Options Trading Terminology

Date - this is the date (mm/dd/yy) when we issue the trade alert

Asset - this is the underlying security that our position is based on. It can be a stock or index. Our positions are dependent on the price movement on the underlying asset. An example is the SPX symbol which represents the S&P 500 index.

Order Type - this is the instruction given to the brokers, either by phone or online, for our trade execution.

STO - an acronym for sell-to-open. This instruction is provided to the brokers to open a new short position.

BTO - an acronym for buy-to-open. This instruction is provided to the brokers to open a new long position.

Strategy - the strategy that is used for the trade alert. At CashFlow Avenue, we employ only 3 option trading strategies - credit spread, iron condor spread, and straight calls/puts.

Bear Call Spread (Bearish Spread) - Bear Call Spread is the purchase (BTO) of an out-of-the-money (higher) call option while simultaneously selling (STO) the out-of-money (lower) call option on the same underlying asset. Depending on how the spread is constructed, bear call spreads can be an aggressive or conservative strategy. The sale of the out-of-money (lower) strike brings in a higher premium because it is closer to the price of the asset while the purchase of the higher strike price has a lower premium. Both the STO and BTO orders are entered as one order - one with a higher cash/premium inflow (lower strike) and the other with a lower cash/premium (higher strike) out flow. The difference is the maximum profit for this strategy. This strategy is a credit spread play because every time a bear call spread is executed, the credit/premium is collected. If the underlying asset is settled below the short strike, then the play is profitable.

Bull Put Spread (Bullish Spread) - Like the Bear Call Spread, the Bull Put Spread is the opposite. Bull Put Spread is the purchase (BTO) of an out-of-the-money (lower) put option while simultaneously selling (STO) the out-of-money (lower) put option on the same underlying asset. Depending on how the spread is constructed, bull put spreads can be an aggressive or conservative strategy. The sale of the out-of-money (higher) strike brings in a higher premium because it is closer to the price of the asset while the purchase of the lower strike price has a lower premium. Both the STO and BTO orders are entered as one order - one with a higher cash/premium inflow (higher strike) and the other with a lower cash/premium (lower strike) out flow. The difference is the maximum profit for this strategy. This strategy is a credit spread play because every time a bull put spread is executed, the credit/premium is collected. If the underlying asset is settled above the short strike, then the play is profitable.

Iron Condor Spread - Iron Condor Spread is a non-directional strategy. A bull put spread combined with a bear call spread makes this strategy a neutral play.

Symbol - Every stock in the exchange is represented by a symbol. GOOG is the symbol of Google. Like stocks, each option strike price is represented by a symbol.

Strike - This is the description of the symbol (with the month). Always counter check to make sure that orders are entered correctly.

Limit Order - this is the difference between the two strike prices that we aim to collect. We will always enter and exit the market using limit orders.

Trading Capital - the amount/cash required in an account to execute 1 contract. An example - if the table shows $9.00, it means that for every contract written, a trading capital of $900 is required. Since there are 100 units in 1 contract, this is calculated by multiplying $9.00 with 100 units, hence $900 per contract.

Portfolio Allocation - this is just a guideline to allocate a percentage of your portfolio for the play. The decision is ultimately yours to make.

Return On Investment (ROI) - is calculated by the premium/potential profit collected divided by the required trading capital.

Status - whenever a trade is executed or exited, we will update the status of our position in this column.