Trading tools glossary

The 48 terms you will meet most often in option flow platforms, scanners, broker platforms and data APIs, explained in plain English. Each one links to the category of tools that deals with it.

#

0DTE options: Options that expire on the day they are traded ("zero days to expiration"). They are cheap, very sensitive to price moves and lose their time value within hours. Index products such as SPX list an expiration every trading day. Browse Options Analytics.
13F filing: A quarterly SEC report in which institutions managing more than $100 million list their long US equity holdings. It is filed up to 45 days after the quarter ends, so the positions shown may already have changed. Browse Insider & Sentiment.

A

Alpha: Return above what a benchmark delivered for the same level of risk. A strategy that gains 12% when its benchmark gains 10% at equal risk has produced two points of alpha. Browse Backtesting & Algo.
API (application programming interface): A way for your own code to request data or place orders without using a website or app. Market data APIs return prices, options chains and fundamentals; broker APIs accept orders. Browse Market Data APIs.
Ask and bid: The bid is the highest price a buyer is currently offering and the ask is the lowest price a seller will accept. The gap between them is the spread, which is a cost you pay every time you cross it. Browse Brokerages.
Assignment: When the holder of an option exercises it and the seller must deliver: sell shares for a short call, buy shares for a short put. Short in-the-money options can be assigned at any time before expiration, most often just before an ex-dividend date. Browse Education.

B

Backtest: A simulation of a trading rule on historical data to estimate how it would have performed. Results are usually optimistic because of over-fitting, ignored trading costs and data that was not available at the time. Browse Backtesting & Algo.
Block trade: A single large trade, often negotiated privately between institutions and then reported to the tape. In options flow, blocks are generally read as less urgent than sweeps. Browse Option Flow.

D

Dark pool: A private trading venue where institutions trade large share blocks without displaying their orders beforehand. The trades are reported publicly after they happen, and flow tools surface the largest prints. Browse Option Flow.
Delta: How much an option’s price is expected to move for a $1 move in the stock. A 0.40 delta call gains about $0.40 when the stock rises $1. Delta is also used as a rough probability that the option finishes in the money. Browse Options Analytics.
Direct market access (DMA): The ability to choose the exchange or market maker your order is routed to, instead of leaving it to the broker. Offered by brokers aimed at active traders, usually with per-share commissions. Browse Brokerages.
Dividend yield: Annual dividends per share divided by the share price. Yield on cost uses your purchase price instead, and shows the income return on the money you actually invested. Browse Portfolio Trackers.
Drawdown: The fall from an account’s or strategy’s peak value to its next low, usually given as a percentage. Maximum drawdown is the single most useful risk number in a backtest or a trading journal. Browse Trading Journals.

E

Earnings whisper: An unofficial expectation for a company’s earnings that differs from the published analyst consensus. Stocks often react to the whisper number rather than the official estimate. Browse Calendars & Macro.
Expected move: The price range the options market implies for a stock over a period, commonly through an earnings report. It is derived from the price of the at-the-money straddle. Browse Options Analytics.

F

Float: The number of a company’s shares available for public trading, excluding restricted and closely held stock. Low-float stocks move further on the same volume, which is why day-trading scanners filter on it. Browse Screeners & Scanners.
FOMC: The Federal Open Market Committee, which sets US interest rate policy at eight scheduled meetings a year. Decision days and the press conference that follows are among the most volatile on the calendar. Browse Calendars & Macro.
Footprint chart: A chart that shows, inside each price bar, how much volume traded at the bid and at the ask at every price. It is an order-flow tool used mainly by futures and intraday traders. Browse Charting.
Form 4: The SEC filing a company insider must make within two business days of buying or selling the company’s stock. Open-market purchases by several executives at once are the pattern insider trackers look for. Browse Insider & Sentiment.

G

Gamma exposure (GEX): An estimate of how much options dealers must buy or sell in the underlying stock to stay hedged as the price moves. Positive gamma tends to dampen moves, and negative gamma tends to amplify them. Browse Option Flow.
Gap: A difference between one session’s close and the next session’s open, usually caused by news outside regular hours. Pre-market scanners rank stocks by the size of the gap and the volume behind it. Browse Screeners & Scanners.
Greeks: Measures of an option’s sensitivity: delta to the stock price, gamma to changes in delta, theta to the passing of time, vega to implied volatility and rho to interest rates. Browse Options Analytics.

I

Implied volatility (IV): The volatility the market is pricing into an option, backed out of its price with an options model. High implied volatility means expensive options. It rises ahead of known events and usually falls straight after them. Browse Options Analytics.
IV crush: The sharp drop in implied volatility after an expected event, typically earnings, has passed. It can make a long option lose value even when the stock moves in the right direction. Browse Options Analytics.
IV rank and IV percentile: IV rank places current implied volatility within its high-low range of the past year, from 0 to 100. IV percentile is the share of days in that year when implied volatility was lower than today. Both tell you whether options are cheap or expensive for that stock. Browse Options Analytics.

L

Level 2: A display of the resting buy and sell orders at each price beyond the best bid and ask, by exchange or market maker. Active traders use it with time and sales to judge short-term supply and demand. Browse Charting.

M

Margin: Money borrowed from your broker to hold positions larger than your cash. It magnifies both gains and losses, carries interest and can lead to forced selling if the account falls below the maintenance requirement. Browse Brokerages.

O

Open interest: The number of option contracts currently outstanding for a strike and expiration. It updates once a day. Volume that exceeds open interest suggests new positions are being opened, which is a core flow signal. Browse Option Flow.
OPRA: The Options Price Reporting Authority, which consolidates quotes and trades from every US options exchange into one feed. Real-time option flow tools are built on OPRA data, which is licensed and is the main reason they cost money. Browse Market Data APIs.

P

Paper trading: Trading with simulated money on real market prices. It is useful for learning a platform and testing a process, but fills are idealised and it does not reproduce the pressure of real losses. Browse Education.
Pattern day trader (PDT): A FINRA designation for margin accounts that make four or more day trades within five business days, which has carried a $25,000 minimum equity requirement. The rule has been under revision, so check the current terms with your broker. Browse Brokerages.
Payment for order flow (PFOF): Payments a broker receives from market makers for sending them customer orders. It funds zero-commission trading. Critics argue it can cost customers in execution quality; brokers publish their routing in Rule 606 reports. Browse Brokerages.
Premium: The price paid for an option. Flow tools report the total premium of an order, which is contracts times price times 100, as the measure of how much money was committed. Browse Option Flow.
Put/call ratio: Put volume divided by call volume, for a stock or the whole market. Extreme readings are used as a contrarian sentiment gauge: very high ratios signal fear and very low ratios signal complacency. Browse Insider & Sentiment.

R

R-multiple: A trade’s profit or loss expressed in units of the amount initially risked. Risking $100 and making $250 is a 2.5R trade. Journals use it to compare trades of different sizes fairly. Browse Trading Journals.
Relative volume (RVOL): Current volume compared with the average for the same time of day. A reading of 3 means three times the usual activity. It is the most common filter in intraday scanners. Browse Screeners & Scanners.

S

Short interest: The number of shares sold short and not yet covered, reported by exchanges twice a month. As a percentage of float it shows how crowded the short side is; days to cover divides it by average daily volume. Browse Insider & Sentiment.
Slippage: The difference between the price you expected and the price you got. It grows with order size, speed of the market and width of the spread, and leaving it out is a common reason backtests look better than live results. Browse Backtesting & Algo.
Squawk: A live audio feed in which analysts read out market-moving headlines as they break, so traders can listen while watching charts. Browse News.
Sweep: A large order broken into pieces and sent to several exchanges at once to fill immediately at the best available prices. In options flow, a sweep at the ask suggests an urgent buyer. Browse Option Flow.

T

Theta: The amount of value an option loses each day from the passing of time, all else equal. Time decay speeds up as expiration approaches, which helps option sellers and hurts buyers. Browse Options Analytics.
Time and sales: The running list of every executed trade with its time, price and size, also called the tape. Large prints and trades at the ask or the bid show who is being aggressive. Browse Charting.

U

Unusual options activity: Options trading that stands out from a contract’s normal pattern: volume well above open interest, very large premium or aggressive fills far from the current price. It is a lead for research, not a signal on its own. Browse Option Flow.

V

Vega: How much an option’s price changes for a one-point change in implied volatility. Long options have positive vega, so they gain when volatility rises and lose when it falls. Browse Options Analytics.
VWAP: Volume-weighted average price: the average price of the session weighted by the volume traded at each price. Institutions use it as an execution benchmark and day traders use it as a line between intraday strength and weakness. Browse Charting.

W

Walk-forward testing: Optimising a strategy on one slice of history, testing it on the next unseen slice, then rolling both forward. It is a defence against over-fitting a backtest. Browse Backtesting & Algo.
Wash sale: A US tax rule that disallows a loss when you buy the same or a substantially identical security within 30 days before or after selling it at a loss. Active traders trigger it constantly, which is why trader tax software exists. Browse Trading Journals.
WebSocket: A persistent connection over which a data provider pushes updates to your code as they happen, used for streaming real-time quotes and trades. REST endpoints, by contrast, answer one request at a time. Browse Market Data APIs.