Glossary
Parity
A term used to describe an option contract's total premium when that premium is the same amount as its intrinsic value. For example, when an option's theoretical value is equal to its intrinsic value, it is said to be 'worth parity.' When an option is trading for only its intrinsic value, it is said to be 'trading for parity.' Parity may be measured against the stock's last sale, bid, or offer.
Payoff diagram
A chart of the profits and losses for a particular options strategy prepared in advance of the execution of the strategy. The diagram is plot of expected profit or loss against the price of the underlying security.
PCX
Pacific Stock Exchange.
Personal Income
Measures an individuals' total annual gross earnings from wages, business enterprises and various investments. Personal income is the key to personal spending, which accounts for 2/3 of GDP in the major economies.
PHLX
Philadelphia Stock Exchange.
Physical delivery option
An option whose underlying entity is a physical good or commodity, like a common stock or a foreign currency. When that option is exercised by its owner, there is delivery of that physical good or commodity from one brokerage or trading account to another.
Pin risk
The risk to an investor (option writer) that the stock price will exactly equal the strike price of a written option at expiration; i.e., that option will be exactly at the money. The investor will not know how many of his/her written (short) options he/she will be assigned. The risk is that on the following Monday he/she might have an unexpected long (in the case of a written put) or short (in the case of a written call) stock position, and thus be subject to the risk of an adverse price move.
Pips
Short for “Percentage in point”; The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point - for most pairs this is the equivalent of 1/100 of one percent, or one basis point. Also called Points.
Pit
A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.
Political Risk
Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Position
The combined total of an investor's open option contracts (calls and/or puts) and long or short stock.
Position trading
An investing strategy in which open positions are held for an extended period of time.
Premium
1. Total price of an option: intrinsic value plus time value.
2. Often (erroneously) this word is used to mean the same as time value.
Political Risk
Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Price Transparency
Describes quotes to which every market participant has equal access.
Primary market
For securities that are traded in more than one market, the primary market is usually the exchange where trading volume in that security is highest.
Profit /Loss or "P/L" or Gain/Loss
The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.
Profit/loss graph
A graphical presentation of the profit and loss possibilities of an investment strategy at one point in time (usually option expiration), at various stock prices.
Purchasing Managers Index Services (France, Germany, Eurozone, UK)
Measures an outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Readings above 50 generally indicate expansion, while reading below 50 suggest economic contraction.
Put option
An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.