Options Glossary
- Day order
- A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.
- Day trade
- A position (stock or option) that is opened and closed on the same day.
- Debit
- Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.
- Debit spread
- A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.
- Decay
- A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.
- Delivery
- The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock.
- Delta
- A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.
- Derivative / derivative security
- A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.
- Diagonal spread
- A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. Example: buying 1 May 60 call and writing 1 March 65 call.
- Discount
- An adjective used to describe an option that is trading at a price less than its intrinsic value (i.e., trading below parity).
- Discretion
- Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order.
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