📖 Glossary of Investing & Options Terms

A

• Ask Price — The lowest price a seller is willing to accept for a security. The difference between bid and ask is the spread. Lesson 4
• Asset Allocation — The strategy of dividing investments among different asset categories (stocks, bonds, cash, etc.) to balance risk and return based on your goals, time horizon, and risk tolerance. Lesson 8
• Asset Class — A category of investments that share similar characteristics and behave similarly in the market — such as stocks, bonds, ETFs, real estate, or commodities. Lesson 3
• Assignment — When an options seller (writer) is obligated to fulfill the terms of the contract — buying or selling the underlying stock at the strike price. Lesson 15
• At the Money (ATM) — An option whose strike price equals (or is very close to) the current market price of the underlying stock. Lesson 10

B

• Bear Market — A market condition where prices are falling or expected to fall, typically defined as a decline of 20% or more from recent highs. Lesson 4
• Bear Put Spread — A vertical spread strategy that profits when the stock price declines. Involves buying a higher-strike put and selling a lower-strike put. Lesson 17
• Beta — A measure of a stock's volatility relative to the overall market. A beta of 1.0 means the stock moves with the market; above 1.0 means more volatile; below 1.0 means less volatile. Lesson 6
• Bid Price — The highest price a buyer is willing to pay for a security. Lesson 4
• Bid-Ask Spread — The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). Narrower spreads indicate higher liquidity. Lesson 4
• Black-Scholes Model — A mathematical model used to estimate the theoretical price of options, considering factors like stock price, strike price, time to expiration, volatility, and risk-free interest rate. Lesson 12
• Bond — A fixed-income debt instrument where an investor lends money to a borrower (government or corporation) in exchange for periodic interest payments and the return of principal at maturity. Lesson 3
• Breakeven Point — The price at which an options trade neither makes nor loses money. For a long call: strike + premium paid. For a long put: strike − premium paid. Lesson 13
• Brokerage Account — A taxable investment account that allows you to buy and sell securities like stocks, bonds, ETFs, and options. No contribution limits or withdrawal restrictions. Lesson 2
• Bull Call Spread — A vertical spread strategy that profits when the stock price rises. Involves buying a lower-strike call and selling a higher-strike call. Lesson 17
• Bull Market — A market condition where prices are rising or expected to rise, typically defined as a rise of 20% or more from recent lows. Lesson 4

C

• Call Option — A contract that gives the buyer the right (but not the obligation) to buy 100 shares of the underlying stock at a specified strike price before the expiration date. Lesson 9
• Candlestick Chart — A chart type that shows open, high, low, and close prices for each time period. Green/white candles indicate the price closed higher; red/black candles indicate it closed lower. Lesson 7
• Capital Gains — The profit from selling an investment for more than you paid. Short-term gains (held < 1 year) are taxed as ordinary income; long-term gains (held ≥ 1 year) receive preferential tax rates. Lesson 23
• Cash-Secured Put — Selling a put option while keeping enough cash in your account to buy the stock if assigned. The first step in the Wheel Strategy. Lesson 19
• Collar — A protective strategy combining a covered call and a protective put. Limits both upside and downside, sometimes at zero net cost (costless collar). Lesson 16
• Commodity — A raw material or primary agricultural product that can be traded, such as gold, oil, or wheat. Lesson 3
• Compound Growth — Growth that builds on itself — you earn returns on your original investment AND on previously earned returns. The fundamental force behind long-term wealth building. Lesson 1
• Confirmation Bias — The tendency to seek out information that confirms your existing beliefs while ignoring contradictory evidence. A common trading psychology pitfall. Lesson 22
• Covered Call — Selling a call option on stock you already own. Generates income (the premium) but caps your upside if the stock rises above the strike price. Lesson 15

D

• Debt-to-Equity Ratio — A measure of a company's financial leverage, calculated by dividing total liabilities by shareholders' equity. Higher ratios indicate more debt relative to equity. Lesson 6
• Delta (Δ) — The rate of change in an option's price for a $1 move in the underlying stock. Calls have positive delta (0 to 1); puts have negative delta (0 to −1). Also approximates probability of expiring in the money. Lesson 10
• Diversification — Spreading investments across different assets, sectors, or geographies to reduce risk. The idea that "don't put all your eggs in one basket" applied to investing. Lesson 8
• Dividend — A portion of a company's earnings distributed to shareholders, usually as cash payments on a regular schedule. Lesson 3
• Dividend Yield — Annual dividend per share divided by the stock price. Expressed as a percentage, it shows the income return from owning a stock. Lesson 6
• Dollar-Cost Averaging (DCA) — Investing a fixed amount at regular intervals regardless of price. Smooths out the impact of volatility over time. Lesson 8

E

• Earnings Per Share (EPS) — A company's net profit divided by its number of outstanding shares. A key metric for evaluating profitability. Lesson 6
• ETF (Exchange-Traded Fund) — A fund that tracks an index, sector, or asset class and trades on a stock exchange like a regular stock. Combines the diversification of a mutual fund with the trading flexibility of a stock. Lesson 3
• EMA (Exponential Moving Average) — A type of moving average that gives more weight to recent prices, making it more responsive to new information than a simple moving average. Lesson 7
• Expiration Date — The last date on which an option can be exercised. After this date, the option becomes worthless. Lesson 10
• Extrinsic Value — The portion of an option's premium above its intrinsic value, representing time value and implied volatility. Also called time value. Decreases as expiration approaches (time decay). Lesson 12

F

• FINRA — The Financial Industry Regulatory Authority. A self-regulatory organization that oversees broker-dealers and enforces rules governing the securities industry. Lesson 23
• FOMO (Fear of Missing Out) — The anxiety that others are profiting from opportunities you're missing, leading to impulsive trades. A key behavioral pitfall. Lesson 22
• 401(k) — An employer-sponsored retirement plan that allows employees to save and invest pre-tax income. Often includes employer matching contributions. Lesson 2
• Fundamental Analysis — Evaluating a stock by examining the company's financial statements, health, and competitive position — including metrics like P/E ratio, EPS, revenue growth, and debt levels. Lesson 6

G

• Gamma (Γ) — The rate of change in an option's delta for a $1 move in the underlying stock. High gamma means delta changes rapidly. Gamma is highest for at-the-money options near expiration. Lesson 10
• Greeks — A set of mathematical values (delta, gamma, theta, vega, rho) that describe how an option's price changes in response to various factors. Essential for understanding and managing options risk. Lesson 10

H

• Hedging — Using investments (often options) to offset potential losses in another position. For example, buying puts on stock you own to protect against a price decline. Lesson 9
• HSA (Health Savings Account) — A triple-tax-advantaged account for medical expenses: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. Lesson 2

I

• Implied Volatility (IV) — The market's expectation of how much a stock's price will move in the future. Higher IV means options are more expensive. IV tends to spike before earnings and major events. Lesson 11
• In the Money (ITM) — A call option where the stock price is above the strike price, or a put option where the stock price is below the strike price. ITM options have intrinsic value. Lesson 10
• Index Fund — A mutual fund or ETF designed to track the performance of a specific market index, like the S&P 500. Known for low fees and broad diversification. Lesson 3
• Inflation — The gradual increase in prices over time, reducing the purchasing power of money. A key reason why investing is necessary — cash sitting idle loses value to inflation. Lesson 1
• Intrinsic Value — The real, tangible value of an option — the amount it would be worth if exercised immediately. For a call: stock price − strike price (if positive). For a put: strike price − stock price (if positive). Lesson 12
• IRA (Individual Retirement Account) — A tax-advantaged account for retirement savings. Traditional IRA contributions may be tax-deductible; Roth IRA contributions are made with after-tax dollars but grow and are withdrawn tax-free. Lesson 2
• Iron Condor — A four-leg options strategy that profits from low volatility. Combines a bull put spread and a bear call spread. Maximum profit is achieved when the stock stays between the two short strikes. Lesson 18
• IV Crush — A rapid drop in implied volatility (and option prices) after an anticipated event occurs, such as an earnings report. Buyers who overpaid during high-IV periods get hurt. Lesson 12

L

• LEAPS (Long-term Equity Anticipation Securities) — Options contracts with expiration dates more than one year away. Used for long-term directional bets or as a stock replacement strategy with built-in leverage. Lesson 20
• Limit Order — An order to buy or sell a security at a specific price or better. Unlike market orders, limit orders give you price control but may not execute if the price isn't reached. Lesson 4
• Liquidity — How easily an asset can be bought or sold without significantly affecting its price. Stocks with high volume and tight bid-ask spreads are highly liquid. Lesson 4
• Long Position — Owning a security (stock, option, etc.) with the expectation that it will increase in value. "Going long" means buying. Lesson 9
• Loss Aversion — The psychological tendency to feel the pain of losses more intensely than the pleasure of equivalent gains. Leads to holding losers too long and selling winners too early. Lesson 22

M

• MACD (Moving Average Convergence Divergence) — A momentum indicator that shows the relationship between two moving averages. Used to identify trend changes and momentum shifts. Lesson 7
• Market Cap (Market Capitalization) — The total market value of a company's outstanding shares: share price × number of shares. Used to classify companies as large-cap, mid-cap, or small-cap. Lesson 5
• Market Maker — A firm or individual that quotes both a buy and sell price for a security, providing liquidity and profiting from the bid-ask spread. Lesson 4
• Market Order — An order to buy or sell immediately at the best available price. Guarantees execution but not price. Lesson 4
• Married Put — Buying a put option at the same time you buy the underlying stock. Provides downside protection from day one. Lesson 16
• Moving Average — A technical indicator that smooths price data by averaging prices over a set number of periods. The two most common types are simple (SMA) and exponential (EMA). Lesson 7
• Mutual Fund — A pooled investment vehicle managed by a professional fund manager that invests in a diversified portfolio of stocks, bonds, or other securities. Priced once daily at NAV. Lesson 3

N

• NASDAQ — The National Association of Securities Dealers Automated Quotations. A fully electronic stock exchange known for listing many technology companies. Lesson 4
• NYSE (New York Stock Exchange) — The world's largest stock exchange by market capitalization. A hybrid exchange with both electronic and floor-based trading. Lesson 4

O

• Open Interest — The total number of outstanding options contracts that have not been settled. High open interest indicates more liquidity and active trading for that option. Lesson 11
• Options Chain — A table that displays all available options contracts for a given stock, organized by expiration date and strike price, showing bids, asks, volume, open interest, and Greeks. Lesson 11
• Options Premium — The price paid to buy an option contract. Consists of intrinsic value plus extrinsic (time) value. This is the most the buyer can lose. Lesson 10
• Out of the Money (OTM) — A call option where the stock price is below the strike price, or a put option where the stock price is above the strike price. OTM options have no intrinsic value. Lesson 10
• Overtrading — Making too many trades, often driven by boredom, excitement, or a desire to recover losses. Leads to excessive fees and poor decision-making. Lesson 22

P

• P/E Ratio (Price-to-Earnings) — A valuation metric calculated by dividing a stock's price by its earnings per share. Shows how much investors are willing to pay per dollar of earnings. Higher P/E may indicate growth expectations; lower P/E may indicate undervaluation. Lesson 6
• P/B Ratio (Price-to-Book) — A valuation metric comparing a company's stock price to its book value per share. A P/B below 1.0 may indicate the stock is undervalued. Lesson 6
• Paper Trading — Simulated trading using virtual money to practice strategies without risking real capital. An essential learning tool for beginners. Lesson 23
• Portfolio — The collection of all investments held by an individual or institution — including stocks, bonds, ETFs, options, cash, and other assets. Lesson 8
• Position Sizing — Determining how much of your portfolio to allocate to any single trade. A critical risk management technique — common rules include risking no more than 1-2% of your portfolio on a single position. Lesson 21
• Premium — See Options Premium.
• Probability of Profit (POP) — The statistical likelihood that a trade will be profitable at expiration, often used in options trading to evaluate strategies. Lesson 18
• Protective Put — Buying a put option on stock you already own to limit downside risk. Acts like insurance — you pay a premium for protection. Lesson 16
• Put Option — A contract that gives the buyer the right (but not the obligation) to sell 100 shares of the underlying stock at a specified strike price before the expiration date. Lesson 9

R

• Rebalancing — Periodically adjusting your portfolio back to your target asset allocation by buying or selling assets. Maintains your intended risk level over time. Lesson 8
• REIT (Real Estate Investment Trust) — A company that owns, operates, or finances income-producing real estate. Trades like a stock and is required to distribute at least 90% of taxable income as dividends. Lesson 3
• Resistance — A price level where a stock tends to stop rising and reverse direction, due to a concentration of selling interest. Lesson 7
• Revenge Trading — Making aggressive trades to try to recover losses from a previous bad trade. Emotion-driven and often leads to larger losses. Lesson 22
• Rho (ρ) — The rate of change in an option's price for a 1% change in the risk-free interest rate. Generally the least impactful Greek for most traders. Lesson 10
• Risk-Reward Ratio — The relationship between the potential loss and potential profit of a trade. For example, risking $100 to make $300 is a 1:3 risk-reward ratio. Lesson 21
• Rolling (Options) — Closing an existing options position and simultaneously opening a new one with a different strike price and/or expiration date. Used to extend a trade or adjust a position. Lesson 15
• Roth IRA — A retirement account funded with after-tax dollars. Contributions grow tax-free and qualified withdrawals are completely tax-free. No required minimum distributions. Lesson 2
• RSI (Relative Strength Index) — A momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Readings above 70 suggest overbought; below 30 suggest oversold. Lesson 7
• Rule of 72 — A quick formula to estimate how long it takes for an investment to double: divide 72 by the annual return rate. At 8% growth, money doubles in approximately 9 years. Lesson 1

S

• SEC (Securities and Exchange Commission) — The U.S. government agency responsible for regulating the securities industry, enforcing securities laws, and protecting investors. Lesson 23
• Sector — A segment of the economy consisting of companies in related industries — such as technology, healthcare, financials, energy, or consumer staples. Lesson 5
• Settlement — The process of completing a securities transaction — transferring securities to the buyer and cash to the seller. Stock trades settle T+1 (one business day after the trade). Lesson 4
• Short Selling — Selling borrowed shares with the intention of buying them back at a lower price. Profits from a decline in the stock price. Carries theoretically unlimited risk. Lesson 14
• SMA (Simple Moving Average) — A technical indicator that calculates the average closing price over a specified number of periods, giving equal weight to each price point. Lesson 7
• Stop-Loss Order — An order to sell a security when it reaches a specified price, designed to limit losses. With options, mental stop-losses based on option premium are common. Lesson 21
• Strangle — An options strategy involving both a call and a put with different strike prices but the same expiration. A short strangle profits from low volatility; a long strangle profits from big moves in either direction. Lesson 18
• Strike Price — The predetermined price at which an option can be exercised — the price at which you can buy (call) or sell (put) the underlying stock. Lesson 10
• Support — A price level where a stock tends to stop falling and reverse direction, due to a concentration of buying interest. Lesson 7

T

• Technical Analysis — Evaluating stocks by analyzing statistical trends from trading activity — primarily price movement and volume — using charts, indicators, and patterns. Lesson 7
• Theta (Θ) — The rate at which an option loses value each day due to time decay, all else being equal. Theta is always negative for option buyers and positive for option sellers. Lesson 10
• Ticker Symbol — An abbreviation used to uniquely identify a publicly traded stock on an exchange. For example, AAPL for Apple, MSFT for Microsoft. Lesson 5
• Time Decay — The gradual erosion of an option's extrinsic value as expiration approaches. Accelerates in the final 30–45 days. Benefits sellers, hurts buyers. Lesson 12
• Time Value of Money — The concept that money available today is worth more than the same amount in the future, because of its potential to earn returns. The foundation of all investing. Lesson 1
• Trading Plan — A comprehensive strategy document that defines your goals, rules, entry/exit criteria, risk management approach, and the specific strategies you'll use. Essential for disciplined trading. Lesson 22

V

• Vega (ν) — The rate of change in an option's price for a 1% change in implied volatility. Higher vega means the option is more sensitive to volatility changes. Lesson 10
• Vertical Spread — An options strategy involving the simultaneous purchase and sale of two options of the same type (both calls or both puts) with the same expiration but different strike prices. Lesson 17
• Volatility — A measure of how much a stock's price fluctuates over time. Higher volatility means bigger price swings. Can refer to historical (realized) or implied (expected) volatility. Lesson 7
• Volume — The total number of shares or contracts traded during a given period. High volume confirms price moves; low volume suggests weak conviction. Lesson 5

W

• Wash Sale Rule — An IRS rule that disallows claiming a tax loss if you buy a "substantially identical" security within 30 days before or after the sale. Important for tax-loss harvesting strategies. Lesson 23
• Wheel Strategy — A systematic income-generating options strategy that cycles between selling cash-secured puts and covered calls on the same stock. Lesson 19