Investor Reference
Investment Glossary
Clear definitions of options, macro, and strategy terminology — built for investors who want to understand the language of markets.
Alpha
The excess return of an investment relative to a benchmark index. Positive alpha means the investment outperformed; negative alpha means it underperformed. Alpha is a key measure of a portfolio manager's skill beyond market exposure.
At-the-Money (ATM)
An options contract where the strike price is equal (or very close) to the current market price of the underlying asset. ATM options have the highest time value and are most sensitive to changes in implied volatility.
Beta
A measure of a security's volatility relative to the broader market. A beta of 1.0 moves in line with the market; above 1.0 is more volatile; below 1.0 is less volatile. Negative beta assets (like gold) tend to move inversely to equities.
Bull Call Spread
An options strategy that buys a call at a lower strike and sells a call at a higher strike with the same expiration. It limits both maximum profit and maximum loss, making it a defined-risk way to express a moderately bullish view.
Cash-Secured Put
An options strategy where you sell a put option while holding enough cash to purchase the underlying shares if assigned. It generates premium income and can be used to acquire stocks at a lower effective cost basis.
Covered Call
An options strategy where you sell a call option against shares you already own. It generates premium income and provides a small downside buffer, but caps upside potential above the strike price.
Delta
An options Greek measuring how much an option's price changes for every $1 move in the underlying asset. A delta of 0.50 means the option gains $0.50 for every $1 rise in the stock. Delta also approximates the probability the option expires in-the-money.
Dividend Yield
Annual dividends per share divided by the current share price, expressed as a percentage. It measures the income return on an investment. A high yield can signal value or risk — always evaluate payout sustainability alongside the yield figure.
Duration
A measure of a bond's sensitivity to interest rate changes. A duration of 7 means the bond's price will fall approximately 7% if rates rise 1%. Longer-duration bonds carry more interest rate risk than shorter-duration bonds.
Earnings Per Share (EPS)
A company's net profit divided by its number of outstanding shares. EPS is a core profitability metric used to value stocks and compare performance across periods. Analysts track both GAAP EPS and adjusted (non-GAAP) EPS.
Federal Funds Rate
The interest rate at which U.S. banks lend reserve balances to each other overnight. Set by the Federal Reserve's FOMC, it is the primary tool of U.S. monetary policy and influences borrowing costs across the entire economy.
Free Cash Flow (FCF)
Operating cash flow minus capital expenditures. FCF represents the cash a company generates after maintaining and expanding its asset base — the money available for dividends, buybacks, debt repayment, or reinvestment.
Gamma
An options Greek measuring the rate of change of delta for every $1 move in the underlying. High gamma means delta changes rapidly, making the position more sensitive near expiration. Gamma risk is highest for at-the-money options close to expiry.
Implied Volatility (IV)
The market's forward-looking expectation of price volatility, derived from options prices. High IV means options are expensive; low IV means they are cheap. IV typically spikes around earnings, Fed decisions, and macro events.
In-the-Money (ITM)
An options contract with intrinsic value. For a call, ITM means the strike price is below the current market price. For a put, ITM means the strike is above the market price. ITM options have higher premiums but lower leverage.
Iron Condor
A neutral options strategy combining a bull put spread and a bear call spread. It profits when the underlying stays within a defined price range through expiration. Maximum profit is the net premium received; maximum loss is capped on both sides.
Macroeconomic Analysis
The study of economy-wide forces — GDP growth, inflation, interest rates, employment, and monetary policy — and their impact on asset prices. Macro analysis informs top-down investment decisions about sector allocation and geographic exposure.
MLP (Master Limited Partnership)
A publicly traded partnership structure common in the energy midstream sector. MLPs pass most income directly to unitholders, often yielding 6–10%. They combine the liquidity of stocks with the tax treatment of partnerships.
Out-of-the-Money (OTM)
An options contract with no intrinsic value. For a call, OTM means the strike is above the current price. For a put, OTM means the strike is below. OTM options are cheaper and offer higher leverage but expire worthless more often.
P/E Ratio (Price-to-Earnings)
A stock's current price divided by its earnings per share. The P/E ratio is the most widely used valuation metric. A high P/E suggests growth expectations; a low P/E may indicate value or declining fundamentals. Always compare within the same sector.
Put Option
A contract giving the buyer the right, but not the obligation, to sell an asset at a specified strike price before expiration. Puts are used for downside protection (hedging) or to express a bearish view on an underlying asset.
Quantitative Easing (QE)
A monetary policy tool where a central bank purchases government bonds or other securities to inject liquidity into the financial system and lower long-term interest rates. QE expands the central bank's balance sheet and is typically used when conventional rate cuts are insufficient.
Real Assets
Physical or tangible assets such as real estate, infrastructure, commodities, and natural resources. Real assets tend to hold value during inflationary periods and provide diversification benefits relative to financial assets like stocks and bonds.
Risk-Adjusted Return
A measure of investment return that accounts for the amount of risk taken to achieve it. Common metrics include the Sharpe ratio (return per unit of total volatility) and the Sortino ratio (return per unit of downside volatility).
Sharpe Ratio
A measure of risk-adjusted performance calculated as (portfolio return − risk-free rate) ÷ standard deviation. A higher Sharpe ratio means more return per unit of risk. A ratio above 1.0 is generally considered good; above 2.0 is excellent.
Short Selling
Borrowing shares and selling them with the expectation of buying them back at a lower price. Short sellers profit from price declines. The strategy carries theoretically unlimited risk since a stock's price can rise indefinitely.
Theta (Time Decay)
An options Greek measuring how much an option loses in value each day as it approaches expiration, all else equal. Theta works in favor of options sellers and against buyers. Time decay accelerates in the final 30 days before expiration.
Vega
An options Greek measuring an option's sensitivity to changes in implied volatility. A vega of 0.10 means the option gains $0.10 for every 1-point increase in IV. Long options have positive vega; short options have negative vega.
VIX (Volatility Index)
The CBOE Volatility Index, often called the 'fear gauge.' It measures the market's expectation of 30-day S&P 500 volatility derived from options prices. A VIX above 30 signals elevated fear; below 15 suggests complacency.
Yield Curve
A graph plotting interest rates of bonds with equal credit quality but different maturities. A normal (upward-sloping) curve reflects growth expectations. An inverted curve — where short-term rates exceed long-term rates — has historically preceded recessions.
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