Glossary I

A type of order that must be filled immediately or be canceled. IOC orders allow partial fills, with the balance of the order canceled.

An estimate of the volatility of the underlying stock that is derived from the market value of an option. Implied volatility is the volatility number that, if plugged into a theoretical pricing model along with all the other inputs, would yield a theoretical value of an option equal to the market price of the same option. Compare to historical volatility.

A proxy for the overall stock market or segments of the stock market. An index is typically made up of a group of stocks that are selected to represent all stocks in the stock market or market segment (such as technology stocks or large capitalization stocks). The performance of the index gives an idea of how individual stocks might be performing. The S&P 500 (Standard & Poor's 500) and Dow Jones Industrial Average are two well-known indices.

An option that has a stock index as the underlying asset. The value of an index option is based on the value of the index. Typically, index options are cash settled options.

The amount of equity a client must deposit when making a new purchase in a margin account. For retail clients the SEC's Regulation T requirement for equity securities currently stands at 50% of the purchase price. In addition, the FINRA and NYSE initial margin requirement is a deposit of $2,000 but not more than 100% of the purchase price. Purchases of options must be paid for in full while the sale of naked options is subject to house requirements prescribed by TD Ameritrade. Also, the amount of money required to be in an account with a brokerage firm to carry a new position into the next trading day.

A corporation's first sale of stock to the public.

Organizations such as mutual funds, pension funds, endowment funds, and insurance companies that typically have very large sums of money to invest.

Money paid when borrowing money or money earned when lending money.

A percentage that is charged when borrowing money, or that is earned when lending money.

Risk that a change in interest rates will cause a position to change in value.

A call option is in-the-money when the price of the underlying stock is greater than the call's strike price. . Conversely, a put option is in-the-money when the price of the underlying stock is lower than the put's strike price. At expiration, options that are .01 ITM are automatically exercised.

Any positive value resulting from the stock price minus the strike price (for calls) or strike price minus the stock price (for puts). Only in-the-money options have intrinsic value, and intrinsic value can never be zero or less. For example, if a call option with a strike price of $50 has a price of $2.75, with the stock price at $52, the intrinsic value is $2.00. If a put option with a strike price of $15 has a price of $1.50, with the stock price at $14, the intrinsic value is $1.00. Compare to extrinsic value.

Someone who purchases a stock with the intent of holding it for a certain amount of time and profiting from the transaction. Compare to day trading.

An option spread composed of calls and puts, with long options and short options at three different strikes. The options are all on the same stock and of the same expiration, with the quantity of long options and the quantity of short options netting to zero. The strikes are equidistant from each other. An iron butterfly can be seen as a straddle at the middle strike and a strangle at the outer strikes. For example, a long 50/60/70 iron butterfly is long 1*50 put, short 1*60 call, short 1*60 put, and long 1*70 call. It's important to understand that you initiate an iron butterfly for a credit, that is, you take money in. The profit potential is limited to the credit received. It is a limited risk and limited profit strategy. Please note that multiple-leg option strategies such as this can entail substantial transaction costs, including multiple commissions, which may impact any potential return.

An option spread composed of calls and puts, with long options and short options at four different strikes. The options are all on the same stock and of the same expiration, with the quantity of long options and the quantity of short options netting to zero. Generally, the strikes are equidistant from each other, but if the strikes are not equidistant, the spread is called an iron pterodactyl. An iron condor can be seen as a strangle at the middle strike and a strangle at the outer strikes. For example, a long 50/55/60/65 iron condor is long 1*50 put, short 1*55 put, short 1*60 call, and long 1*65 call. It's important to understand that you initiate an iron condor for a credit, that is, you take money in. The profit potential is limited to the credit received. It is a limited risk and limited profit strategy. Please note that multiple-leg option strategies such as this can entail substantial transaction costs, including multiple commissions, which may impact any potential return.

As a verb, when a company offers shares of stock to the public; as a noun, the stock that has been offered by the company.

(1) An entity that offers or proposes to offer its securities for sale. (2) The creator of an option; the issuer of a listed option is the OCC.