TradeMachine® Glossary

Actionable

In terms of triggers, the mechanics of the TradeMachine® are that it uses end of day prices for every trigger. For a trigger to be considered actionable in TradeMachine® all technical and earnings conditions must be met near EOD (15 minutes before market close).

Ascending Base

A bullish chart pattern characterized by a series of three or more consecutive higher lows and highs, forming a stair-step pattern as the price gradually rises.

Ask

The lowest price at which a seller is willing to sell a security.

AMC

After market close

ATM

At the money

An option whose strike price is equal to or very close to the current price of the underlying asset.

• Call and Put Options: Both call and put options are considered at the money when the underlying asset's price is equal to the option's strike price.

AVWAP

Anchored Volume-Weighted Average Price

A trading indicator used to assess the average price at which a security has traded over a specific period, weighted by the volume of each trade. It is often used by traders and investors to identify significant price levels and gauge the fair value of a security.

The AVWAP is calculated by multiplying the price of each trade by its corresponding volume, summing up these values, and dividing by the total volume traded during the specified period. This calculation gives more importance to trades with higher volume, reflecting the impact of significant market participants.

Basis Point

A basis point (bps) is a unit of measurement used to express changes in percentages, particularly in the context of interest rates, stock prices, and financial instruments like options.

Definition

1 basis point = 0.01% (one-hundredth of a percent).

It is used to simplify small percentage changes and avoid ambiguity in financial discussions.

In options and stock trading, basis points are particularly valuable for discussing small but significant price movements, changes in volatility, and interest rates that impact financial instruments.

Bearish

A negative or pessimistic outlook on the price or value of a financial instrument, such as stocks, commodities, or cryptocurrencies. It suggests a belief that the price will decline or that the market will experience a downward trend. Bearish traders anticipate opportunities to sell or short assets in order to profit from potential price decreases.

Bear Market

A period of declining prices in financial markets, typically characterized by a drop of 20% or more from recent highs.

Bid

The highest price that a buyer is willing to pay for a security at a given time.

Bid-Ask Spread

The difference between the bid price (the highest price a buyer is willing to pay) and the ask price (the lowest price a seller is willing to accept) for a security.

BMO

Before market open

Bollinger Bands

A technical analysis tool used in trading to measure volatility and identify potential price reversals. They consist of three lines plotted on a price chart: a middle band (usually a simple moving average), an upper band (typically two standard deviations above the middle band), and a lower band (two standard deviations below the middle band).

Breakout

A movement of a stock's price beyond a defined support or resistance level, often indicating the start of a new trend.

BTFD

A reference to the Buy the Dip strategy

Bullish

A positive or optimistic outlook on the price or value of a financial instrument, such as stocks, commodities, or cryptocurrencies. It implies a belief that the price will rise or that the market will experience an upward trend. Traders who are bullish anticipate opportunities to buy or hold assets with the expectation of profiting from potential price increases.

Bull Market

A period of rising prices in financial markets, typically characterized by an increase of 20% or more from recent lows.

Bull Trap

When a stock or option price temporarily rises, giving the false signal of a trend reversal or breakout, only to reverse downward sharply, trapping traders who bought in expecting continued upward momentum.

Buy

The act of purchasing a security, such as a stock or option contract, with the expectation that its value will increase over time.

Buy the Dip

A trading strategy where investors purchase assets after a short-term decline in price, anticipating a rebound. It operates on the belief that the pullback is temporary within a longer-term uptrend.

• In Stock Trading: Investors buy shares at a lower price after a dip, aiming to profit as the price recovers. It relies on technical indicators like support levels, oversold signals (e.g., RSI < 30), or moving averages.

• In Options Trading: Traders often use bullish strategies like buying call options or executing bullish spreads (e.g., bull call spread) to capitalize on the anticipated price recovery while managing risk.

BWB

Broken Wing Butterfly

Calendar Spread

An options strategy that involves buying and selling options of the same type (calls or puts) and strike price but with different expiration dates.

Call

A financial contract that gives the buyer the right, but not the obligation, to purchase a specific quantity of an underlying asset (such as a stock) at a predetermined price (known as the strike price) within a specified time frame. Traders and investors buy call options when they anticipate that the price of the underlying asset will rise, allowing them to potentially profit from the increase in value. If the market price exceeds the strike price before the option expires, the holder can exercise the option to buy the asset at the lower strike price or sell the option for a profit.

• Long Call: Involves buying a call option to speculate on a price increase of the underlying asset.

• Short Call: Involves selling a call option, obligating the seller to deliver the asset if the buyer exercises the option.

• Covered Call: Involves owning the underlying asset and selling call options on that asset.

• Naked Call: Selling call options without owning the underlying asset.

• Call Spreads:

  • Bull Call Spread: Buying a call at a lower strike and selling a call at a higher strike.

  • Bear Call Spread: Selling a call at a lower strike and buying a call at a higher strike.

CANSLIM

A growth stock investing strategy developed by William J. O'Neil. It identifies stocks with strong potential for significant price appreciation. Each letter represents a key criterion:

1. C - Current Earnings: Strong quarterly earnings growth (25%+ year-over-year).

2. A - Annual Earnings Growth: Consistent annual earnings growth (25%+ over past 3-5 years).

3. N - New Product, Service, or Management: A catalyst like innovation, leadership, or industry change driving growth.

4. S - Supply and Demand: Low float or institutional buying leading to higher demand.

5. L - Leader or Laggard: Focus on stocks outperforming peers or indices (Relative Strength ≥ 80).

6. I - Institutional Sponsorship: Stocks with ownership by quality institutional investors.

7. M - Market Direction: Align trades with the general market trend to maximize success.

In options trading, CANSLIM can help identify strong underlying stocks for bullish strategies like buying calls or bullish spreads.

Capitalization-Weighted Index

A stock market index where each component's weight is proportional to its market capitalization (share price × total shares outstanding). Larger companies have a greater influence on the index's performance.

• In Stock Trading: Traders use these indices (e.g., S&P 500, Nasdaq-100) to track overall market performance or identify trends driven by large-cap stocks.

• In Options Trading: Traders utilize options on cap-weighted indices (e.g., SPX, NDX) for hedging, speculation, or exposure to market movements, as the index reflects the combined performance of its weighted components.

Consolidation

A period of sideways price movement within a defined range, typically characterized by low volatility and volume. During consolidation, the asset's price fluctuates between support and resistance levels without forming a clear upward or downward trend.

Key Characteristics of Consolidation:

• Price Range: The asset trades within a horizontal channel or range, with support at the lower boundary and resistance at the upper boundary.

• Low Volatility: Price movements are generally small and lack significant momentum.

• Volume: Trading volume often decreases as the market lacks a strong directional bias.

Consolidation often precedes a breakout, where the price eventually moves decisively out of the range, indicating the potential start of a new trend. Traders watch for breakouts from consolidation to enter new positions, anticipating a resumption of the prior trend or the beginning of a new one.

Correction

A market decline of 10% or more from a recent peak, typically occurring in stocks, indices, or other assets. It is considered a normal part of market cycles to adjust overvalued prices.

• In Stock Trading: Corrections provide buying opportunities for investors, especially in fundamentally strong stocks, as prices stabilize or rebound.

• In Options Trading: Traders may use bearish strategies (e.g., buying puts or bear spreads) to profit from the decline or hedge existing positions against potential losses.

Covered Calls

An options strategy where an investor holds a long position in an underlying stock and sells call options on that same stock.

C-Suite

A company's top executive team, whose titles typically start with "C" (e.g., CEO, CFO, COO). These leaders make critical strategic decisions that can impact a company's performance and stock price.

Cup

A chart pattern resembling a cup. It is characterized by a "U" shape that shows a gradual decline in price followed by a rise back to the original level, indicating potential bullish continuation.

Cup & Handle

A bullish chart pattern resembling a cup with a handle, indicating a potential continuation of an uptrend after a consolidation period.

DCA

Dollar-Cost Averaging

An investment strategy in which an investor divides the total amount to be invested across periodic purchases of a target asset, such as stocks or options, in order to reduce the impact of market volatility on the overall purchase. This approach involves buying a fixed dollar amount of an investment on a regular schedule, regardless of the asset's price at the time.

Delisting

A stock is removed from a stock exchange, either voluntarily or involuntarily, due to failure to meet listing requirements (e.g., price, market cap) or corporate decisions.

• In Stock Trading: Delisted stocks may move to OTC markets, often experiencing lower liquidity, higher volatility, and price declines.

• In Options Trading: Options on delisted stocks typically cease trading, and open positions are settled or expire per exchange rules, depending on the delisting process.

Delta

A measure of the sensitivity of an option's price to changes in the underlying asset's price. It quantifies the expected change in the option's value for a $1 change in the underlying asset's price.

For call options, delta ranges from 0 to 1, where a delta of 0 means the option's price is insensitive to changes in the underlying asset's price, and a delta of 1 means the option's price moves in lockstep with the underlying asset's price.

For put options, delta ranges from -1 to 0, where a delta of -1 means the option's price moves inversely with the underlying asset's price.

In simple terms, delta helps traders assess the risk and potential profit of an option position based on how much it will gain or lose with changes in the underlying asset's price.

Divestiture

The partial or full sale of a company’s asset, business unit, or subsidiary, often to streamline operations, raise capital, or refocus on core activities.

Diagonal Spreads

An options strategy that combines elements of both a calendar spread and a vertical spread. It involves buying and selling options of the same type (calls or puts) with different strike prices and different expiration dates.

Directional Spreads

Options strategies that involve combining multiple options to capitalize on anticipated price movements in a specific direction (either bullish or bearish) of an underlying asset.

Divergence

A situation where the price of an asset and a related technical indicator move in opposite directions. Divergence is used as a signal for potential reversals or changes in the strength of a trend. There are two main types:

Bullish Divergence: Occurs when the asset's price makes a lower low, but the indicator (such as RSI or MACD) forms a higher low. This suggests that selling pressure may be weakening, potentially leading to a price increase.

Bearish Divergence: Occurs when the asset's price makes a higher high, but the indicator forms a lower high. This indicates that buying pressure may be diminishing, potentially leading to a price decrease.

Traders use divergence to anticipate changes in trend direction and to identify potential trading opportunities.

Double Bottom

A bullish reversal chart pattern that indicates a potential change in trend from bearish to bullish. It is formed when a stock's price hits a low point (trough), rebounds to a resistance level, and then falls back to a similar low point before rising again. The pattern resembles the letter "W" and suggests that the asset has found a strong support level, indicating that the price is likely to move higher after the second trough. Traders often use this pattern as a signal to enter long positions or confirm the end of a downtrend.

Downgrade

A downgrade is an analyst's revised assessment of a stock's future potential, typically moving the rating from a higher category (such as "buy") to a lower one (such as "hold" or "sell"). Downgrades are often based on various factors, including changes in a company's financial health, industry conditions, or broader economic factors that might negatively impact the company's future earnings and stock price.

DTE

Days to expiration

EBITA

Earnings Before Interest, Taxes, and Amortization

Measures a company's operating performance by evaluating earnings before deducting interest expenses, tax expenses, and amortization.

Efficiency Score

A standardized reward to risk measurement for backtests called the CML Efficiency Score® (ES).

The ES takes the average trade return from each triggered backtest (the 'reward') and divides it by the maximum drawdown (the risk).

The max drawdown is measured as the largest open-to-trough decline in the value of a backtest for each new opening trade.

Our view is that an CML Efficiency Score® above 0.8 is very good. An CML Efficiency Score® above 1.0 is excellent, demonstrating that the average return is in fact larger than the maximum realized loss.

When the CML Efficiency Score® reads 'max', it means that at no point during any of the triggered trades was there a drawdown below the opening price. This makes the ES calculation the average backtest return divided by zero, which is undefined, or 'max.' It's certainly above 1.0.

EMA

Exponential Moving Average

A type of moving average that gives more weight to recent prices, making it more responsive to new information.

EOD

End of day

Equal Weight

An index or portfolio where each stock is assigned the same weight, regardless of market capitalization or size.

ETF

Exchange-Traded Fund

A type of investment fund that is traded on stock exchanges, similar to individual stocks. It holds a diversified portfolio of assets such as stocks, bonds, commodities, or a combination, and aims to track the performance of a specific index or sector. ETFs offer investors the benefits of diversification, liquidity, and lower costs compared to mutual funds.

In options trading, ETFs are often used as underlying assets for various options strategies, providing exposure to broader market segments or specific sectors without needing to buy individual securities.

ETP

Exchange-Traded Product

A type of security traded on exchanges, designed to track underlying assets like stocks, bonds, commodities, or indices. ETPs include ETFs (Exchange-Traded Funds), ETNs (Exchange-Traded Notes), and similar instruments.

Fibonacci Retracement Levels

A technical analysis tool used in stock and options trading to identify potential support and resistance levels. These levels are based on the Fibonacci sequence and are used to predict the possible retracement or reversal points in the price movement of an asset.

Fiscal Quarter

A three-month period used by companies to report their financial performance. Companies divide their fiscal year into four quarters, each representing one quarter of their annual accounting period. These quarters are often labeled as Q1, Q2, Q3, and Q4.

Flat Base

A chart pattern where a stock consolidates in a tight range for at least five weeks, typically following a prior uptrend, indicating potential accumulation before a breakout.

Golden Cross

A bullish technical signal that occurs when a short-term moving average (e.g., 50-day) crosses above a long-term moving average (e.g., 200-day), indicating potential upward momentum.

• In Stock Trading: It suggests a buying opportunity as the trend shifts positive, often attracting bullish investors.

• In Options Trading: Traders may use bullish strategies like buying call options or bull call spreads to capitalize on the anticipated upward price movement.

GTC

Good till cancelled

Hedge

A strategy employed by investors to reduce or offset the risk of adverse price movements in their investment portfolio. It involves taking positions in assets or securities that have an inverse or opposite relationship to the investments they already hold. By doing so, traders aim to mitigate potential losses from market fluctuations. Hedging is commonly used to manage risk and protect against downside movements in the market.

HV

Historical Volatility

Measures the price fluctuations of a security over a specific period in the past.

Index Rebalancing

The periodic adjustment of an index’s components or their weights to reflect changes in market conditions, such as stock performance or company inclusion/exclusion.

Intraday

Activities or events that occur within a single trading day. It specifically relates to buying and selling securities or financial instruments within the same trading session, with all positions being closed before the market closes for the day. Intraday trading typically involves short-term trades, where traders aim to capitalize on price fluctuations and take advantage of intraday market opportunities.

IPO

Initial Public Offering

The process by which a private company offers its shares to the public for the first time, transitioning to a publicly traded company. This is often done to raise capital for expansion, pay off debt, or allow early investors to realize gains.

ITM

In the money

An option that has intrinsic value, meaning it would be profitable to exercise based on the current price of the underlying asset.

• Call Option: A call option is in the money when the underlying asset's price is above the option's strike price.

• Put Option: A put option is in the money when the underlying asset's price is below the option's strike price.

IV

Implied Volatility

A measure of the market's expectation of how much the price of a stock or asset will fluctuate over a specific period in the future. It is derived from the prices of options contracts and reflects the market's view of the likelihood of large price movements. Higher implied volatility indicates a greater expected fluctuation, leading to more expensive option premiums, while lower implied volatility suggests smaller expected price swings and cheaper options. Implied volatility is a crucial factor in options pricing and is often used by traders to assess potential risks and opportunities.

Kurtosis

A statistical measure that essentially measures the "tailedness" of the probability distribution of a real-valued random variable. Tail analysis is backward looking.

Limit

A specific price level set by a trader to buy or sell a security. When placing a limit order, the trader specifies the desired price at which they are willing to execute the trade.

For a buy limit order, the trader sets a price below the current market price, indicating their willingness to buy the security if its price reaches or falls to the specified level.

For a sell limit order, the trader sets a price above the current market price, indicating their willingness to sell the security if its price reaches or rises to the specified level.

Limit orders allow traders to have control over the price at which their trades are executed. They provide a way to enter or exit positions at desired price points, but there is no guarantee that the trade will be executed if the market does not reach the specified price level.

Liquidity

Liquidity refers to how readily an asset can be bought or sold in the market. For options, liquidity is determined by two things, and two things only: (i) the width and (ii) the depth of the market. While many point to open interest or volume in options to determine liquidity, that is incorrect - those are derivative measures that may reflect liquidity at times, but are not the defining characteristics. An option can see great trading volume or have large open interest and still be illiquid - a wide and shallow market. Alternatively, an option can have no volume and no open interest, but still show great liquidity with a tight and deep market.

Illiquid options are contracts that are difficult to sell quickly and convert into cash. These options carry higher risks, including wider bid-ask spreads, making it challenging for investors to sell them at a fair market price. Often, investors may have to retain these contracts until expiration.

MACD

Moving Average Convergence Divergence

A widely used technical indicator in trading. It is used to identify potential trend reversals, generate buy or sell signals, and assess the strength of a trend. MACD consists of two lines: the MACD line and the signal line. The MACD line is calculated by subtracting the longer-term exponential moving average (EMA) from the shorter-term EMA. The signal line is a smoothed average of the MACD line. When the MACD line crosses above the signal line, it generates a bullish signal, indicating a potential buying opportunity. Conversely, when the MACD line crosses below the signal line, it generates a bearish signal, indicating a potential selling opportunity. Traders also look for divergences between the MACD line and the price chart to identify potential trend reversals.

Magnificent 7

Refers to seven leading mega-cap tech and growth stocks driving market performance:

1. Apple (AAPL)

2. Microsoft (MSFT)

3. Alphabet (GOOGL)

4. Amazon (AMZN)

5. Nvidia (NVDA)

6. Tesla (TSLA)

7. Meta Platforms (META).

These stocks are closely watched due to their outsized influence on indices like the S&P 500 and Nasdaq.

Market Share

The percentage of an industry's total sales or revenue earned by a specific company over a defined period, indicating its competitive position. Increasing market share can boost investor confidence, driving stock prices higher, while a decline may signal weakness.

Nonfarm Payroll

A key economic indicator released monthly by the U.S. Bureau of Labor Statistics. It measures the change in the number of employed people in the United States, excluding farm workers, government employees, private household employees, and employees of nonprofit organizations. The NFP report is crucial because it provides insights into the overall economic health, influencing stock and options markets by affecting interest rates, investor sentiment, and economic policy expectations. Significant deviations from expected figures can lead to increased market volatility.

OTM

Out of the money

An option that has no intrinsic value, meaning it would not be profitable to exercise based on the current price of the underlying asset.

• Call Option: A call option is out of the money when the underlying asset's price is below the option's strike price.

• Put Option: A put option is out of the money when the underlying asset's price is above the option's strike price.

Overbought

A condition where a stock or asset has risen too quickly, pushing its price above its intrinsic value, often indicated by technical indicators like RSI > 70. It suggests the asset may be due for a pullback or correction.

Oversold

A condition where an asset's price has fallen to such a degree that it is believed to be undervalued, often due to excessive selling pressure. This condition suggests that the asset may be poised for a price reversal or bounce back, as the selling may have been overdone relative to the asset's intrinsic value.

Indicators used to identify oversold conditions include:

• Relative Strength Index (RSI): An RSI value below 30 typically indicates an oversold condition.

• Stochastic Oscillator: Values below 20 are often seen as indicating an oversold market.

• Moving Average Convergence Divergence (MACD): A significant downward divergence from its signal line may signal an oversold state.

Traders use the oversold condition to identify potential buying opportunities, anticipating that the price will rise as the market corrects itself. However, it's important to confirm with other technical or fundamental analysis to avoid potential false signals.

PCS

Put Credit Spread

PDS

Put Debit Spread

P/E Ratio

A valuation metric used to measure a company's current share price relative to its earnings per share (EPS). It is calculated by dividing the market price per share by the earnings per share. The P/E ratio is used by investors to assess whether a stock is overvalued or undervalued compared to its earnings, industry peers, or historical performance. A high P/E ratio may indicate that the stock is expensive relative to its earnings, while a low P/E ratio might suggest it is undervalued.

PercentR (%R)

A technical indicator used in trading to measure the momentum and overbought or oversold conditions of a financial instrument. It is a bounded oscillator that fluctuates between 0 and -100, with readings near 0 indicating overbought conditions and readings near -100 indicating oversold conditions. %R compares the instrument's closing price to the high-low range over a specified period, helping traders identify potential trend reversals or entry/exit points in the market.

Price Target

An analyst's projection of a stock's future price over a specific time frame. It represents the level at which the analyst believes the stock will trade, based on factors such as the company's earnings potential, market conditions, and industry trends. Price targets are used by investors to assess the potential value and direction of a stock, helping them make informed buy, hold, or sell decisions. These targets can influence market sentiment and are often updated as new information becomes available.

Profit and Loss (PnL)

A measurement that tracks the financial performance or the net gain or loss of a trading position or portfolio. PnL is calculated by subtracting the cost or basis of acquiring an asset or position from the current market value or proceeds from selling the asset. It reflects the overall profitability or loss incurred from trading activities and is an important metric for assessing the success or failure of trading strategies and investments.

Put

A financial contract that gives the holder the right, but not the obligation, to sell a specified quantity of an underlying asset (such as a stock) at a predetermined price (known as the strike price) within a specific time frame. Investors buy put options when they anticipate a decline in the price of the underlying asset, allowing them to potentially profit from the decrease in value. If the market price falls below the strike price before the option expires, the holder can exercise the option to sell the asset at the higher strike price or sell the option itself for a profit.

• Long Put: Involves buying a put option to profit from a decline in the underlying asset's price.

• Short Put: Involves selling a put option, obligating the seller to buy the asset if the buyer exercises the option.

• Covered Put: Involves writing a put option while simultaneously holding a short position in the underlying asset.

• Naked Put: Selling put options without holding the underlying asset or any offsetting position.

• Put Spreads:

  • Bear Put Spread: Buying a put at a higher strike and selling a put at a lower strike.

  • Bull Put Spread: Selling a put at a higher strike and buying a put at a lower strike.

Resistance

A price level where an uptrend is expected to pause or reverse due to a concentration of selling interest, preventing the price from rising further.

Retracement

A temporary reversal in the price movement of a stock or asset within a larger trend. This means that the price temporarily moves against the prevailing trend, either upward in a downtrend or downward in an uptrend, before continuing in the original direction. Retracements are often viewed as normal fluctuations in price rather than a change in the overall trend, and traders use them to identify potential entry points or to adjust their trading strategies.

Reversal

A change in the direction of a trend, indicating a potential shift from an uptrend to a downtrend or vice versa.

Reverse Stock Split

A corporate action in which a company reduces the number of its outstanding shares by consolidating them into a smaller number of higher-priced shares. This action is typically expressed as a ratio, such as 1-for-10, meaning that every 10 existing shares are consolidated into 1 new share.

RS

Relative Strength

A technical analysis indicator that measures the strength or weakness of a security compared to its peers or a benchmark index. It is commonly used to identify assets that are outperforming or underperforming the broader market. Relative Strength can be calculated using various methods, such as comparing the price performance, momentum, or rate of change of a security to a reference index or sector. Traders use Relative Strength to identify potential opportunities for buying or selling assets based on their relative performance compared to the market or specific sectors.

RSI

Relative Strength Index

A popular technical indicator used in trading to assess the strength and momentum of a financial instrument's price movement. It oscillates between 0 and 100 and measures the magnitude of recent price changes to determine if the instrument is overbought or oversold. RSI is calculated based on the average gains and losses over a specified period. Readings above 70 suggest that the instrument is overbought and may be due for a price correction or reversal. Readings below 30 indicate oversold conditions, implying a potential buying opportunity. Traders also look for bullish or bearish divergences between the RSI and the price chart to identify potential trend reversals.

Sell

The act of disposing of a security, such as a stock or options contract, usually to realize a profit or cut losses.

Short Selling

A strategy where an investor borrows shares of a stock and sells them on the open market, hoping to buy them back later at a lower price. The goal is to profit from a decline in the stock's price. If the price falls, the investor can repurchase the shares at a lower cost, return them to the lender, and pocket the difference. However, if the price rises, the investor faces potentially unlimited losses as they must still repurchase the shares at the higher price.

Covered Short Selling

Covered short selling involves selling shares that the trader already owns, or has borrowed, and is considered a more secure form of short selling.

Naked Short Selling

Naked short selling involves selling shares without first borrowing them or ensuring that they can be borrowed.

Sideways Trend

When a stock or market moves within a horizontal range, showing little upward or downward direction over a period. Investors may wait for a breakout or use range-bound strategies, buying at support and selling at resistance.

Signal Strength

This indicator is tracking each trade and closing the trade after a certain number of days. The summary of how the strategy would have performed if every trade was closed after 1-day, 5-days, 10-days, etc, is displayed on the right of the Create tab.

Skew

In the context of stock performance, skewness or skew refers to the measure of the asymmetry of the probability distribution of a real-valued random variable about its mean. Skew is a backward looking analysis.

Positive skewness: Often referred to as right-skewness, occurs when the right tail (larger values) of the distribution is longer or fatter than the left. In the context of a stock's returns, this means that the stock has relatively frequent large gains.

Negative skewness: Often referred to as left-skewness, occurs when the left tail (smaller values) of the distribution is longer or fatter than the right. In the context of a stock's returns, this means that the stock has relatively frequent large losses.

SMA

Simple Moving Average

A technical analysis tool that calculates the average price of a security over a specific number of periods, such as days, weeks, or months. The SMA is used to smooth out price data and identify trends by averaging the closing prices over a set time frame. For example, a 50-day SMA takes the average closing prices over the last 50 days and plots them on a chart. Traders use SMAs to determine the direction of the trend, identify support and resistance levels, and generate buy or sell signals when prices cross above or below the moving average.

Small-cap Stock

Refers to a company with a market capitalization typically between $300 million and $2 billion. Small-cap stocks offer higher growth potential but come with increased volatility and risk compared to large-cap stocks. Options on small-cap stocks may have lower liquidity and wider bid-ask spreads, making trading more challenging. Traders often use them for speculative opportunities or high-reward strategies.

SMBs

Small and Medium-sized Businesses

Companies with relatively smaller revenue, assets, and workforce compared to large corporations. SMBs often fall under small-cap or mid-cap stocks, offering growth opportunities but with higher volatility and risk. Options on SMB stocks may have lower liquidity and wider spreads, limiting trading strategies but providing potential for high-reward speculation.

Stock Split

A corporate action in which a company increases the number of its outstanding shares by issuing more shares to its current shareholders. This is typically done to make the stock more affordable and attractive to investors by reducing the share price, while the overall market capitalization of the company remains unchanged.

For example, in a 2-for-1 stock split, each shareholder receives an additional share for every share they own, and the stock price is halved. Options contracts are also adjusted to reflect the split, ensuring the total value of the options position remains the same.

Straddle

An options strategy that involves buying both a call option and a put option with the same strike price and expiration date. This strategy is used by traders who anticipate significant price movement in the underlying asset but are uncertain about the direction of the move. The goal of a straddle is to profit from volatility: if the asset's price moves sharply in either direction, the gains from one option can offset the losses from the other, potentially leading to a net profit.

Support

A price level where a downtrend is expected to pause due to a concentration of buying interest, preventing the price from falling further.

Tail Risk

The risk of an extreme event occurring that could drastically change the value of a portfolio or investment. It's called "tail risk" because this kind of event is often at the tail ends (the far left or far right) of a probability distribution, indicating that these events are unlikely but not impossible.

Trigger

Refers to a specific condition or event that, when met, prompts a trader to initiate a particular action. It acts as a signal or catalyst for executing a trade or implementing a trading strategy. Triggers can be based on a variety of factors, such as technical indicators, fundamental data, market news, or predetermined price levels.

VIX

CBOE Volatility Index

Measures the market's expectation of volatility over the next 30 days, often referred to as the "fear gauge." It is calculated based on the prices of S&P 500 index options.

Volatility

The degree of variation in the price of a security over time, indicating the level of risk and uncertainty associated with the asset's price movements.

Watchlist

A list of stocks, ETFs, or options that traders monitor for potential trading opportunities based on price movements, news, or technical signals.

WITFD

A reference to the CML philosophy that it takes process, patience, and effort to be successful in trading. The process portion of that philosophy says that a trader should write out their trading plan, including an entry and exit plan.