Glossary

The terms that turn up on an option chain, a prop firm dashboard, a dividend notice or an earnings calendar, each defined in a sentence and then worked through with numbers.

B

Basis point Economy
One hundredth of a percentage point, or 0.01%, used to quote changes in interest rates, bond yields, spreads and fees; 100 basis points equal one percentage point.
BMO and AMC Earnings
Calendar codes for when a company releases earnings: BMO means before the regular session opens, AMC means after it closes.

D

Daily loss limit Prop Trading
A cap on how much a trading account may lose within one trading day, set by a prop firm or by the trader, beyond which trading stops for the day or the account fails.
Dividend growth rate Dividends
The annualized rate at which a company's dividend per share has grown over a stated period, calculated as a compound rate from the starting and ending annual dividends.
Dividend reinvestment plan (DRIP) Dividends
An arrangement that uses each cash dividend a stock pays to buy more shares of that same stock, often in fractional amounts, without the holder placing an order.

E

Early assignment Options
When the holder of an American-style option exercises it before expiration, and the clearing system assigns the obligation to a trader who is short that option.
Earnings guidance Earnings
Management's own forecast of revenue, earnings per share or margins for the coming quarter or fiscal year, usually given as a range in the earnings release or on the call.
Earnings surprise Earnings
The gap between the earnings per share a company reports and the consensus estimate for that quarter, usually shown in dollars and as a percentage of the estimate.
Ex-dividend date Dividends
The first trading day on which a stock trades without its declared dividend, so a buyer on or after that date does not receive the upcoming payment.
Expected move Options
The size of the price move, up or down, that current option prices imply for a stock by a given expiration, usually stated as one standard deviation.
Extrinsic value Options
The part of an option's premium above its intrinsic value: what buyers pay for the time left before expiration and the chance of a bigger move in their favor.

F

Funded account Prop Trading
The account a prop firm gives a trader after an evaluation is passed, traded under the firm's rules, with any profit shared between trader and firm on the firm's terms.

I

Inside bar Swing Trading
A price bar whose high is below the previous bar's high and whose low is above the previous bar's low, so its whole range sits inside the bar before it.

O

Open interest Options
The number of option contracts at a given strike and expiration that have been opened and not yet closed, exercised or expired.

P

Pin risk Options
The uncertainty a short option seller faces when the stock closes at or very near the strike on expiration day, leaving it unclear whether the option will be exercised.
Profit split Prop Trading
The division of a funded account's profits between trader and prop firm, usually written trader share first, so 80/20 means 80% to the trader and 20% to the firm.
Pullback Swing Trading
A temporary move against the prevailing trend that leaves the trend's structure of swing highs and swing lows intact.
Purchasing Managers' Index (PMI) Economy
A monthly survey of purchasing managers turned into a diffusion index, where a reading above 50 means more respondents reported growth than contraction.

Q

Qualified dividend Dividends
A dividend that meets IRS requirements to be taxed at long-term capital gains rates, which are 0%, 15% or 20% at the federal level depending on taxable income.

R

R-multiple Swing Trading
A trade's profit or loss divided by its initial risk per share, where initial risk is the distance from entry to the planned stop.
Record date and payment date Dividends
The record date is when a company fixes the list of shareholders entitled to a declared dividend; the payment date is when the cash is actually paid to them.

S

Scaling plan Prop Trading
A prop firm schedule that raises a trader's maximum position size, or the account size itself, as the account reaches set profit milestones.
Swing high and swing low Swing Trading
A swing high is a bar whose high is above the highs of the bars on either side of it; a swing low is a bar whose low is below the lows on either side.

T

Trailing drawdown Prop Trading
A prop firm's maximum loss limit measured from the account's highest balance, so the level you must not fall below rises as the account makes new highs.

Using the glossary

Each entry opens with the definition and then does the part a dictionary leaves out: a worked example with round numbers, where the term shows up on a real screen or statement, and the misreading that trips people up. Related terms link to each other, so a question about early assignment leads naturally to extrinsic value and the ex-dividend date.

Terms that come with a sum have a calculator to go with them. The calculators print their working line by line, and the explainers take the common questions about these terms one at a time.