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options101 refs
| Term | Definition |
|---|---|
| bid | the (highest) price for which someone is willing to buy something |
| offer/ask | the (lowest) price at which someone is willing to sell something |
| size | number of contracts one is willing to trade at a given price |
| make a market | to provide a bid and ask price and a size/quantity |
| spread | the difference between the bid and ask price |
| hedge | a trade or investment to reduce the risks of another transaction. A second bet(s) that offsets risks associated with a first bet(s) |
| index | an instrument that tracks the performance of a market. generally, an index will track the performance of many stocks. |
| ETF | marketable security that tracks a stock index, commodity, or other basket of assets. Behaves and trades very much like a stock. |
| commodity | a raw material (oil, gold) or agricultural product (soybeans, corn) that can be bought and sold, normally at one prevailing price. |
| trader | can define any active market participant. Traders can work for trading firms like Akuna, as well as hedge funds, banks, etc. |
| market maker | a specific trader willing to buy or sell an asset at a specific price at all times. Market makers constantly buy and sell related securities, with their primary responsibilities being to collect edge and manage risk. |
| local | General term for market makers. Term comes from pit trading days, as locals stood in the pit every day. |
| broker | a person or company that acts as an intermediary between buyers and sellers |
| paper | the interested parties trading against Akuna (or other market makers). Term comes from pit trading days as customer orders came via paper. |
| hedge Fund/ institution / bank | Financial institutions that, for a variety of reasons, are active market participants. These groups are generally the largest paper customers. |
| retail client | Smaller “paper” customers. For example, an individual trading at home |
| fill | Another term for the completion of a trade. If a market maker trades on their bid or offer, the market maker may claim he/she “got filled”. |
| tick size (tick increment) | the increment between one price level and the next smallest price level. Different products have different tick sizes. For example, the tick increment in USD is 0.01, or 1 cent tick sizes. |
| queue priority | for markets that are determined “price-time”, if multiple orders are entered for the same price, the participant who entered his/her order or quote first, will trade first. This person is said to have queue priority. |
| settlement time | the specific time of days options expire, and futures “settle” for the day. These values are used to calculate daily P&L and mark to market. |
| All-or-None | an order type that must be executed in its entirety, or not executed at all. |
| immediate or cancel (IOC) | a type of order that requires all or part of the order to be executed immediately. Unfilled parts of order are cancelled– sometimes referred to as Fill and Kill (FAK) orders. |
| Good for Day (GFD) order | a type of order that will remain active until executed (in part or full) or until the end of the trading day. It is then cancelled. |
| Good-till-Cancelled (GTC) | a type of order that will remain active until completed or cancelled by the entering party. |
| Fill or Kill (FOK) | an order type that must be executed immediately in its entirety, otherwise the order is cancelled; often with floor trading – market makers have a few seconds to decide to make a trade and can also do a partial order. |
| One cancels the other (OCO) | when one order is executed, the other order is automatically cancelled. This is usually invoked to protect someone from gaining too much exposure in one direction |
| Contract size | The multiplier attached to an option or future. Options on stock generally have a multiplier of 100 shares. Options on futures have a multiplier of 1 future. The multiplier on options on a future and the multiplier on the future can vary. |
| Vol bid, catching a bid, ripping/exploding | Variety of terms for vol going up |
| Vol offered, vol smashed/smoked | Variety of terms for vol going down. |
| Theoretical value (Theo) | based on all inputs, the current value a market maker believes an option is worth. |
| Teenie | lowest priced options. Generally traded for movement risk purposes. |
| Sheets (or fair value) | based on all inputs, the current value a market maker believes an option is worth but generally when referring to where something traded. |
| liquidity | how easy/hard it is to trade close to fair value. Generally determined by the number on contracts on the bid/offer, along with the width of the market. |
Created by:
mvilder
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