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BACKMONTHS: Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month.

BACKSPREAD: A spread strategy in which the net position has more long options than shortones. To create a call backspread you might sell one lower strike call and buytwo higher strike calls. This position offers limited risk and unlimited profitpotential. It's also worth noting that backspreads are often initiated as deltaneutral positions.

BACKWARDATION: A futures market in which the relationship between two delivery months of the same commodity is abnormal. The opposite of Contango. See also InvertedMarket.

BASECURRENCY: In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX market, theU.S. Dollar is normally considered the "base" currency for quotes, meaning thatquotes are expressed as a unit of $1 USD per the other currency quoted in the pair (ex., USD/JPY). The primary exceptions to this rule are the British Pound, the Euro, and the Australian Dollar (ex., EUR/USD).

BASIS: Point difference over or under a designated future at which a cash commodity of acertain description is sold or quoted.

BASISPOINT: Refers to yield on bonds. It is one hundredth of apercentage point (0.01%). Example: If rates change by 25 basis points it means the rate has changed by .25%.

BEAR SPREAD: Aposition consisting of multiple options that benefits from a decline in thestock price. The position may include stock as well as options.

BEAR CALL SPREAD: This strategy involves selling a call with a lower strike and buying a call with ahigher strike. The maximum profit is achieved when the stock trades at or below the lower strike.

BEAR PUT SPREAD: This strategy involves buying a put with a higher strike price and selling a putwith a lower strike price. In this case, the maximum profit is achieved at or below the lower strike price.

BEARISH: The term used to describe the market sentiment of people who expect a generalmarket decline.

BEST ASK OR BEST OFFER: The lowest quoted offer of all competing market makers tosell a particular security at any given time.

BESTBID: The highest quoted bid of all competing market makers to buy a particular securityat any given time.

BETA: A measure of the return (inpercentage terms) on a stock relative to the return (in percentage terms) of an index. For example a stock with a beta of .80 should have a percentage net change equal to 80% of the percentage net change of the index. Therefore if the index is down 2% the stock in question should be down 1.6% (.80x2%).

BID: The price point where a buyer is willing to purchase a given stock or optioncontract.

BID/ASK(OFFER) SPREAD: The difference between the bid and ask prices for a particular stock or option.

BID SIZE: The number of futures or options contracts bid at a certain price.

BINOMIAL MODEL: A mathematical model usedto price options. Generally used for American-style options, the model createsa binomial lattice to price an option, based on the stock price, strike price,days until expiration, interest rate, dividends, and the estimated volatilityof the stock. One of the main differences from the Black Scholes Model is thatit factors in the possibility of early exercise of the options.

BLACK-SCHOLES MODEL: A mathematical formula provides theoretical values foroptions given the various factors that impact an option's price (i.e., thestrike price, the price of the underlying, the current interest rate, theamount of time remaining until expiration, dividends, and volatility).

BLOCK or BLOCK TRADE: A large position or transaction of stock, generally at least 10,000 shares or more.

BLUESKY LAWS: The popular name for laws enacted by various states to protect the public against securities fraud. The term is believed to have been coined by a judge who stated that some brokers were selling everything including the "blue sky" to investors.

BOND: A security that represents the debt of a corporation, municipality or any otherentity.

BOOKVALUE PER SHARE: The book value of a company divided by the number of shares outstanding.

BOX: The Boston Options Exchange.

BREAK: A rapid and sharp price decline.

BREAK-EVEN: The stock price (or prices) at which an option position will neither make nor lose money.

BREAKPOINTS: Reduced sales loads on mutual funds for larger investments. The larger the investment, the lower the fees will be. Breakpoints are established by the mutual fundcompany.

BROKER: A broker is an individual or firmthat charges a fee or commission for executing, either on the floor of anexchange or electronically, buy, sell, or spread orders submitted by a customeror firm.

BROKERCALL RATE: The broker call rate is the interest rate that banks chargebrokerages to cover the security positions of the brokerage's customers. Mostbrokerages will charge you slightly above this amount when you borrow onmargin. Usually the rate is about a percentage point higher than the FederalFunds Rate.

BROKERLOAN RATE: This isthe interest rate that banks charge brokerage firms to finance their (thebrokerage firms) customers' stock and option positions.

BROKER-DEALER: Generally, a broker-dealer is a person or firm who facilitates trades between buyers and sellers and receives a commission orfee for his services. When a broker acts in the capacity of a dealer, he maybuy and sell stocks and options for his own account, which can generate profits or losses.

BUFFERED LIMIT: Desired limit price will be applied as an offset to thetriggered quote, at the time the order is sent to the exchange.

BULL: A person who believes that the price of a particular security or the market as a whole will go higher.

BULLISH: The outlook of a person anticipating higher prices in a particular security or the market as a whole.

BULL MARKET: Any market in which prices are trending higher.

BULL SPREAD: A position consisting of multiple options that benefits from an increase in the stock price. The position may include stock as well as options.

BULL CALL SPREAD: This strategy involves buying a call with a lower strike and selling a call with ahigher strike. The maximum profit is achieved when the stock trades at or abovethe higher strike.

BULL PUT SPREAD: This strategy involves selling a put with a higher strike and buying a put with alower strike. Again, the maximum profit is achieved at or above the higherstrike price.

BULLISH: The term used to describe the market sentiment of people who expect the generalmarket to rise.

BUTTERFLY SPREAD: A limited risk, limited reward strategy that involves 4 options (all calls or allputs) at 3 different strike prices. For example, to buy a butterfly, you mightbuy one call at a lower strike, sell two calls at the middle strike, and buyone call at the higher strike. In this case, the highest and lowest strikes are "wings" while the middle strike makes up the "body" of thebutterfly.

BUYINGHEDGE: A hedge initiated by taking a long position in the futuresmarket equal to the amount of the cash commodity which eventually needed.

BUYING POWER: The amount of moneyavailable in an account to buy stocks or options. Buying power is determined bythe sum of the cash held in the brokerage account and the loan value of anymarginable securities in the account without depositing additional equity.

BUYON CLOSE: To buy at the end of atrading session at a price within the closing range.

BUY ON OPENING: To buy atthe beginning of a trading session at a price within the opening range.

BUY TO CLOSE: An order entered to close a short position. Generally used in futures/options investing to distinguish between establishing vs. closing aposition.

BUY-TO-COVER: A buy order that closes or offsets a short position in stock or options.

BUY TO OPEN: An order entered to establish a new long position. Generally used in futures/options investing to distinguish between establishing vs. closing a position.

BUY-WRITE: Synonymous to a covered call orcovered write, this is a position of long stock and short a number of callsrepresenting the same amount of shares as the long stock position. This position may be entered into as a spread order via think or swim with both sides(buying stock and selling calls) being executed simultaneously. For example, a buy-write is buying 500 shares of stock and writing 5*50 strike calls.

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CALENDAR SPREAD (TIME SPREAD): An option position composed of either only calls or only puts, with the purchase or sale of an option with a nearby expiration offset by the purchase or sale of an option with the same strike price, but a more distant expiration. The options are on the same stock and have the same strike price. The quantity of long options and the quantity of short options net to zero. For example, long the AUG/NOV 65 call calendar spread is short 1 August 65 call and long 1 November 65 call.

CALL OPTION: A call option gives the buyer ofthe call the right, but not the obligation, to buy the underlying stock at the option's strike price. The seller of the call is obligated to deliver (sell)the underlying stock at the option's strike price to the buyer of the call whenthe buyer exercises his right.

CALLED AWAY: The term used when theseller of a call option is obligated to deliver the underlying stock to the buyer of the call at the strike price of the call option.

CALL WRITER: An investor who receives apremium and takes on, for a specified time period, the obligation to sell the underlying security at a specified price at the call buyer's discretion.

CANCELED ORDER: An order to buy or sell stock oroptions that is canceled before it has been executed. Generally, it is easier to cancel a limit order than a market order. A limit order can be canceled atany time as long as it has not been executed. Market orders can get executed so quickly that it is usually impossible to cancel them. Think or swim will notaccept an order cancellation for a market order.

CAPITAL GAIN OR CAPITAL LOSS: Profit or loss generated from transactions in stocks, options, bonds, real estate, orother property.

CARRY/CARRYING CHARGE: Interest is charged on anymoney borrowed to finance a position of stocks or options. The interest cost offinancing the position is known as the carry.

CARRYING COST: The interest expense incurred when borrowed money is used to finance a stock oroption position. The carrying cost can also be viewed as the opportunity cost of an investment relative to what the same cash would have earned at currentinterest rates.

CASH ACCOUNT: An account in which all positions must be paid for in full. No short positions in stocks or options areallowed in a cash account.

CASH COMMODITY: The actual physical commodity as distinguished from thefutures contract based on the physical commodity. Also referred to as Actuals.

CASH MARKET: Generally referred toregarding futures markets, the cash market is where transactions are made inthe commodity or instrument underlying the future. For example, there are cashmarkets in physical commodities such as grains and livestock, metals, and crudeoil, financial instruments such as U.S. Treasury Bonds and Eurodollars, as wellas foreign currencies such as the Japanese yen and the Canadian dollar. As itrelates to futures on stock indices, the cash market is the aggregate market value of the stocks making up the stock index.

CASH PRICE: The price of the actual underlying commodity that a futurescontracts is based upon

CASH SETTLED OPTION: An option that delivers a cash amount, as opposed to the underlying stock or futurescontracts such as with options on stocks or futures, when exercised. The amount of cash delivered is determined by the difference between the option strike price and the value of the underlying index or security. In the U.S., stock index options like the OEX and SPX are cash settled options.

CASH SETTLEMENT: Typically associated with index options, this is the process through which option holders receive the intrinsic value of the options in cashat expiration. In this case, option sellers are responsible for cash payment.This contrasts with equity options in which stock is exchanged at expiration rather than cash.

CHAIN: Seeoption chain.

CHICAGO BOARD OF TRADE (CBOT): Founded in 1848 with 82 original members, today the CBOT is the one of the largest futures and options exchanges in the world. It is known for its grain and U.S.Treasury Bond futures. Futures and futures options are traded at the CBOT.

CHICAGO BOARD OPTIONS EXCHANGE (CBOE): The Chicago Board Options Exchange is currently (2000) the largest option exchangein the U.S. Formed in 1973, the CBOE pioneered "listed options" withstandardized contracts. Equity and index options are traded at the CBOE.

CHICAGO MERCANTILE EXCHANGE (CME): Originally formed in 1874 as the Chicago Produce Exchange, where products such as butter,eggs, and poultry were traded, the CME is now one of the biggest futures and options exchanges in the world. The CME trades futures on stock indices,foreign currencies, livestock, and Eurodollars. Futures and futures options aretraded at the CME.

CIRCUIT BREAKER: A system of coordinated trading halts on equities and equity derivative markets designed to provide a cooling off period during large intraday price movements. The halts are triggered by a specified decline in a broad-basedstock index such as the Dow Jones Industrial Average or the S&P 500.

CLASS OF OPTIONS (OPTIONS CLASS): Optionsof the same type either all calls or all puts on the same underlying security.

CLEAR/CLEARING: The process by which aclearinghouse maintains records of all trades and settles margin flow on adaily mark-to-market basis for its clearing members.

CLEARING BROKER-DEALER: Abroker-dealer that clears its own trades as well as those of introducingbrokers.

CLEARING HOUSE: An agency connected with an exchange through which all stock and option transactions are reconciled, settled, guaranteed, and later either offset or fulfilled through delivery ofthe stock and through which payments are made. It may be a separate corporation, rather than a division of the exchange itself.

CLEARING MEMBER: Clearing members of U.S.exchanges accept responsibility for all trades cleared through them, and sharesecondary responsibility for the liquidity of the exchanges' clearing operation. Clearing members earn commissions for clearing their customers'trades. Clearing members must meet minimum capital requirements.

CLOSE(C), THE: The time at which trading on a stock or option ends for the day. In reference to the O,H,L,C"C" represents the closing price of the session.

CLOSED-END FUNDS: A fund that does not issue new shares or accept new money after theinitial public offering. Closed-end securities can be purchased in the openmarket, just like a stock.

CLOSE-OUT LAST TRADE: Checking this box lets Xecute® know that you wish to participate in closing trades when these alerts are received from your advisory service. Unchecking this box lets Xecute® know that you wish tocloseout your Xecute® position on your own.

CLOSING PRICE: The price of the last transaction for a particular option contract at the end of the trading day. This may or may not be the same as the settlement price used by the OCC to determine end of the day account values.

CLOSING PURCHASE: A transaction in which aperson who had initially sold short a stock or option exits or closes his shortposition by buying back the stock or option.

CLOSING RANGE: The range of high and low prices, or bid and ask prices, recorded during the close (the final closingminutes of the trading day).

CLOSING TRANSACTION: A transaction in which a person who had initially bought or sold stock, futures or options exits or closes(liquidates) his position by selling his long stock, futures or options or buying back his short stock, futures or options.

COLLAR: Thisstrategy involves the purchase of stock and the sale of a call against thatstock (covered call), while purchasing a put option on the same stock(protective put). Also known as a "fence" or "cylinder".Use primarily to protect an existing stock position.

COLLATERAL: Any margin able securities (e.g., stock, cash) used a basis for borrowing money. If the value of the securities (against which the loan was made) dips significantly, theinvestor may be forced to provide additional collateral or liquidate part ofthe position to repay the loan.

COMBINATION SPREAD: A broad term used to describe positions consisting of anequal number of long calls and short puts or long puts and short calls.Combinations often have different strike prices and/or expirations.

COMMERCIAL PAPER: Is an unsecured debt issued by corporations to finance itsshort-term needs. Maturity ranges from 2 to 270 days.

COMBO: Often another term for synthetic stock, a combo is an option position composed of calls and puts on the samestock, same expiration, and typically the same strike price. The quantity oflong options and the quantity of short options nets to zero. Buying a combo is buying synthetic stock; selling a combo is selling synthetic stock. For example, a long 60 combo is long 1*60 call and short 1*60 put. Sometimes, combois used to describe options at two different strikes, in which case it would not be synthetic stock.

COMMINGLING: The combining by a brokerage firm of customer securities with firm securities and pledging them as jointcollateral for a bank loan; this practice is prohibited unless authorized by customers.(FINRA)

COMMISSION: The one time fee charged by abroker to a customer when the customer executes a stock or option trade throughthe brokerage firm.

COMMODITY: A general futures market, without reference to any particular delivery month. For example, Corn,the Canadian Dollar, and the S&P 500 are referred to as commodities. Adelivery month used in conjunction with a commodity indicates a specificcontract, such as December Gold or March Sugar.

COMMODITY POOL: An enterprise in which funds contributed by a number of persons arecombined for the purpose of trading futures or options contracts. The conceptis similar to a mutual fund in the securities industry. Also referred to as aPool.

COMMODITY POOL OPERATOR (CPO): An individual or organization which operates or solicits funds for a commoditypool. A CPO is generally required to be registered with the CFTC.

COMMODITY TRADING ADVISOR (CTA): A person who, for compensation or profit,directly or indirectly advises others as to the advisability of buying orselling futures or commodity options. Providing advice includes exercisingtrading authority over a customer's account. A CTA is generally required to beregistered with the CFTC.

COMPOUND INTEREST: Interest earned on both an original investment and interest alreadyaccrued.

CONDOR: A limited risk,limited reward strategy with profit/loss characteristics similar to abutterfly. In this case, 4 options at 4 strike prices are used. Like thebutterfly, the outer strike prices make the "wings." Unlike thebutterfly "body" which consists of two options at the middle strike,the condor "body" consists of one option at each of two middlestrikes.

CONDOR SPREAD: An option position composed of either all calls or all puts (with the exception of an ironcondor), with long options and short options at four different strikes. Theoptions are all on the same stock and of the same expiration, with the quantityof long options and the quantity of short options netting to zero. Generally,the strikes are equidistant from each other, but if the strikes are notequidistant, the spread is called a pterodactyl. For example, a long 50/55/60/65 call condor is long 1*50 call, short 1*55 call, short 1*60 call,and long 1*65 call. In a long (short) condor the highest and lowest stikes areboth long (short) while the two middle strikes are both short (long).

CONFIRMATION STATEMENT: After a stock or optionstransaction has taken place, the brokerage firm must issue a statement to thecustomer. The statement contains the name of the underlying stock, the numberof shares or options bought or sold and the prices at which the transactionsoccurred.

CONSOLIDATED TAPE: The ticker reportingtransactions of NYSE listed stocks that take place on the NYSE or any of theother regional stock exchanges. Similarly, transactions of AMEX listed securities, and certain other securities listed on regional stock exchanges,are reported on a separate tape.

CONTANGO: A condition characterized by the futuresprice is above the expected future spot price. Consequently, the price willdecline to the spot price before the delivery date.

CONTINGENCY ORDER: When you place a stock oroptions order you can choose to place contingencies on that order, meaning thatthe order will be filled only when a specific event has occurred. For example,a contingency order might be, "Buy 10 XYZ 80 calls at the market if XYZstock trades above 75".

CONTINGENT TIME: The hours that a contingent order will be in effect. To use this featureby itself, set the contingent price to greater than $1.

CONTINGENT TRAILING STOP: A "trailing stop" order will be placed only if/when the marketprice for the security (stock) specified meets the criteria (greater than orless than a price entered). This means that you can trigger a "trailingstop" order, a stop order that moves along with a favorable movement in asecurity, when a stock or index reaches a desired price level based on thesecurity's last trade price.

CONTRACT: The basic unit of trading for options. An option, whether it's a put or a call, is an agreement between twoparties (the buyer and the seller) to abide by the terms of the option contractas defined by an exchange.

CONTRACT MONTH: Generally used to describethe month in which an option contract expires.

CONTRACT SIZE: The number of shares of the underlying stock that an options contract would deliver if exercised. Contract sizes for equity options in the U.S.are generally 100 shares, unless the contract size has been adjusted for a split, merger, or spin-off. For example, if you are long 1 XYZ 50 call with acontract size of 100 and you exercise that call, you will get 100 shares of XYZ for a price of $50 per share. If you are long 1 ABC 90 call with a contractsize of 250 and you exercise that call, you will get 250 shares of ABC for aprice of $90 per share. Think or swim incorporates the contract size in thecalculation of your delta and gamma.

CONVERGENCE: The tendency forprices of physical commodities and futures to approach one another, usuallyduring the delivery month. Also called a "narrowing of the basis."

CONVERSION: A position of long stock, short acall, and long a put (with the call and put having the same strike price,expiration date, and underlying stock). The short call and long put acts verymuch like short stock, thus acting as a hedge to the long stock. So, aconversion has a very small delta. A conversion is a way to exploit mispricingsin carrying costs.

CONVERTIBLE BOND: A debt security feature that allows the holder to convert to another issue.

CORPORATE BONDS: Debt obligations that are issued by corporations.

CORRECTION: A temporary reversal of direction of theoverall trend of a particular stock or the market in general.

COSTBASIS: The original price paidfor a stock or option, plus any commissions or fees. It is used to determinecapital gains or losses when the stock or option is sold.

COUPON RATE: The percentage rate of interest in fixed income securities.

COUPON YIELD: Is a bond's coupon payment divided by the par value.

COVER: A term used todescribe the act of purchasing options to close an existing short position. Inthis case, the purchase is also a closing transaction.

COVERDELL EDUCATION SAVINGS ACCOUNT: An account designed to help fund a child'seducation. Contributions are taxed, but earnings used toward qualifyingeducation expenses are tax exempt. The entire account must be disbursed priorto the beneficiary's 30th birthday. Any withdrawals after this date will besubject to income taxes and a penalty. The account may be transferred toanother family member.

COVERED CALL: A short call option position against a long position in an underlyingstock or futures.

COVERED COMBINATION: See covered strangle.

COVERED OPTION: An option against which the seller has enough collateral (either in cashor stock) to fulfill the contract in the event of assignment. Covered Call - a call option is considered covered when the writer (seller) of the optionalready owns the shares and doesn't have to make an open market purchase should an assignment occur Covered Put - a put option is considered covered when theseller has enough cash in the account to purchase the shares at the strike price if the holder of the option exercises the right to sell the stock at thatprice.

COVERED STRANGLE: A short call and a short put with the same expiration but differentstrike prices combined with a long stock position. Technically, to describethis as "covered" is a bit of a misnomer because only the short callis covered by the long stock. For the short put to be covered as well, there would have to be enough cash in the account to cover the purchase of the stockat the put strike price in the event of an assignment.

COVER: Frequently used to describe thepurchase of an option or stock to exit or close an existing short position.

COVERED WRITE OR COVERED CALL OR PUT/COVERD CALL OR PUT WRITING (SELLING): An option strategy composed of ashort call option and long stock, or a short put option and short stock. Forexample, selling (writing) 2 XYZ 50 calls while owning 200 shares of XYZ stockis a covered call position.

COVERED WRITER (SELLER): Someonewho sells or "writes" an option is considered to have a"covered" position when the seller of the option holds a position inthe underlying stock that offsets the risk of the short option. For example, ashort put option is covered by a short position in the underlying stock, and ashort call option is covered by a long position in the underlying stock.

CREDIT: An increase in the cash balanceof an account resulting from either a deposit or a transaction. As it relatesto option orders, a credit is how much the premium collected from sellingoptions exceeds the premium paid for buying options.

CREDIT BALANCE (CR): This isthe money the broker owes the customer after all commitments have been paid forin full. The money could come after a sale of securities, or simply be cash inthe customer's account.

CREDIT SPREAD (ALSO LIMIT/CREDIT): The difference in value between two options,where the value of the short position exceeds the value of the long position.Bear call spreads and bull put spreads are examples of credit spreads.

CROSSED MARKET: A situation that occurs onmultiple-listed stock and options, where the highest bid price for a stock oroption on one exchange is higher than the lowest ask price for that same stockor option on another exchange.

CROSSING ORDERS: The practice of using onecustomer's orders to fill a second customer's order for the same security onthe opposite side of the market. For this to occur each order must be firstoffered on the exchange floor; if there are no takers, the broker may cross theorders usually at a price somewhere in between the existing bid and ask prices.

CROSS-HEDGING: Hedging a cashcommodity using a different but related futures contract when there is nofutures contract for the cash commodity being hedged and the cash and futuresmarket follow similar price trends (e.g., using soybean meal futures to hedgefish meal).

CROSS-MARGINING: A procedure formargining related securities, options, and futures contracts jointly whendifferent clearing houses clear each side of the position.

CROSS RATE: The exchange rate between any two currencies that are considerednon-standard in the country where the currency pair is quoted. For example, inthe United States, a GBP/JPY quote would be considered a cross rate, whereas inboth the United Kingdom or Japan, it would be one of the primary currency pairstraded.

CURRENT MARKET VALUE (CMV): Thecurrent worth of the securities in an account. The market value of listedsecurities is based on the closing prices on the previous business day. Syn.long market value (LMV). (FINRA)

CURRENT POSITION VALUE: The sum of the current market value of marginable stocks, bonds andmutual funds using real-time data. A short position is subtracted from thissum, thus a negative amount equals more short value than long value.

CURRENT YIELD: Coupon rate divided by the market price of the bond.

CUSIP: A CUSIP is a uniqueidentifier assigned to a bond at the time it is issued.

CUSTODIAL ACCOUNT: An account created for the benefit of a minor which is managed by anadult as the custodian.

CUSTODIAL IRA ACCOUNT: An account created for the benefit of a minor that is managed by anadult as the custodian and restricted by the rules associated withcorresponding IRA account. See also Traditional IRA and Roth IRA.

CUSTOMER: Any person or entity that opens atrading account with a broker-dealer. The customer may be classified in termsof account ownership, payment methods, trading authorization or types ofsecurities traded.

CUSTOMER AGREEMENT: The document a customer signs when opening a margin account with a broker- dealer;this document allows the firm to liquidate a portion or all of the customer'saccount if the customer fails to meet margin requirements set by the firm orExchange.

CUSTOMER STATEMENT: This document displays a customer's trading activity, positions and account balance.The SEC requires the statement be sent quarterly, however, Think or swim's customer statements will be sent daily via email or may be accessed on line atanytime day or night.

CYCLE: The expiration months associated with a particular series of options.

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DATED DATE: It is the first day that interest begins accruing on newly issued bonds

DAY ORDER: A day order is an orderthat is "good for the day" and is automatically cancelled if itcannot be executed the day it was placed. Compare to good-til-cancelled (GTC)orders.

DAY TRADE: A stock or option position that is purchased and sold on the same day.

DAY TRADING: Buying and selling the same stock or option position in one day's trading session, thus ending the daywith no position.

DEALER: A firm or individual engaged inthe business of buying or selling securities for its own account. Think or swim is not a dealer.

DEBENTURE BOND: A debt issue by a corporation and backed by the good name of the company.

DEBIT: A decrease in the cash balance of an account resulting from a purchase or withdrawal.

DEBIT BALANCE (DR): In a customer's margin account, that portion of the value of stocks that is coveredby credit extended by the broker to the margin customer. In other words, the amount of money a customer owes the brokerage firm.

DEBIT SPREAD (ALSO LIMIT/DEBIT): A trade that decreases the cash balance of an account because the cost of the options purchased (long position) exceeds the proceeds from the sale of short options. Bull call spreads and bear put spreads are examples of debit spreads

DEBT/EQUITY RATIO: A measure of a company's leverage, calculated by dividing long-term debtby common shareholders' equity, commonly using the data from the previousfiscal year.

DECAY: Also known as time decay. The way in which the theoretical value of an option decreases as time passes. The specific measurement of the option's change in value over time is represented by the Greek letter theta. The rate at which an option loses its value increases more rapidly during the final 30 days of an option's life.

DECK: The stack of stock or option orders that are to be filled by a broker on the floor of an exchange.

DECLARATION DATE: The date a company announces the payment date, record date and amount of an upcoming dividend.

DEFERRED: Refers to "back month" options or futures.

DEFERRED DELIVERY MONTH: The distant delivery months in which futures trading is taking place, asdistinguished from the nearby futures delivery month.

DELAYED OPENING: Exchange officials can postpone the start of trading on a stock beyond the normal opening of a day's trading session. Reasons for the delay might be an influx of large buy or sellorders, an imbalance of buyers and sellers, or pending important corporate newsthat requires time to be disseminated.

DELAYED QUOTES: Stock or option pricequotes that are delayed by the exchanges 15 or 20 minutes from real-time.

DELIVERY: When referring to stock options, delivery is the process of delivering stock after an option is exercised. If atrader is long a call, and he exercises that call, the person who is short that call must deliver the underlying stock to the trader who is long the call. If atrader is long a put, and he exercises that put, the trader will deliver the underlying stock to the person who is short that put. Actually, the delivery ofthe stock takes place through clearing firms under very specific terms and procedures established by the exchange where the option is traded. See assignment and exercise.

DELIVERY(FUTURES): The transfer of the cash commodity from the seller of a futures contractto the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

DELIVERY(OPTIONS): The act of meeting the obligations of a contract upon assignment. For a call writer, delivery occurs when the stock is transferred to the call holderat the strike price specified in the contract. For a put writer, deliveryoccurs when the option writer pays the agreed upon price for the stock and then receives the shares.

DELIVERY MONTH: See Contract Month.

DELIVERY NOTICE: A notice stating a clearing member's intentions to deliver a statedquantity of a commodity with regard to the settlement of a futures contract.

DELTA: An approximation of the change inthe price of an option relative to a change in the price of the underlying stock when all other factors are held constant. For example, if a call has aprice of $1.5 and a delta of .33, if the underlying stock moves up $1, theoption price would be $1.83 ($1.5 + (.33 x $1.00)). Generated by a mathematical model, delta depends on the stock price, strike price, volatility, interestrates, dividends, and time to expiration. Delta also changes as the underlying stock fluctuates. See gamma.

DELTA NEUTRAL: The process by which professional traders offset option positions withstock to create a position that has 0 deltas. A zero delta position, by definition, is neither long nor short. Therefore, the position theoretically has limited risk

DERIVATIVE: A financial contract whose value is "derived" from another security, such as stocks, bonds, commodities, or a market index such as the S&P 500 or the Wilshire 5000. The most common types of derivatives are options, futures, andmortgage-backed securities.

DERIVATIVE SECURITY: A security whose value isderived from the value and characteristics of another security, called the underlying security. Calls and puts are derivative securities on underlying stocks.

DESIGNATED ORDER TURNAROUND (DOT): NYSE's automated order entry system.

DIAGONAL SPREAD: A position in which the trader buys and sells options with different strike prices and expirations. For example, a diagonal spread could be created by buying one July 75 call and selling one June 70 call.

DIAMONDS: Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust.

DISCOUNT: (1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase "July is trading at a discount to May," indicating that the price of the July future is lower than that of May; (3) applied tocash grain prices that are below the futures price.

DISCOUNTRATE: The rate that the Federal Reserve Bank charges on short term loans it makes to other banks and financial institutions.

DISCRETIONARY ACCOUNT: An account in which the customer has given the registered representative authority toenter transactions at the rep's discretion. Think or swim does not offer thistype of account.

DIVIDEND: A payment made by a company to its existing shareholders. Dividends are usually cash payments made on aquarterly basis. Dividends can also be in the form of additional shares of stock or property.

DIVIDEND FREQUENCY: Indicates how many times per year (quarterly, semi-annually) a particular stock pays a dividend.

DIVIDEND RATE: The fixed or adjustable rate paid on common stock or preferred stock

DIVIDEND YIELD: The annual percentage of return that received from dividend payments on stock. The yield is based on the amount of the dividend divided by the price of the stock and of course fluctuates with the stock price.

DON'T KNOW (DK) NOTICE: A term used when brokers or traders compare confirmations on a transaction. If one party receives a confirmation on a trade that it does not recognize, that party would send the other party a D.K. notice.

DOW JONES INDUSTRIAL AVERAGE (DJIA): The oldest and most widely known index of theU.S. stock market, the Dow represents the price movements of the 30 companies that, in the opinion of the editors of The Wall Street Journal, most representthe American economy.

DOWN-TICK: A term used to describe a trade made at a price lower than the preceding trade. A short sale may not be executed on a down or minus tick.

DOWNTREND: Successive downward price movements in a security over time.

DUAL/MULTIPLELISTED: When the same stock or option is listed on two or more different exchanges. For example, IBM options are traded on the CBOE, PHLX and AMEX.

DUPLICATE CONFIRMATION: SRO regulations require a duplicate confirmation (of a customer's confirmations) besent to an employing broker-dealer, if the customer is an employee of another broker dealer. Also, this duplicate confirmation may be sent to a customer's attorney if the request is put in writing. (FINRA)

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QUOTE: The bid to buy and the offer to sell a particular stock or option at a given time. If you see a "quote" for an option on the screen "3 ½ - 3 7/8", it means that the bid price is $3.50 and the ask price is $3.875. This means that at the time the quote was disseminated, $3.50 was the highest price any buyer wanted to pay, and $3.875 was the lowest price any seller would take.

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SCALP: A quick entry and exit on a position.

SCALPER/SCALPING: Someone who enters and exits stock or options positions quickly, with small profits or losses, holding a position only for a short time during a trading session.

SEAT: A name for a membership on an exchange.

SECONDARY MARKET: Markets in which securities are bought and sold subsequent to their being sold to the public for the first time.

SECURITIES AND EXCHANGE COMMISSION (SEC): A government agency established by Congress to help protect investors. The SEC regulates the stock, stock options, and bond markets.

SECURITIES INVESTOR PROTECTION CORPORATION (SIPC): This is a nonprofit corporation created by an act of congress to protect clients of a brokerage firms that are forced into bankruptcy. As a member of the Securities Investor Protection Corporation (SIPC) funds are available to meet customer claims up to a maximum of $500,000 in cash and securities with a $100,000 cash maximum. Additionally, our clearing firm holds Excess SIPC Insurance of $200,000,000 in the aggregate, over all customer accounts, subject to a maximum limit of $900,000 per customer in respect to cash. This "Excess SIPC" protection is in addition to the protection provided by the Securities and Investors Protection Act, which is administered by SIPC and is subject to certain conditions and limitations, details of which are available upon request. Note SIPC and Excess SIPC provide coverage against loss of securities and cash, not against market depreciation, fluctuation in market value of your securities or a trading loss.

SECURITY: A generic term for investment or trading vehicles. Securities can be stock, bonds, or derivative securities such as options or futures.

SECURITY FUTURES: See Single Stock Futures.

SEGREGATION: The holding of customer-owned securities separate from securities owned by other customers and securities by the brokerage firm.

SELF REGULATORY ORGANIZATION (SRO): Organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within their assigned fields of jurisdiction. Examples of these organizations are: NASD, NYSE and the CBOE.

SELL TO CLOSE: An order entered to close a long position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a "buy to open" order is always used to open a long position.

SELL TO OPEN: An order entered to establish a new short position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a "buy to close" order is always used to close a short position.

SELLING HEDGE: Selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future.

SEP IRA: Simplified Employee Pension Plan IRA. A retirement plan for self-employed people or owners of small companies which allows them to defer taxes on investments intended for retirement.

SERIES: All option contracts of the same class that also have the same exercise price and expiration date.

SERIES OF OPTIONS: Calls and puts based on the same underlying stock with the same strike and expiration.

SETTLED FUNDS: After a trade has cleared, proceeds are considered settled funds. Stock trades settle in T +3 business days. All option trades settle in T+1 business days. Mutual Fund trades settle at various times - with some being same day, others T+1, and others still T+3. Bonds can also vary in terms of a settlement date.

SETTLEMENT: The conclusion of a stock or options trade through the transfer of the security (from the seller) or cash (from the buyer).

SETTLEMENT DATE: Date on which a transaction must be settled. Buyers pay for securities with cash and sellers deliver securities.

SETTLEMENT PRICE: The price established by the Options Clearing Corporation at the end of the trading day as a standard to value the securities in individual trading accounts or in the morning in the case of some European Options. The settlement price is based on the opening prices of all the stocks in a particular Index. These figures are then used to find the settlement price.

SHARES: Stock.

SHORT: As a noun, it refers to people who have sold stock or options without owning them first. As an adjective, it refers to a position of short stock or options. Compare to long.

SHORT COVERING: Buying stock or options to close out a short position.

SHORT HEDGE: The selling of options as protection against a decrease in value of a long securities position.

SHORT INTEREST: The number of shares of stock that have been sold short is known as a stock's short interest.

SHORT POSITION: An option or stock position that will profit from a decrease in the price of the underlying (e.g., short stock, short call, long put).

SHORT SELLER: Someone who sells stock or options without owning them first. The short seller looks to profit from buying the stock or options back later at a price lower than where he sold it.

SHORT STOCK POSITION: A position initiated by selling stock in an opening transaction with the goal of buying it later at a lower price (i.e., sell high, buy low). To accomplish this, the stock must be borrowed from a broker-dealer before it can be sold.

SHORT SQUEEZE: When traders who have sold a stock short start to lose profits or incur losses as the stock begins to rise, sometimes dramatically. The short sellers are forced to buy back their short stock positions in order to limit their losses.

SIDE: A side considers the buy and sell actions of a trade as separate events. Each matched trade, and each contract, has two sides - the buyer side and the seller side. Taken together, these two sides equal one round turn. Measuring matched trade volume "per side" counts volume on each side of the trade.

SIMPLIFIED EMPLOYEE PENSION (SEP) PLAN: A SEP is an easy method for a small employer to establish a retirement plan for employees without the complex administration and expense found in qualified retirement plans. In fact, an employer may establish a SEP only if that employer has no qualified retirement plan in effect. Under a SEP, the employer may make a contribution of up to the lesser of 15% or $30,000 of compensation to IRAs established in each employee's name.

SINGLE ACCOUNT: An account type in which only one individual has control over the investments and may transact business.

SINGLE-STOCK FUTURES: An agreement between two parties that commits one party to buy a stock and one party to sell a stock at a given price and on a specified date.

SIPC: See Securities Investor Protection Corporation

SKEW: See volatility skew.

SLIPPAGE: The difference between the price someone might expect to get filled at on an order, and the actual, executed price of the order.

SPECIAL MEMORANDUM ACCOUNT (SMA): A line of credit in a customer's margin account, it's a limit on the amount of money a customer can borrow against collateral in the account.

SPECIALIST: Members of the NYSE, PHLX, and AMEX whose function is to maintain a fair and orderly market by managing the limit order book and making bids and offers in a particular stock or class of options.

SPECULATOR: Someone who buys or sells stocks or options hoping to profit from favorable moves in their price or volatility. Generally, a speculator does not hedge his positions.

SPIN-OFF: When a corporation divides its assets into two companies, one the original company and the other a new, independent company. Shares of stock in the new company are issued to stockholders of the original corporation.

SPLIT: An action taken by a corporation in which the number of outstanding shares is increased and the price per share decreases. For example, if a trader were long 100 shares of stock of a company with a price of $120, and that company instituted a 3-for-1 split, the trader would see his position become long 300 shares of stock with a price of $40. The value of the trader's position does not change (unless the price of the stock subsequently changes) and his proportionate ownership in the company remains the same. Compare to reverse split.

SPOT DELIVERY MONTH: The nearest delivery month among all those traded at any point in time. The actual contract month represented by the spot delivery month is constantly changing throughout the calendar year as each contract month reaches its last trading day. See Also Nearby Delivery Month.

SPOT PRICE: The price quoted for the actual commodity same; same as cash commodity price.

SPREAD: 1) a position or order involving two or more different options or stock and options (see leg), or 2) the difference between the bid and offer prices of a stock or option.

SPREAD ORDER: A type of order specifying two different option contracts on the same underlying security.

SPREAD STOP ORDER: A contingency order to buy or sell an option spread when the market reaches a particular level. When the price reaches that level specified in the stop order, the stop order triggers a sell/buy to close/open the spread at the customer's predetermined price (Limit or Market).

SPX: SPX is the symbol for the Standard & Poor's 500 cash index. It is a capitalization-weighted index of 500 stocks from a broad range of industries. Cash-settled, European-style options on the SPX are traded at the CBOE.

SPYDERS (SPDR): Standard & Poor's Depository Receipts are pooled investments that trade like a stock, and are designed to provide investment results that generally correspond to one of the Standard and Poor's indices.

STANDARD & POOR'S 500 INDEX: An index of 500 of the biggest publicly traded companies in the United States. The S&P 500 is generally thought of as the best measurement of the overall U.S. stock market.

STATEMENT: A summary of a brokerage account's activity and balances.

STATIC RETURN: The return that an investor would make on a particular position if the underlying were unchanged in price at the expiration of the options in the position.

STOCK: Another name for equity, it is a security that represents ownership in a corporation.

STOCK BUYING POWER: Your purchasing power for stock; margin accounts show twice the stock purchasing power of cash accounts for stocks that trade over 5 dollars.

STOCK OPTIONS: Calls or puts with the right to buy or sell individual stocks.

STOP LIMIT (PRICE) ORDER: A type of order that turns into a limit order to buy or sell stock or options when and if a specified price is reached. Stop limit orders to buy stock or options specify prices that are above their current market prices. Stop limit orders to sell stock or options specify prices that are below their current market prices.

STOP (STOP LOSS) ORDER: A type of order that turns into a market order to buy or sell stock or options when and if a specified "stop" price is reached. Stop orders to buy stock or options specify prices that are above their current market prices. Stop orders to sell stock or options specify prices that are below their current market prices.

STRADDLE: An option position composed of calls and puts, with both calls and puts at the same strike. The options are on the same stock and of the same expiration, and either both long or both short with the quantity of calls equal to the quantity of puts (with the exception of a ratioed straddle). For example, a long 50 straddle is long 1*50 call and long 1*50 put. A long straddle requires a large move in the stock price, an increase in implied volatility or both for profitability, while a short straddle performs well when the stock is in during a tight trading range, decreased implied volatility or both.

STRANGLE: An option position composed of calls and puts, with both out-of-the-money calls and out-of-the-money puts at two different strikes. The options are on the same stock and of the same expiration, and either both long or both short with the quantity of calls equal to the quantity of puts (with the exception of a rationed strangle). For example, a short 50/70 strangle is short 1*50 put and short 1*70 call. A long strangle requires a large move, an increase in implied volatility or both for profitability, while a short strangle performs well during a tight trading range, decreased implied volatility or both.

STREET NAME: Securities held in the name of a brokerage firm on behalf of a customer. This is required for margin accounts, and facilitates delivery for stock transactions.

STRIKE PRICE: The pre-determined price at which underlying stock is purchased (in the case of a call) or sold (in the case of a put) when an option is exercised.

STRIKE PRICE INTERVAL: The standard price difference between consecutive options. For stocks over $25, the strikes generally occur at $5 intervals (e.g., 30,35,40). Stocks below $25 have options that trade at $2.50 intervals.

SUBORDINATED DEBENTURE: A debenture whose claim to interest and principal of the corporation comes after those of the regular debt securities.

SUPPORT: In a period of falling prices, the support level is a price below which the stock tends not to trade because of the reemergence of buyers. For example, a stock that has fallen near $27 on several occasions only to reverse the trend and increase in price is said to have support at $27.

SYMBOLS: Every corporation whose stock is traded on the NYSE, AMEX or NASDAQ, and every option traded on the CBOE, AMEX, PHLX, or PCX is given a unique identification symbol of up to five letters. Generally, these symbols abbreviate the corporation's complete name and, in the case of options, their strike price, expiration date, and whether they are calls or puts.

SYNTHETIC: Creating a position that emulates another by combining at least two of calls, puts or stock that acts very much like a position of outright stock, calls or puts.

SYNTHETIC LONG CALL: An option position composed of long puts and long stock. The quantity of long puts equals the number of round lots of stock. For example, long 5 synthetic 70 calls at can be created by being long 5*70 puts and long 500 shares of stock.

SYNTHETIC LONG PUT: An option position composed of long calls and short stock. The quantity of long calls equals the number of round lots of stock. For example, long 8 synthetic 80 puts at can be created by being long 8*80 calls and short 800 shares of stock.

SYNTHETIC LONG STOCK: An option position composed of long calls and short puts on the same stock, strike price and expiration. The quantity of long options and the quantity of short options nets to zero. For example, long 500 shares of synthetic stock can be created by being long 5*70 calls and short 5*70 puts. See combo.

SYNTHETIC POSITIONS: Also known as an equivalent position. By using a combination of options or options and stock, traders can create positions that have the same risk/reward characteristics of option only or stock only positions. The following summarizes the most common synthetic positions.

SYNTHETIC SHORT CALL: An option position composed of short puts and short stock. The quantity of short puts equals the number of round lots of stock. For example, short 3 synthetic 60 calls at can be created by being short 3*60 puts and short 300 shares of stock.

SYNTHETIC SHORT PUT: An option position composed of short calls and long stock. The quantity of short calls equals the number of round lots of stock. For example, short 4 synthetic 70 calls at can be created by being short 4*70 calls and long 400 shares of stock.

SYNTHETIC SHORT STOCK: An option position composed of short calls and long puts on the same stock, strike price and expiration. The quantity of long puts and the quantity of short calls nets to zero. For example, short 400 shares of synthetic stock can be created by being short 4*70 calls and long 4*70 puts. See combo.

SYSTEMATIC RISK: The broad macroeconomic factors that affect all companies in a stock market. It is also known as market risk. Theoretically, it's the risk in a portfolio that cannot be reduced through diversification. Compare to unsystematic risk.

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TECHNICAL ANALYSIS: Calculations that use stock price and volume data to identify patterns helping to predict future stock movements. Some technical analysis tools include moving averages, oscillators, and trendlines.

TENDER OFFER: An offer from one company to buy shares of stock of another company from that other company's existing stockholders. Those stockholders are asked to "tender" (surrender) their shares for a specific price (represented by cash, shares in another company, or both), which is usually higher than the current market price of the stock.

THEORETICAL VALUE: An estimated price of a call or put derived from a mathematical model, such as the Black-Scholes or binomial models.

THETA: An approximation of the decrease in the price of an option over a period of time when all other factors are held constant. Theta is generally expressed on a daily basis. For example, if a call has a price of $3.00 and a theta of 0.10, one day later, with all else unchanged, the call would have a price of $2.90 ($3.00 - (.10 x 1)). Generated by a mathematical model, theta depends on the stock price, strike price, volatility, interest rates, dividends, and time to expiration.

TICK: The smallest possible price increment for a stock or option.

TICKER: The telegraphic system which prints or displays last sale prices and volume of securities transactions on exchanges on a moving tape within a minute after each trade. Also known as the "tape".

TIME AND SALES: A record of the time, price and volume of each transaction of every stock and option.

TIME DECAY: Option price erosion over time. Another name for theta.

TIME SPREAD: Also known as a horizontal or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price. For example, if you bought the July 45 call and sold the June 45 call, you'd be long the calendar.

TIME VALUE: Also known as extrinsic value. The amount by which the current price of an option exceeds its intrinsic value. The price of out-of-the-money and at-the-money options is made up exclusively of extrinsic value.

TOTAL MONEY MARKETS & CASH: Defined as the net sum of your balances held in cash, margin, and money market funds. This does not include your mutual funds balances. Cash/Margin/Money Market sweep movements update daily before the market opens.

TRADER: 1) An exchange member who buys and sells contracts in the trading pit of an exchange. 2) an investor who holds positions for a short period of time in an effort to capitalize on market momentum.

TRADING AUTHORIZATION: Written permission from the owner of an account authorizing another person to enter trades on behalf of the owner. Also called Power of Attorney.

TRADING FLOOR: The part of an exchange where the stocks and options are actually bought and sold.

TRADING HALT: A temporary suspension of trading in a particular stock due anticipation of a major news announcement or an imbalance of buy and sell orders.

TRADING LEVEL: Your trading level has been determined based on your trading experience, income level, age and overall knowledge of options. The list below outlines the various trades permitted at each trading level.

-1 Trading Disabled
0 Buy Stocks/Bonds/ Mutual Funds
1 Covered Calls / Sell Stock Short
2 Buy Calls and Puts / Cash Secured Put Writing
3 Debit Spreads (purchase a spread)
4 Credit Spreads / Equity Put Writing (sell a spread)
5 Naked Equity Call Writing / Naked Index Put & Call Option Writing

TRADING PIT: A particular location on the trading floor of an exchange designated for the trading of a specific stock or options on a specific stock or index.

TRADITIONAL IRA: A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005). Earnings are tax-deferred until withdrawals begin. Eligible withdrawals may begin at age 59 1/2 or later, a 10% penalty will apply for non-qualified withdrawals made prior to age 59 1/2. Eligible withdrawals will be taxed at the current tax rate.

TRAILING STOP: A "trailing stop" order is a stop order that moves along with a favorable movement in a security. Trailing sell stop orders will move upward a defined distance as long as the security moves upward. Trailing buy stop orders will move downward a defined distance as long as the security moves downward.

TRAILING (STOP) TRIGGER: The price at which a trailing stop will activate.

CONTINGENT TRIGGER: On entry of the order the customer can choose bid, ask or last. If last is chosen, it will only be used if it is in between the consolidated bid and ask.

TRANSACTION COSTS: The fees related to initiating and maintaining a position. These include commissions, margin fees, and exchange fees.

TRANSFER AGENT: Usually a division of a large bank or other financial institution that keeps records of the names of registered shareholders of a particular stock, the shareholders' addresses, the number of shares owned by each shareholder, and oversees the transfer of stock certificates from one shareholder to another.

TREASURY AUCTION: Where new issues of Treasury bills, notes and bonds can be sold to the investing public.

TREASURY BILLS (T-BILLS): Obligations issued by the department of the Treasury maturing in 13, 26 or 52 weeks.

TREASURY BOND (T-BOND): A long term government debt security with maturity of 10 to 30 years.

TREASURY NOTE (T-NOTE): A medium term government debt security with maturity of 1 to 10 years.

TREASURY STOCK: Shares of stock issued by a company but later bought back by the company. These shares may be held in the company's treasury indefinitely, used for employee bonus plans, reissued to the public, or retired. Treasury stock is ineligible to vote or receive dividends.

TREND: Either an uptrend or a downtrend, successive price movements in the same direction in a security over time

TRENDLINE: In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called “bullish;” if down, it is called “bearish.”

TRIPLE WITCHING: It occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. This happens four times a year: The 3rd Friday of March, June, September and December.

TRUST: A legal relationship in which a person or entity (the trustee) acts for the benefit of someone else.

TYPE OF OPTIONS: The classification of an option as either a call or a put.

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UNCHED: When the market is unchanged.

UNCOVERED CALL OR PUT: Another term for naked call or put.

UNCOVERED OPTION: Also known as a naked option. A short position, not protected by offsetting options, in which the writer of the options lacks the stock or collateral that would be required upon assignment. For example, a naked call writer doesn't own the stock that would have to be sold at the strike price if the calls were exercised. Similarly, a naked put writer doesn't have the full amount in the account to buy the underlying shares at the strike price in the event of an exercise. For obvious reasons, naked option writing is a risky strategy.

UNDERVALUED: Describing a security that is trading at a lower price than it logically should. Usually determined by the use of a mathematical model.

UNDERLYING (STOCK OR SECURITY): The stock or other security that determines the value of a derivative security and that (with the exception of cash-settled options) would be purchased or sold if an option on that underlying stock or security was exercised. Examples of underlying securities are stocks, bonds, futures and indices.

UNSETTLED FUNDS: Funds that are not available to withdraw until specified settlement. Cash accounts can purchase additional positions using unsettled funds but cannot close out the position until trades settle.

UNSYSTEMATIC RISK: The company-specific microeconomic factors that affect an individual stock. Theoretically, it's the risk in a portfolio that can be reduced through diversification. Compare to systematic risk.

UPC 11830: In 1993, the U.S. Securities and Exchange Commission approved a new section of the Uniform Practice Code (UPC) requiring FINRA members to close out short sales in NASDAQ® securities that meet a certain clearing short position threshold. Both NASDAQ National Market® and NASDAQ Small Cap Market securities can be restricted under UPC 11830. Under the rules, the short seller's broker/dealer must close out short sale of specific securities 10 days after normal settlement date if delivery of security has not accrued and the transaction is not exempt. Securities subject to close-out requirement are those with an aggregate "clearing" short position of 10,000 shares or more that equals or exceeds one half of one percent of the total shares outstanding. The FINRA will identify these securities daily based on data from National Securities and Clearing Corporation and compile a "restricted list." Any subsequent short-sale transaction in a security on the list that is not completed by delivery of shares within the prescribed time frames will be subject to mandatory close-out if a "fail-to-deliver" situation exists 10 days after normal settlement date.

The rule applies to customer and proprietary short sales, but exempts "bona fide" market making activities and short sales that results in a "bona fide" fully hedged or arbitraged position. For more information, please see FINRA Notice to Members 93-53.

UP-TICK: A term used to describe a trade made at a price higher than the preceding trade.

UPTREND: Successive upward price movements in a security over time.

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VEGA: An approximation of the change in the price of an option relative to a change in the volatility of the underlying stock when all other factors are held constant. This is typically expressed for a one-percent change in volatility. For example, if a call has a price of $2.00 and a vega of .65, if volatility rises 1%, the call would have a price of $2.65 ($2.00 + (.65 x 1.00)). Generated by a mathematical model, vega depends on the stock price, strike price, volatility, interest rates, dividends, and time to expiration.

VERSUS PURCHASE NOTES: This note is used to specify the original shares of stock or a fund sold for tax recording purposes. In order to designate shares, please enter a note in the free text field (e.g. "Vs. 200sh. XYZ BOT 8/3/04"). The note will appear under the "Remarks" area of your confirmation..

VERTICAL: An option position composed of either all calls or all puts, with long options and short options at two 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.

A long call vertical (bull spread) is created by buying a call and selling a call with a higher strike price.

A short call vertical (bear spread) is created by selling a call and buying a call with a higher strike price.

A long put vertical (bear spread) is created by buying a put and selling a put with a lower strike price.

A short put vertical (bull spread) is created by selling a put and buying a put with a lower strike price. For example, a short 70/80 put vertical is long 1*70 put and short 1*80 put.

VERTICAL SPREAD: A position in which the options bought and sold have the same expiration but different strike prices.

VIX (VOLATILITY INDEX): Created by the CBOE, the VIX is an index of volatility calculated from the extrinsic value of out of the money SPX index options.

VOLATILITY: Generically, volatility is the size of the changes in the price of the underlying security. In practice, volatility is presented as either historical or implied.

VOLATILITY SKEW: Volatility skew, or just "skew", arises when the implied volatilities of options in one month on one stock are not equal across the different strike prices. For example, there is skew in XYZ April options when the 80 strike has an implied volatility of 45%, the 90 strike has an implied volatility of 47%, and the 100 strike has an implied volatility of 50%. If the implied volatilities of options in one month on one stock ARE equal across the different strike prices, the skew is said to be "flat". You should be aware of volatility skew because it can dramatically change the risk of your position when the price of the stock begins to move.

VOLUME: The total number of shares of stock or option contracts traded on a given day.

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WAREHOUSE RECEIPT: A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.

WARRANT: A security issued by a corporation that gives the holder the right to purchase securities at a specific price within a specified time limit (or sometimes with no time limit). Warrants are sometimes like call options, but the main differences are that warrants typically have much longer lives whereas options tend to expire relatively soon, and that warrants are issued by a company to raise money whereas options are created by the OCC.

WRITE: To sell an option in an opening transaction.

WRITER: A person who has sold an option in an opening transaction and is now short a contract that may or may not be offset by stock or other options.

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XSPREAD DIRECT QUOTES:  These spread quotes are retrieved directly from exchange liquidity providers and represent quotes with a potential for discount beyond a combination of single leg quotes on spreads.

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YIELD:  The percentage return on an investment.

YIELD TO CALL (YTC):  The yield of a bond or note if you were to buy and hold the security until the call date. This yield is only valid if the security is called prior to maturity.

YIELD TO MATURITY (YTM):  The yield of a bond or note if you were to buy and hold the security until maturity. YTM takes into account interest rate, length of time to maturity, price paid and assumes all interest received over the life of the security can be reinvested at the original purchase yield.

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