Glossary of Derivatives Terms – T

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Technical Analysis
The method of predicting future stock price movements based on observation of historical stock price movements.

The collective name denoting the expiration date, striking price, and underlying stock of an option contract.

Theoretical Value
The price of an option, or a combination of options, as computed by a mathematical model.

A measure of the rate of change in an option’s theoretical value for a one-unit change in time to the option’s expiration date.  See Time Decay.

Time Decay
A term used to describe how the theoretical value of an option “erodes” or reduces with the passage of time. Time decay is especially quantified by Theta.

Time Spread
See Calendar Spread.

Time Value
The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value.

Time Value Premium
The amount by which an option’s total premium exceeds its intrinsic value.

Total Return Concept
A covered call writing strategy in which one views the potential profit of the strategy as the sum of capital gains, dividends, and option premium income, rather than viewing each one of the three separately.

Tracking Error
The amount of difference between the performance of a specific portfolio of stocks and a broad-based index with which they are being compared.  See also market basket.

An investor or professional who makes frequent purchases and sales.

Trading Limit
The exchange-imposed maximum daily price change that a futures contract or futures option contract can undergo.

Treasury Bill/Option Strategy
(90/10 strategy) a method of investment in which one places approximately 90% of his funds in risk-free, interest-bearing assets such as Treasury bills, and buys options with the remainder of his assets.

The classification of an option contract as either a put or a call.















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