Glossary
Day order
A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.
Day trade
A position (stock or option) that is opened and closed on the same trading day.
Dealer
An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Debit
Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.
Debit spread
A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.
Decay
A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.
Deficit
A negative balance of trade or payments.
Delivery
The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock.
Delta
A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.
Department of Communities and Local Government (DCLG) UK House Prices
A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market.
Depreciation
A fall in the value of a security due to market forces.
Derivative / derivative security
A financial security whose value is determined in part from the value and characteristics of another security, the underlying security. An option is the most common type of derivative instrument.
Devaluation
A deliberate downward adjustment to a country's official exchange rate relative to other currencies. In a fixed exchange rate regime, only a decision by a country's government (i.e central bank) can alter the official value of the currency. Contrast to "revaluation".
Diagonal spread
A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. Example: buying 1 May 60 call and writing 1 March 65 call.
Discount
An adjective used to describe an option that is trading at a price less than its intrinsic value (i.e., trading below parity).
Discount Rate
Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank.
Discretion
Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order.