Trading Reference
Clear definitions for 19 essential trading terms — from options Greeks to SMC/ICT concepts. No jargon inside the jargon.
A sharp drop in implied volatility (IV) immediately after a major event like earnings, causing options to lose value even if the stock moved in the right direction.
IN PRACTICE
Buying options into earnings is risky because IV is elevated beforehand. After the announcement, IV collapses — often wiping out any directional gains.
The rate at which an option loses value over time as it approaches expiration. Also called time decay.
IN PRACTICE
Options sellers profit from theta decay by collecting premium that erodes daily. Buyers fight against it — time is always working against long options holders.
An options Greek that measures how much an option's price moves for every $1 move in the underlying asset. Ranges from 0 to 1 for calls, -1 to 0 for puts.
IN PRACTICE
A 0.50 delta call gains about $0.50 for every $1 the stock rises. At-the-money options have a delta near 0.50; deep in-the-money options approach 1.0.
A rapid, self-reinforcing price surge caused by market makers hedging their short options positions by buying the underlying stock as delta increases.
IN PRACTICE
Heavy call buying forces market makers to buy shares to hedge, which pushes prices higher, which increases delta, which forces more buying — a feedback loop.
An SMC/ICT concept: a three-candle pattern where the middle candle's body leaves a gap — a price range untouched between candle 1's high and candle 3's low (bullish FVG) or vice versa.
IN PRACTICE
Price tends to return to FVGs to fill the imbalance. Traders use them as entry zones, targeting the 50% (equilibrium) to 100% fill for entries with defined risk.
An SMC/ICT term for the last bullish or bearish candle before a strong directional move. Represents institutional order flow and often acts as future support or resistance.
IN PRACTICE
When price returns to an order block zone, traders look for a reversal entry — the idea being that institutions placed large orders there and will defend the level.
A move engineered by institutional participants to clear stop-loss orders resting above highs or below lows before reversing in the opposite direction.
IN PRACTICE
Retail traders often place stops just beyond swing highs/lows — prime targets for a sweep. After stops are taken, price reverses sharply, trapping late entrants.
Volume-Weighted Average Price — the average price a security has traded at during the day, weighted by volume. Resets each session.
IN PRACTICE
Institutions use VWAP as a benchmark. Price above VWAP = bullish intraday bias. Many traders use VWAP reclaims and rejections as entry triggers.
An SMC concept where price breaks a previous swing high (bullish BOS) or swing low (bearish BOS), confirming a directional shift in market structure.
IN PRACTICE
A bullish BOS signals continuation of an uptrend. Traders use BOS to confirm bias and look for entries on pullbacks following the break.
A futures market condition where longer-dated contracts trade at a higher price than near-term contracts. The normal state for most commodity futures markets.
IN PRACTICE
VIX futures are often in contango — meaning VIX ETFs that roll contracts forward pay a carry cost, causing long VIX products to decay over time.
A futures market condition where near-term contracts trade at a higher price than longer-dated contracts. Opposite of contango. Often signals supply stress.
IN PRACTICE
Backwardation in crude oil can indicate a tight physical market. In VIX, it signals elevated near-term fear and often precedes or accompanies market corrections.
The daily settlement process in futures trading where open positions are credited or debited based on the day's closing price, regardless of whether the position is closed.
IN PRACTICE
Unlike stocks, futures P&L is settled daily. A losing day reduces your margin immediately. You must maintain minimum margin to keep positions open.
Pattern Day Trader rule: US regulation requiring any account that executes 4 or more day trades within 5 business days to maintain a minimum $25,000 equity balance.
IN PRACTICE
Accounts under $25K are limited to 3 day trades per 5-day window. Futures and options-on-futures are exempt from the PDT rule.
The peak-to-trough decline in an account's value during a specific period. Often expressed as a percentage of peak equity.
IN PRACTICE
A 20% drawdown requires a 25% gain just to break even. Funded account challenges (FTMO, Apex) impose hard drawdown limits that end the challenge if breached.
The options strike price at which the total value of outstanding options (both calls and puts) is minimized — i.e., the price where options sellers profit the most at expiration.
IN PRACTICE
Stocks can drift toward max pain on expiration day as market makers manage their books. Useful context for 0DTE trading near key strikes.
The total number of outstanding option or futures contracts that have not been settled. Unlike volume, OI increases when new contracts are created and decreases when they're closed.
IN PRACTICE
Rising OI with rising price suggests new long positions and a strong trend. Falling OI suggests existing positions are being closed — potential reversal signal.
The expected price range the market is pricing in for a stock into an event (like earnings), derived from options prices. Usually expressed as a ± percentage.
IN PRACTICE
If options imply a ±5% move into earnings, a 3% move is 'inside' and options sellers win. A 7% move is 'outside' and options buyers win.
The difference in implied volatility between out-of-the-money puts and calls. Most equities show put skew — OTM puts cost more than equivalent OTM calls.
IN PRACTICE
High put skew signals the market is pricing in crash risk. Traders exploit skew by selling expensive puts (via put spreads) or buying call spreads in low-skew environments.
The CBOE Volatility Index — a real-time measure of expected 30-day volatility in the S&P 500, derived from SPX options prices. Often called the 'fear gauge.'
IN PRACTICE
VIX above 20 signals elevated fear. Above 30 indicates panic. Historically, VIX spikes mark major market bottoms. Many traders use VIX levels to calibrate position sizing.
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