Philip M Halperin - Scribblings

Definitions for Options Trading

 

FUNDAMENTAL ANALYSIS

A Method by which the practitioner can, after much study, predict the impact of news the market has already discounted in its pricing.

 

ECONOMETRIC FORECASTING MODEL

A Learned System for predicting the immediate past.

 

GARCH

An acronymic Learned System for predicting the immediate past.

 

TECHNICAL ANALYSIS

A Learned System for predicting that what has happened before might happen again.

 

TECHNICAL ANALYSIS SYSTEM

A Learned System for mindlessly predicting that what has happened before might happen again.

 

ARTIFICIAL INTELLIGENCE

A Computerised contradiction in terms.

 

ARTIFICIAL INTELLIGENCE TECHNICAL ANALYSIS SYSTEM

A System for predicting that what has happened before might happen again, very very quickly.

 

SETTLEMENT PRICE

The price at which the option should have traded, since it suited the locals' books.

 

PUT-CALL PARITY

The opposite of "Settlement Price".

 

DATA FEED

A system for disseminating typos and misprints at the speed of light.

 

DELTA NEUTRAL

A mathematical Method for losing money on long options, regardless of which way the market trades.

 

DIRECTIONAL TRADING

A Technique to lose money on options volatility.

 

VOLATILITY TRADING

A Technique to lose money on market direction.

 

RISK-REWARD RATIO

A Learned Method to compare what you will lose to what you might make, assuming you don't change your position and assuming the market goes your way.

 

LONG STRADDLE

An options Technique to lose money on both sides of the market through time and volatility erosion.

 

LONG DOUBLE

An options Technique to lose money on both sides of the market through time and volatility erosion on the London Metals Exchange.

 

POSITION DELTA

A figure you know the day after. Tells you where you might have hedged.

 

DAY TRADING

A Technique to convert the character of a long option position into the risk of a futures position, while still losing time premium.

 

HISTORICAL VOLATILITY

An estimate of how the average ratio of market prices in some underlying actually differed from some series of ratios of market prices, for some period in the past, often used to estimate what that ratio deviation might be now.

Indispensable for historically pricing options that have already expired.

 

IMPLIED VOLATILITY

An estimate of the market's best guess as to what historical volatility might ultimately turn out to be. This is computed on the basis of observed options premiums that are, in turn, based on the market's estimates as to what implied volatility might be now.

 

VOLATILITY

What market-makers think their bonus is paid in. As in, "I made two vols on the trade!"

 

CORRELATION

The cop of the quantitative world. Never around when you need it.

 

SUPPORT/RESISTANCE

See "Correlation".

 

FAST MARKET

An Official Declaration that it is now Legal for floor brokers to do to you what they have been doing all along.

 

TRADING PROGRAMS

A method for dissemination of computer viruses.

 

PROGRAM TRADING

A Technique to buy or sell within nanoseconds after

1) A typo or misprint has been received by your machine.

2) Everybody else.

 

NUMBER (Usage: Trade Number, Inflation Number, GNP Number)

A macroeconomic figure that provides the impetus for you to profit from your best guess as to what the consensus of everybody else's best guess about what the market's best guess of that same macroeconomic figure might have been, assuming your guess about the analysts' guess consensus about the market's guess was correct.

 

ęCopyright 1998

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