Expiration
The date at which the option’s ability to be exercised ceases.
Expiration Date The last day on which an option can be exercised.Extrinsic Value (Time Value) The price of an option less its intrinsic value. Out ofthe Money Options are entirely made up of Extrinsic (or Time) Value.Fair Market Value
An asset’s value under normal circumstances.
Fair Value The theoretical value calculation of an option using a pricing techniquesuch as Black-Scholes options pricing formula.Fill
An order that has been executed.
Fill Order
An order that must be filled immediately or cancelled.
Fill or Kill An order where a precise number of contracts must be filled or theorder is cancelled.Floor Broker
A member of an exchange who is paid to execute orders.
Floor Trader An exchange member who trades on the floor of the exchange for hisor her own account.Fundamental Analysis Analysis of a stock security that is based on the ability ofthe organization to generate profits for its shareholders. Such analysis embracesearnings, PE Ratios, EPS, Net Assets, Liabilities, customers, etc.Futures Contracts Agreement to buy or sell an underlying security at a predetermined date at an agreed price. The difference between futures and options is thatwith options, the buyer has the right, not the obligation. With futures, both partiesare obliged to fulfill their part of the bargain.Gamma The speed by which Delta changes compared with the speed by which theunderlying asset is moving.Good till Cancelled Order (GTC) An order that continues until either it is filled orcancelled specifically by the trader.Guts A volatility strategy involving buying In the Money (ITM) calls and ITMputs. High volatility is required after the position is opened to make this a profitablestrategy.Hedge A term for reducing the risk of one position by taking other positions withoptions, futures, or other derivatives.Historical Volatility A measure of the price fluctuation of an asset averaged outover a period of time. A typical and popular period would be 21–23 trading days.Index A group of assets (often in a similar class of sector or market capitalization)that can be traded as a single security.Index Options Options on the indexes of stocks or other securities.Interest Rates The rate at which borrowed money is charged by the lender, usuallyannualized into a percentage figure.
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Glossary
In the Money (ITM)
Where you can exercise an option for a profit.
In the Money (ITM) callsthan the Call Strike Price.
ITM calls are where the current stock price is greater
In the Money (ITM) putsthe Put Strike Price.
ITM puts are where the current stock price is less than
Intrinsic Value
The amount by which an option is in the money.
Iron Butterfly See “Long Iron Butterfly” or “Short Iron Butterfly.”LEAPs Long-term Equity AnticiPation Securities. These are long-term stockoptions with expirations up to three years in the future. LEAPs are available in callsand puts and are American-style traded options.Leg One side or component of a spread.Leg In/Leg Out Legging into a spread entails the completion of just one part of aspread with the intention of completing the other parts at more favorable prices lateron. Legging out of a spread entails the opposite, whereby you exit your spread onepart at a time with the intention of doing so at more favorable prices as the underlying security moves in the anticipated direction.LIFFE London International Financial Futures and Options Exchange. Nowknown as Euronext.liffe.Limit Order An order to buy at a set price that is at or below the current price ofthe security. An order to sell at a set price that is at or above the current price of thesecurity.Liquidity The speed and ease with which an asset can be traded. Cash has themost liquidity of all assets, whereas property (real estate) is one of the most illiquidassets. Volume is the measure of liquidity for stocks, and Open Interest is the measure of liquidity for options. See Open Interest.Long
Being long means that you are a buyer of a security.
Long Call Buying a call option.Long Call Butterfly A three-leg direction neutral strategy requiring low volatility,involving buying a low strike call, selling two middle strike calls with the samestrike price, and buying a higher strike call.Long Call Condor A four-leg direction neutral strategy requiring low volatility,involving buying a low strike call, selling two middle strike calls with differentstrike prices, and buying a higher strike call.Long Call Synthetic Straddle A two-leg direction neutral strategy requiring highvolatility, involving buying two ATM calls for every 100 shares (U.S. stock options)sold, thereby replicating the risk profile of a Long Straddle.Long Combo A bullish strategy involving selling OTM puts and buying OTM callsin order to partially replicate a long stock position.Long Iron Butterfly A direction neutral strategy constructed by combining a BullPut Spread with a Bear Call Spread or by combining a narrow Short Strangle with awider Long Strangle.
Glossary
Long Put
A bearish strategy, buying put options.
Long Put Butterfly A three-leg direction neutral strategy requiring low volatility,involving buying a low strike put, selling two middle strike puts with the samestrike price, and buying a higher strike put.Long Put Condor A four-leg direction neutral strategy requiring low volatility,involving buying a low strike put, selling two middle strike puts with differentstrike prices, and buying a higher strike put.Long Put Synthetic Straddle A two-leg direction neutral strategy requiring highvolatility, involving buying two ATM puts for every 100 shares (U.S. stock options)bought, thereby replicating the risk profile of a Long Straddle.Long Stock Buying shares.Long Synthetic Future Buying calls and selling the same amount of puts with thesame strike and expiration date, effectively forming the same risk profile of buyinga stock but with almost no cost.Margin An amount paid by the account holder (either in cash or “marginable securities”) that is held by the brokerage against non-cash or high-risk investments, or wherethe brokerage has lent the account holder the means to undertake a particular trade.Market Capitalization The number of outstanding shares multiplied by the valueper share.Market if Touched (MIT) Orderspecified is reached.
An order that becomes a market order if the price
Market Maker A trader or trading firm that buys and sells securities in a marketin order to facilitate trading. Market makers make a two-sided (bid and ask) market.Market on Close Order An order that requires the broker to achieve the best priceat the close or in the last five minutes of trading.Market on Open Order
An order that must be executed at the opening of trading.
Market Order Trading securities immediately at the best market prices in order toguarantee execution.Market Price
The most recent transaction price.
Married Put
See “Covered Put.”
Modified Call Butterfly A neutral to bullish strategy similar to a Long CallButterfly, except that the OTM bought calls have a strike price nearer to the centralstrike price of the sold calls.Modified Put Butterfly A neutral to bullish strategy similar to a Long PutButterfly, except that the ITM bought puts have a strike price nearer to the centralstrike price of the sold puts.Naked Selling naked options refers to a sold options contract with no hedge positionin place. Such a position leaves the option seller (writer) exposed to unlimited risk.NASDAQ National Association of Securities Dealers Automated Quotations system. This is a computerized system providing brokers and dealers with securitiesprice quotes.
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Glossary
Near the Money (NTM)Price of an option.
Where the underlying asset price is close to the Strike
New York Stock Exchange (NYSE