Glossary
Technical analysis
A method of predicting future stock price movements based on the study of historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume.
Theoretical option pricing model
The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.
Theoretical value
The estimated value of an option derived from a mathematical model. See also Model and Black-Scholes formula
Theta
A measure of the rate of change in an option's theoretical value for a one-unit change in time to the option's expiration date. See also Time decay
Tick
The smallest unit price change allowed in trading a security. For listed stock, this is generally 1/8th of a point. For a listed option under $3 in price, this is generally 1/16th of a point. For a listed option over $3, this is generally 1/8th of a point.
Time 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.
Time spread
An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread.
Time value
The part of an option's total price that exceeds its intrinsic value. The price of an out-of-the-money option consists entirely of time value.
Trade Balance
Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.
Trader
1. Any investor who makes frequent purchases and sales.
2. A member of an exchange who conducts his or her buying and selling on the trading floor of the exchange.
Trading pit
A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.
Transaction costs
All of the charges associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and/or assignment, exchange fees, SEC fees, and margin interest. In academic studies, the spread between bid and ask is taken into account as a transaction cost.
Transaction Date
The date on which a trade occurs.
Turnover
The total money value of all executed transactions in a given time period; volume.
Two-Way Price
When both a bid and offer rate is quoted for a FX transaction.
Type of options
The classification of an option contract as either a put or a call.