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Option trader slang from the 90s - part 1

Roy58

An inside peak at the trader jargon used by option traders at O'Connor & Associates (aquired by Swiss Bank Corporation in 1992), a true pioneer in options pricing and trading.


Once largest trading floor in the world, UBS Investment Bank, 2007


Here is part 1.

Some real gems worthy of being remembered for the distinct tone of that area. Numerous terms within the realm of option market makers provide valuable educational insights into this intriguing and somewhat enigmatic domain of high finance.


ACHE, verb (AYE-K): 1. To feel very badly after doing a trade – usually a bad trade, but

can be a trade that needed to be done because of an axe but at an unpleasant price (see “axe”); 2. To be paying a large decay bill overnight, e.g., to “be aching on decay”; synonym of “choking on decay”; 3. To be generally in a rut, or be having a bad day; also to generally be incompetent, e.g., “he (or she) aches"


AXE, noun (AKs): 1. What the book would like to do to get the desired position we want to

have, reflected in better or worse than market pricing


BAD-NEIGHBORHOOD, noun (badd-NEY-bur-hud): see “nasty”


BASIS POINT, noun (BAY-sis-poynt): Similar to a tick or a pip (see “merc tick”, “pip”), a

raw premium increment that equates to 1/100" of a percentage point, i.e., 0.01 percent, of

the option’s face amount


BUCKET, noun (BUCK-it): Also called a “Time Bucket”, options with similar tenors, or

lengths of time to expiration (see “expiry”); Traders often separate their option portfolios

into random buckets to break down calendar risks (see “curve”) and to assign like risk

characteristics to like options


BUCKET SHOP, noun (BUCK-it Shop), a description of a professional counterparty who claims to be a market player but often can’t handle any risk, or take down large trades without requesting every other counterparty to price up the same structure to find out how to price it


CACKER, noun (CACK-er): A generic term that can apply to any person or trade with really no connotation whatsoever; however, can occasionally be assigned to

a negative person or situation, as in the use of “nasty” or “tool” – (see “nasty”, “tool”)


CHIN-STRAP, noun (CHINN-strapp): A reference to putting on and fastening your helmet

(imagery of a Soviet monkey being prepared to be blasted off into space) in preparation

for a stupid question or request for price (see “monkey”).


CHOPPY, verb (CHOP-ee): 1. A market condition where spot and/or implied vol

movement is very volatile and illiquid, moving in large, irregular, stochastic movements; 2. “A Choppy Run” – Having a run with several large long and short clicks on one given

expiry, which gives an option trader nightmares when delta hedging if spot is all over the

place. (see “click”, “run”, “expiry”)


CLICK, noun (CLIK): What an option becomes on expiration day in the morning/afternoon period before it actually expires – the option ceases to have any Black-Scholes outputs (no gamma, tau, decay, TV, etc), but just becomes a delta. The option will be viewed as either in-the-money (and hence 100 delta) or out-of-the-money (and hence 0 delta) exactly at expiration, so during the day leading up to that will be delta-hedged completely subjectively by the option trader based on his or her spot view;


COLOR, noun (CULL-er): (Sometimes spelled “colour" by the minority of English

speaking peoples of the world even though there’s no “U” pronounced in there) The

commentary, or “flavor” that accompanies discussion about the vol market – the who,

what, where, when, why and how.


dBLAH/dBLAH, noun (dee-BLAH-dee-BLAH): 1. Dtau/Dvol, Drho/Dspot, Ddelta/Dvol,

etc, terms which are second- and third-order derivates of Black-Scholes output and mean “change in tau for a change in vol”, etc; they describe how a risk parameter changes as other risk parameters change – market focus on these is increasing the sophistication of the market; 2. terms often thrown around to explain market behavior. (see “derive”).


DEALER, noun (DEE-ler): 1. The Reuters 2000 dealer hardware which is the medium

used for the vast majority of requests for prices, and where actual trade confirmations are communicated. 2. Synonym for trader, but can also apply to an entire counterparty, also known as a “shop”.


DECAY BILL, noun (dec-KAY-bill): The change, or “cost” of holding an options position

one additional day, it is the overnight change in an option portfolio’s value; however,

usually refers to the theoretical value of the portfolio losing value as one day passes – this is the downside of being long gamma and is referred to as “paying decay” (the opposite is “earning decay”)


DERIVE, noun (der-IVV): 1. Usually refers to the changes in the Black-Scholes outputs as

these outputs change, or second order derivatives – e.g., the change in tau as vols

change (or “dtau/dvol”), or any other number of “dblah/dblah”s (see “dblah/dblah”);

2. The ambiguous explanation for anything not easily explained in less than a

sentence – e.g., Salesperson: “Why is the 1 year vol so bid even though spot is sitting

here?” Trader: “Derive. Now go away.”



Reproduced with permission.

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