Translating the Lingo of Options

Vols: This is trader talk for the implied volatility of an option. Vols are calculated using an options pricing model. When "vols are off the charts," the option premiums are rich or expensive. Options are cheap when vols are low.

Actuals: This is another term for historical volatility, which is generally computed using the annualized standard deviation of past stock prices. Therefore, it looks at the actual volatility of a stock's past price movements.

VIX: The CBOE Volatility Index is a measure of the volatility in the options market. Specifically, it measures the vols of S&P 100 index options. It is known as the market's "fear gauge" because implied volatility tends to rise during periods of market angst. Its sister index, the Nasdaq 100 Volatility Index, also known as VXN or Vixen, gauges the vols in the tech sector.

Buy-Write: This is another term for the covered call. The strategy involves buying stocks and selling (or writing) calls -- hence the name: buy-write.

Fill: It's the price at which an order is executed. If you bought XYZ calls for $1.50, you were filled at a buck-fifty.

Wasting Assets: That's another term for derivatives that lose value due to time decay. Options are wasting assets because they have fixed expiration dates, they lose value as expiration approaches and they are worthless after expiration.

ETFs: Exchange-traded funds are pooled investments that trade like stocks on the exchanges but represent ownership in a basket of stocks.

Qs: The QQQ is a type of ETF that mirrors the performance of the Nasdaq 100 index. Because most components of the Nasdaq 100 are large technology companies, many traders use the Qs to place trading strategies on the tech sector.

Diamonds: This is a type of ETF that allows traders to participate in the rise and fall of the Dow Jones Industrial Average. It's named the Dow Jones Diamonds, or DIA, but most traders simply call them Diamonds -- somewhat paradoxically, given their rather dull performance lately.