Options Glossary

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Make a Market

A market maker stands ready to buy or sell a particular security for his/her own account to keep the market liquid.

Margin

A deposit contributed by a customer as a percentage of the current market value of the securities held in a margin account is thus the margin amount. This amount changes as the price of the investment changes.

Margin Account

A customer account in which a brokerage firm lends the customer part of the purchase price of a trade.

Margin Call

A call from a broker signaling the need for a trader to deposit additional money into a margin account to maintain a trade.

Margin Requirements (Options)

The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes.

Marked to Market

At the end of each business day the open positions carried in an account held at a brokerage firm are credited or debited funds based on the settlement price of the open positions that day.

Market

A specific asset, security or commodity that is traded at an exchange.

Market-If-Touched (M.I.T.)

A price order that automatically becomes a market order if the price is reached.

Market Maker

An independent trader or trading firm that is prepared to buy and sell shares or contracts in a designated market. Market makers must make a 2-sided market (bid and ask) in order to facilitate trading.

Market on Close

An order specification that requires the broker to get the best price available on the close of trading, usually during the last five minutes of trading.

Market Order

Buying or selling securities at the price given at the time the order reached the market. A market order is to be executed immediately at the best available price, and is the only order that guarantees execution.

Market Price

The most recent price at which a security transaction took place.

Market Value

The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers.

Mark-to-Market

The daily adjustment of margin accounts to reflect profits and losses. In this way, losses are never allowed to accumulate.

Max Loss

The maximum amount of losses possible from the option trade in the Optionetics option trade ranker tool.

Max Profit

The maximum amount of net profit possible from the option trade in the Optionetics option trade ranker tool.

Mid-cap Stocks

Usually solidly established medium growth firms with less than 100 billion in assets. They provide better growth potential than blue-chip stocks, but do not offer as wide a variety of investment attributes.

Model

A model value for the option quote is the Bjerksund and Stensland Approximation of the Black-Scholes "fair" value of the option based on the estimated IV from the stock's other options.

Model Profit

The Optionetics option trade ranker tool software uses an option mathematical model ( the Bjerksund Stensland American option model) to fairly price the option. The Optionetics software computes what the profit of the option strategy would be using the mathematical model option prices. The profit value is called the Model Profit. If this "model profit", when the trade is formed, is close to the profit of 0.0 ( a new trade should start with no profit ) then we are confident the option data being used for the trade is good. Model profits that exceed $200 likely are caused by incorrect option data.

Momentum

When a market continues in the same direction for a certain time frame, the market is said to have momentum.

Momentum Indicator

A technical indicator utilizing price and volume statistics for predicting the strength or weakness of a current market.

Momentum Trading

Investing with (or against) the momentum of the market in hopes of profiting from it.

Moving Averages

The moving average is probably the best known, and most versatile, technical indicator. A mathematical procedure in which the sum of a value plus a selected number of previous values are divided by the total number of values. Used to smooth or eliminate t he fluctuations in data and to assist in determining when to buy and sell.

Mutual Fund

An open end investment company that pools investors' money to invest in a variety of stocks, bonds, or other securities.