Finance & investing glossary
Every finance, investing, and options term you will meet, defined in plain English with a real example. No jargon used to explain jargon. If you have ever nodded along to a word you did not actually know, start here.
71 terms and growing.
Options
0DTE OptionsOptions that expire the same day they are traded.AssignmentWhen the option you sold is exercised and you must honor it.Call OptionA contract that gives its owner the right to buy 100 shares at a set price by a set date.Cash-Secured PutSelling a put while setting aside the cash to buy the shares if assigned.Covered CallSelling a call against 100 shares you already own to collect premium.DeltaHow much an option’s price moves for a $1 move in the stock, and a rough probability gauge.ExerciseUsing an option’s right to buy or sell the shares at the strike.ExpirationThe date an option contract ends.Extrinsic Value (Time Value)The part of an option’s price that comes from time and volatility, not real value yet.GammaHow fast an option’s delta changes as the stock moves.Gamma Exposure (GEX)A measure of how much options dealers must buy or sell to stay hedged as the market moves.Implied Volatility (IV)The market’s estimate of how much a stock could move, baked into option prices.In the Money (ITM)An option that would be worth exercising right now.Intrinsic ValueThe part of an option’s price that comes from real, exercisable value.Open InterestThe number of option contracts currently held open at a given strike.Option PremiumThe price of an option, paid by the buyer and collected by the seller.Options ChainThe full table of an option’s available strikes, expirations, and prices.Out of the Money (OTM)An option that has no value if exercised right now.Put OptionA contract that gives its owner the right to sell 100 shares at a set price by a set date.Strike PriceThe fixed price at which an option lets you buy or sell the shares.The GreeksA set of numbers that measure how an option’s price reacts to different forces.The Wheel StrategyA repeating income strategy: sell a cash-secured put, get assigned, sell covered calls, repeat.Theta (Time Decay)How much value an option loses each day as expiration approaches.VegaHow much an option’s price changes when implied volatility moves.
Stocks & Investing
Asset AllocationHow you split your money among stocks, bonds, cash, and other assets.Bid-Ask SpreadThe gap between the highest price buyers offer and the lowest price sellers accept.CAGR (Compound Annual Growth Rate)The smoothed yearly rate that gets you from a starting value to an ending value.Capital GainsThe profit you make when you sell an investment for more than you paid.Compound InterestEarning returns on your returns, so growth accelerates over time.Cost BasisWhat you actually paid for a position, used to figure your gain or loss.DiversificationSpreading your money across many investments so one bad bet cannot sink you.DividendA cash payment a company sends to shareholders, usually every quarter.Dividend YieldA stock’s annual dividend as a percentage of its price.Dollar-Cost AveragingInvesting a fixed amount on a regular schedule, regardless of price.Earnings (Earnings Report)A company’s quarterly update on how much money it made.Earnings Per Share (EPS)A company’s profit divided by its number of shares.ETF (Exchange-Traded Fund)A basket of many stocks (or bonds) that trades like a single stock.Expense Ratio (Fees)The yearly percentage a fund charges to manage your money.Index FundA fund that simply owns everything in a market index, at very low cost.IPO (Initial Public Offering)When a private company first sells shares to the public.LiquidityHow easily you can buy or sell something without moving its price.MarginBorrowing money from your broker to trade with more than you have.Market CapitalizationThe total value of a company’s shares: share price times shares outstanding.P/E RatioA stock’s price divided by its earnings per share, a rough gauge of how expensive it is.PortfolioEverything you own as investments, taken together.Return on Investment (ROI)How much you made (or lost) on an investment, as a percentage of what you put in.Short SellingBetting a stock will fall by selling borrowed shares now and buying them back later.Small Cap / Mid Cap / Large CapLabels for company size based on market cap.StockA piece of ownership in a company.Ticker SymbolThe short code used to identify a stock.VolumeHow many shares (or contracts) trade in a given period.
Personal Finance
401(k)A workplace retirement account with tax advantages, often with an employer match.APR (Annual Percentage Rate)The yearly cost of borrowing money, including interest and fees.Budget (50/30/20)A plan for splitting your income among needs, wants, and savings.Credit ScoreA number (300 to 850) that estimates how reliably you repay debt.Emergency FundCash set aside for surprises, usually 3 to 6 months of essential expenses.FIRE (Financial Independence, Retire Early)Saving aggressively to reach the point where investments can cover your living costs.High-Yield Savings AccountA savings account that pays much more interest than a normal bank account.IRA (Individual Retirement Account)A tax-advantaged retirement account you open yourself, outside of work.Net WorthEverything you own minus everything you owe.Roth IRAA retirement account you fund with after-tax money so withdrawals in retirement are tax-free.
Markets & Economy
Bear MarketA sustained decline, often defined as a drop of 20% or more from the highs.Bull MarketA sustained period of rising prices and optimism.CPI (Consumer Price Index)The main measure of inflation: how a basket of everyday prices changes over time.InflationThe rate at which prices rise and your money loses purchasing power.Interest Rates (The Fed)The cost of borrowing money, heavily influenced by the Federal Reserve.VolatilityHow much and how fast a price moves up and down.
Trading & Charts
MomentumThe tendency of a price trend to keep going in the same direction for a while.Moving AverageThe average price over a set number of days, plotted as a smooth line.RSI (Relative Strength Index)A 0-to-100 gauge of whether a stock may be overbought or oversold.Support & ResistancePrice levels where a stock has tended to stop falling (support) or stop rising (resistance).
Put the terms to work
Now that the words make sense, learn the strategy behind them, free and with the losing path shown as clearly as the winning one.