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| Term | Definition |
| 40 x 60 | BWB configuration meaning 40 wide debit wing and 60 wide credit wing |
| 50 x 50 | Symmetrical Butterfly often referred to as “50-wide BF” |
| Absolute Acceptable Max Loss | The maximum loss that you are prepared to accept on any single trade. |
| Absolute Max Loss | The maximum amount of loss that will not be exceeded with a 30 point move in either direction |
| Adjustment Parameters | The amount that you can adjust in a trade |
| Adjustment plan | How much you plan to adjust a trade |
| APM | Advanced position management |
| Asset | What are you trading? |
| ATM | At-The-Money |
| Back trading | Tradeoff past information, same as simulated trading used as past data |
| Balanced Condor | An options trading strategy utilizing two vertical spreads with the same number of contracts in opposing directions, with different short strikes, and the same width wings |
| Battle Cry | Emotional statement used to change your state |
| BB | Stands for bearish butterfly, a market neutral trading system designed for the Russell 2000 that takes advantage of volatile markets |
| Bearish market | A period of several months or years during which securities prices consistently fall |
| BF | Butterfly |
| Blowing up an account | The amount of money has been lost in an account is so great that you can no longer trade from that account any longer. |
| Bollinger Bands | A trading indicator developed by famous technical trader John Bollinger, the indicator is typically plotted two standard deviations away from a simple moving average. |
| Breadth | Is the extent of the emotion. How wide spread is the emotion? |
| Break resistance | When you break a up past certain point where stocks usually do not pass |
| Broken Wing Butterfly | Two vertical spreads with the same number of contracts in opposing directions, with the same short strikes, and different width wings. (See FIT Lesson 22) |
| Broken Wing Condor | Two vertical spreads with the same number of contracts in opposing directions, with different short strikes, and different width wings. (See FIT Lesson 22) |
| Bullish market | A market where prices rise or are expected to rise |
| Butter | Butterfly, symmetrical |
| Butterfly | Two vertical spreads with the same number of contracts in opposing directions, with the same short strikes, and the same width wings. (See FIT Lesson 22) |
| Butterfly Spreads | Refers to a butterfly |
| BWB | Stands for broken wing butterfly, a butterfly trade with one wing shorter than the other. |
| BWC | Stands for broken wing condor, a condor with one wing shorter than the other. |
| Calendar Spread | Options of the same strike in different expiration cycles where the short options are in the close to expiration cycle and the long options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| Calls/Call Option | An option that gives you the right but not the obligation to purchase the asset at the predetermined price |
| Capital Efficiency | Minimizing the capital needed for a particular trade size |
| Capital Efficient M3 | Series of modifications that allow the trader to increase position size, (sometimes to double or triple positions size with same capital) and thereby increase returns, using the same amount of capital. For example – Trade an M3 with 20 butterflies and 2 calls with a 1.5 to 2 times profit target while maintaining less than $50,000 in the position |
| Cat Position | 2-50 point wing butterflies with the short strikes 60 points apart |
| Complex Adjustments | Adjustments that are comprised of non-standard formations |
| Complex Adjustments Log | A recording of the adjustments made on a trade |
| Condors | Two vertical spreads with the same number of contracts in opposing directions, with different short strikes, and the same width wings. (See FIT Lesson 22) |
| Condor Transition | A series of upside adjustments that gradually converts a broken wing butterfly profile position into a condor profile position |
| Config | Trade configuration i.e. trade structure |
| Contracts | Refers to the number of shares you buy in one transaction |
| D:T | Delta to Theta ratio |
| Delta | First meaning: The amount of money the position is expected to gain or lose with a 1 dollar movement of the underline. Second meaning: An option’s theoretical probability of expiring in the money. Often refers to position Delta or composite Delta of a trade |
| Diagonal | Options with different strikes in different expiration cycles where the short options are in the close to expiration cycle and the long options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| DII | Diagnose, Identify and Improve |
| Directional Bias | Favoring one direction over the other in regards to price movement |
| Disaster Plan | A plan that encompasses worst-case scenarios, as in how to handle a total loss of the trade or how you may handle loss of data, the internet, personal injury, death, and other extreme conditions |
| DITM | Deep-in-the-money |
| Downside | The area to the left of the price of the asset on an analyze graph. |
| Drawdown | The amount of money the trade has lost |
| DTE | Stands for days until expiration |
| Entry Criteria | The conditions under which you are willing or allowed to enter the trade |
| EOD | Stands for end of day |
| ES | S and P 500 futures symbol |
| Exit Criteria | The conditions in which you are allowed to exit the trade |
| Expected Max Loss | Maximum amount of drawdown allowed before exiting the trade |
| Expected Profit | The average amount of money a trade generally makes in normal trading conditions |
| Expiration Cycle | The expiration date of the options in the trade that are closest to expiration except when the closer expiration options are used exclusively as a hedge |
| Expiration Guidelines | Guidelines that are used in a trade when it’s close to expiration. In the case of the bearish butterfly, expiration guidelines are used when the trade is closer than 21 days until expiration |
| Expiration Line | Trade risk profile as of expiration in the future |
| Fibonacci Lines | http://www.investopedia.com/terms/f/fibonacciretracement.asp?lgl=no-infinite |
| Gamma | The amount of change in Delta with a one dollar price movement of the underline |
| Greeks | Describe the way an option’s value will change with price movement, the passage of time and volatility changes. The most commonly used greeks are Delta, Theta, Gamma, and Vega. |
| GTC | Good Till Cancelled |
| IC | Iron condor |
| Intraday | Normal trading hours |
| Inversion Flip | An advanced M3 technique where you flip the expiration tent from the right of your lowest long put to the left of your lowest long put in a down trending market. |
| Iron Butterflies | A butterfly that is made up of a put vertical spread and a call vertical spread. |
| ITM | In the money |
| IV | Implied volatility |
| IWM | The symbol for the ETF that tracks the Russell 2000. |
| Long call | When you’ve bought a call |
| Lot size | Refers to the number of shares you buy in one transaction |
| Lower Longs | The options that you own or are long at the lowest strike |
| M21 | A trading style that utilizes technical analysis to design high probability trades to take advantage of the most likely price movement. |
| M3 | A market neutral trading system designed with the intent to teach the trader how to manage complex option positions while live trading with minimal risk |
| M3E | An M3 that utilizes a deep in the money call that is closer to expiration than other options in the trade – Click here for a detailed list of M3 variations |
| M3U | M3 without a deep in the money call – Click here for a detailed list of M3 variations |
| Market Biases | Favoring one direction over the other in regards to price movement |
| Market reset | When an oversold or overbought price move corrects itself and is now more likely to continue in the same direction |
| Market Volatility | The amount of price movement expected in the market |
| Max Loss | Maximum amount of drawdown allowed in the trade |
| ML | Max loss |
| NNN | no notes needed |
| NYSE | New York stock exchange |
| ONE | Option Net Explorer; Options analytical software |
| Options Contract | an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price. |
| Option Net Explorer | Options analytical software |
| Options Series | Refers to option cycle type or date: Weekly, Monthly, Quarterly, Standard |
| Option Size | Can refer to “lots” or “contracts”; same thing |
| OptionVue | Options analytical software |
| OTFI OTM | Options Trading for Income by the Guidelines sessions Out of the money |
| OV | OptionVue Analytical Software |
| P/L | Profit and loss |
| PC | Planned capital |
| Pivot Point | A pivot point is a technical analysis indicator used to determine the overall trend of the market during different time frames. The pivot point itself is simply the average of the high, low and closing prices from the previous trading day. |
| Planned Capital | The maximum amount of capital that is expected to be in the trade. We use this number to determine our percent drawdowns and profit targets. |
| Positive Expectancy | Percentage of winning trade gains exceeds percentage of losing trade losses i.e. trade return performance is profitable over sufficient period of time |
| Price | is a measure of investors attitude. When investors are optimistic, price rises. When investors are pessimistic, price falls. |
| Profit Objectives | The amount of money you would like to make on a trade |
| Profit Target | The amount of money you would like to make on a trade |
| Psychology Journal | A journal where you track your thoughts and emotions during trading |
| PT | Profit target |
| Puts/Put option | A put option is the right, but not the obligation, to sell an asset at the strike price of the put. |
| Put Protect | Add long puts to reduce downside risk of a position |
| Ratio Calendar | And options strategy with options of the same strike in different expiration cycles where the short options are in the close to expiration cycle and the long options are in the far from expiration cycle with a different number of options (usually extra long strikes) in each cycle. (See FIT Lesson 22) |
| Ratio Diagonal | Options with different strikes in different expiration cycles where the short options are in the close to expiration cycle and the long options are in the far from expiration cycle with a different number of options in each cycle |
| Ratio Spreads | Vertical spreads with extra long strikes. (See FIT Lesson 22) |
| Resistance | General area where the price resists going higher |
| Retracement | When an asset moves downward after an up move |
| Reverse Calendar (or Short Calendar) | Options of the same strike in different expiration cycles where the long options are in the close to expiration cycle and the short options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| Reverse Diagonal (or Short Diagonal) | Options with different strikes in different expiration cycles where the long options are in the close to expiration cycle and the short options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| Risk Criteria | The description of the amount of money that can go into the trade and the maximum amount of money the trade can draw down before exiting. Risk primers often include profit objectives. |
| Risk Off Only | Adjustment strategy where we do not roll up the structure but only adjust upper long strikes to reduce trade risk, such as a vertical used for the purpose of reducing Delta or raising the expiration line in one direction. |
| Risk Off Strategy | would essentially keep the trade in the same position while removing risk in the direction of concern. In the case of UB1 we enter a bullish leaning butterfly (BWB) and when the price goes up, we remove up risk while keeping the primary position in place, therefore we have a risk-off upside adjustment strategy… On the downside of UB1 we roll back, therefore, the downside adjustment strategy would be a rollback making the UB1 a Risk Off (RO) (up), Roll Back (RB) (down) BWB strategy. |
| RLS | Settlement price of the RUT |
| Rock | A complex options trading system by John Locke |
| Roll Back Adjustment | Under certain conditions, trade structure is repositioned lower than existing position to reduce trade risk |
| Rolling Strategy | would be where we pick up a trade and move it to a new level. In the M3 (or UB2) for example, we put on a trade and first perform “risk off ” adjustment to the upside and then if the market goes too far, we roll (pick up and move) the position. Therefore the M3 would be considered a bullish bias butterfly/call position with a risk-off and then roll upside adjustment strategy and a rollback downside adjustment strategy. (ROR RB) |
| Russell 2000 | The index that represents 2000 small cap stocks |
| RUT | The symbol for the Russell 2000 |
| SBN | should be noted |
| Short Calendar (or Reverse Calendar) | Options of the same strike in different expiration cycles where the long options are in the close to expiration cycle and the short options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| Short Diagonal (or Reverse Diagonal) | Options with different strikes in different expiration cycles where the long options are in the close to expiration cycle and the short options are in the far from expiration cycle with the same number of options in each cycle. (See FIT Lesson 22) |
| Short Ratio Spreads | Short vertical spreads with extra long strikes. (See FIT Lesson 22) |
| Short strikes | The option strikes that are sold short. |
| Short the stock | A short, or short position, is selling first and then buying later. The trader’s expectation is that the price will drop; the price they sell at is higher than the price they buy it at later. |
| SIM | Short for simulated |
| Skews | Most commonly used to refer to differences in volatility between options |
| Slippage | Refers to the difference between advertise prices and actual execution prices |
| Split Strike Butterfly | BWB with 2 short strikes |
| SPX | The symbol for the S and P 500 index |
| SPY | The symbol for the exchange-traded fund that emulates the S and P 500 index |
| Strike Increments | Refers to 5 or 10 point strikes offered in asset option chain |
| Strikes | The asset at value that a specific option will be at the money |
| Support | General area where the price resists going lower. |
| Synthetic Equivalents | Positions that react the same but are constructed differently |
| T+0 | Refers to the trade risk profile as of today |
| Tent | The portion of the expiration graph that is above 0 profit and loss |
| TF | The symbol that for the Russell 2000’s future contracts |
| Theta | One of the greeks and it refers to how much dollar value a position or option will theoretically gain or lose in value in one day |
| Total Risk | The entire amount of financial risk in the position |
| Trade Debrief | To systematically review your performance and the effectiveness of the plan |
| Trade Journal | A journal used to record trading information |
| Trade Structure | Refers to type of trade position such as a Butterfly, Condor, BWB, Unbalanced BG, etc. |
| Trend | Is the price going up, down, or sideways? |
| UB1 | Unbalanced Butterfly trade version 1 |
| UB2 | Unbalanced Butterfly trade version 2 |
| UB3 | Unbalanced Butterfly trade version 3 |
| Unbalanced Broken Wing Butterfly | Two vertical spreads with a different number of contracts in opposing directions, with the same short strikes, and different width wings. (See FIT Lesson 22) |
| Unbalanced Broken Wing Condor | Two vertical spreads with a different number of contracts, in opposing directions, with different short strikes, and different width wings. (See FIT Lesson 22) |
| Unbalanced Butterfly | Two vertical spreads with a different number of contracts in opposing directions, with the same short strikes, and the same width wings. (See FIT Lesson 22) |
| Unbalanced Condor | Two vertical spreads with a different number of contracts, in opposing directions, with different short strikes, and the same width wings. (See FIT Lesson 22) |
| Upside | The asset moving higher |
| Vega | One of the greeks and it represents the amount of money the position with theoretically gain or lose with a one point increase of volatility |
| Vertical Spreads | A complex options spread where one option is bought at a strike level and another option is sold at a different strike level with the same expiration month |
| Volume | is the intensity of investors attitude. High volume indicates more intense optimism and/or pessimism. |
