Glossary

The terms these essays and tools use, in plain English. Anywhere on the site, a dotted underline on one of these words shows its definition.

30-day SEC yield: A standard measure of what a fund earned over the past 30 days, after fees. It looks backward, so it lags when interest rates move.
APY (annual percentage yield): The interest a savings account pays in a year, including the effect of compounding.
Assignment: When the seller of an option is required to carry out the contract after a buyer exercises it.
At the money: An option whose strike price is near the stock's current price.
Bid-ask spread: The gap between what buyers are bidding and what sellers are asking. A wide spread makes an option more expensive to get into and out of.
Break-even: The price at which a trade's result covers what you paid or received, before costs. Below it on a sold put, or above it on a sold call, the trade loses money.
Call: A contract giving its owner the right to buy 100 shares at the strike price before it expires. Selling a call means promising to deliver those shares at that price.
Cash-secured put: A put you sell while setting aside enough cash to buy the 100 shares at its strike price if you are assigned.
Covered call: A call you sell while owning the shares you would have to deliver if the buyer exercises it.
Delta: An estimate of how much an option's price changes when the stock moves $1, with other factors held steady.
Estimated tax: Income tax you pay to the IRS during the year, usually in four quarterly payments, on income that has no withholding, such as investment or self-employment income.
ETF (exchange-traded fund): A fund that holds a basket of investments and trades on a stock exchange like a single share.
Exercise: When an option's owner uses the right in the contract: buying the shares with a call or selling them with a put.
Expense ratio: The yearly fee a fund charges, as a percentage of what you hold in it.
Expiration: The date an option contract ends. After it, the option is worth whatever it is worth at that moment, and then nothing.
Expires worthless: An option that ends unused because it has no value at expiration. The seller keeps the whole premium.
FDIC insurance: U.S. government protection for bank deposits, up to $250,000 per depositor, per bank, per ownership category, if the bank fails.
Grace period: The time between the end of a credit card's billing cycle and the payment due date. Pay the full statement balance by then and new purchases cost no interest.
High-yield savings account (HYSA): A savings account, usually at an online bank, that pays far more interest than a big bank's standard savings account. Insured by the FDIC up to its limits.
Implied volatility: The market's estimate of how much the underlying asset may move. Higher expected movement usually makes options more expensive.
In the money: A call whose strike price is below the stock price, or a put whose strike is above it. Deep in the money means well past the stock price.
Intrinsic value: The value an option would have if it expired now, based only on the market price and strike price.
LEAPS: Long-term Equity AnticiPation Securities: the exchange's name for options, calls or puts, that last up to about three years.
Liquidity: How easy it is to find someone to trade with at a fair price. A quote on your screen does not guarantee you can trade at that price.
Marginal tax rate: The tax rate on your last dollar of income. It is the rate that applies to any extra interest you earn.
Money market fund: A mutual fund that holds very short-term debt, like Treasury bills, and aims to keep a steady $1 share price. It is not FDIC-insured.
Out of the money: A call whose strike price is above the stock price, or a put whose strike is below it. It has no intrinsic value, only time value.
Premium: The price paid by the option buyer and received by the seller for the contract.
Put: A contract giving its owner the right to sell 100 shares at the strike price before it expires. Selling a put means promising to buy those shares at that price.
Rolling: Closing one option and opening another on the same stock, usually with a later expiration or a different strike price.
SGOV: The iShares 0-3 Month Treasury Bond ETF, a fund that holds U.S. Treasury bills maturing within three months. You buy and sell it like a stock.
State tax exemption for Treasuries: Interest from U.S. Treasury bills, notes, and bonds cannot be taxed by states. Funds like SGOV pass that exemption on for the share of their income that comes from Treasuries.
Strike price: The fixed price at which an option lets its buyer buy or sell the underlying asset. Essays often shorten it to the strike.
Time value: The part of an option's price above its intrinsic value, reflecting the chance that it becomes more valuable before expiration. Also called extrinsic value.
Transfer partner: An airline or hotel loyalty program that a card's points or miles can be moved into, often one for one, to book award flights or stays.
Treasury bill (T-bill): A short-term loan to the U.S. government, lasting a year or less. It is sold at a discount and repaid at full value when it matures. Its interest is exempt from state income tax.