Options Glossary

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Paper Trading

The ability to simulate a trade without actually putting up the money for the purpose of gaining additional trading experience.

Par

The stated or "nominal" value of a bond (typically $1,000) that is paid to the bondholder at maturity.

Perceived Risk

The theoretical risk of a trade in a specific time frame.

Performance Based

A system of compensation in which a broker receives fees based on their performance in the marketplace.

Points

Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds, , one point means 1% of par value. Commodities differ from market to market.

Point Spread

The price movement required for a security to go from one "full point" level to another (i.e. stock goes up or down $1).

Position

The total of a trader's open contracts.

Position Delta

The sum of all positive and negative deltas in a hedged position.

Position Limit

The maximum number of open contracts in a single underlying instrument.

Premium

The amount of cash that an option buyer pays to an option seller.

Price

Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intra-day trading price.

Price / Earnings Ratio (PE)

A technical analysis tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. PE is calculated by dividing the current market price of a stock by the earnin gs per share.

Principal

The initial purchase price of a bond on which interest is earned.

Private Company

A company that issues private stock and is not publicly traded.

Probability of Profit

Probability of Profit is the probability that the predicted stock price falls within the option trade's profit zones. The predicted stock price distribution is computed by projecting the stock price randomly into the future using the SV. The prediction stops at the expiration of the earlist expiring option leg.

Public Company

A company that issues stocks to be traded on the public market.

Put Option

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date w hile the put option seller (or writer) hopes that the price of the shares will rise, remain stable, or drop by an amount less than their profit on the premium by the specified date.