Indian Trading Glossary — Options, Order Flow, Screening & Backtesting Terms Defined

Options & F&O Order flow & market profile Stock screening & technical analysis Backtesting & algo trading Risk & position sizing Mutual funds

Options & F&O

Option chain · also Options chain, NSE option chain: A table of every call and put listed on an underlying for a given expiry, laid out strike by strike with price, volume, open interest, change in open interest and implied volatility for each contract. Calls are conventionally shown on the left, puts on the right, with the strike ladder running down the middle.; The chain is a snapshot of positioning, not a forecast. It tells you where contracts are held and how that changed — it does not say which way price will go.
Open interest · also OI: The total number of derivative contracts that are currently open and not yet settled or closed out. Open interest rises when a new buyer and a new seller create a contract, falls when both sides close, and stays flat when a position merely changes hands.; Open interest is not volume. Volume counts every trade in the session; open interest counts positions still standing at the end of it. High volume with unchanged open interest means positions were passed around, not built.
OI buildup · also Open interest buildup, Long buildup, Short buildup: A classification of what participants did at a strike, read from the joint sign of the price change and the open-interest change. Price up with OI up is long buildup (new buyers). Price down with OI up is short buildup (new sellers). Price up with OI down is short covering (sellers exiting). Price down with OI down is long unwinding (buyers exiting).; The four labels distinguish new money entering from old money leaving — a rally on short covering has a different character from a rally on long buildup.
OI wall · also Open interest wall, Max OI strike: A strike carrying open interest far above its neighbours. Large call open interest above spot is often read as a level where sellers expect price to stall; large put open interest below spot is read the same way on the downside.; A wall marks where positions sit, not where price must stop. Walls move as the chain is rebuilt, and a strike can be heavy simply because it is round.
Put-call ratio · also PCR: The ratio of put open interest (or volume) to call open interest on an underlying. Above 1 means more puts are outstanding than calls; below 1 means the reverse.; PCR is conventionally read as a contrarian sentiment gauge, and it is sensitive to which strikes you include — a whole-chain PCR and a near-the-money PCR can point in opposite directions.
Max pain · also Maximum pain: The strike at which the total value of all outstanding options would be smallest at expiry — that is, the strike causing the largest aggregate loss to option buyers.; It is an arithmetic property of the current open-interest distribution, recomputed as that distribution changes. It is not a prediction of the settlement price.
Implied volatility · also IV: The volatility figure that, put into an option pricing model, reproduces the option's actual traded price. It expresses the market's expectation of how much the underlying will move over the option's remaining life, quoted as an annualised percentage.; Implied volatility is derived from price, not measured from history. Realised (historical) volatility is what actually happened; implied is what is being paid for.
IV rank and IV percentile · also IVR, IV percentile: Two ways of placing today's implied volatility in its own recent history. IV rank scales current IV between the lowest and highest values of the past year. IV percentile is the share of days in that year on which IV was lower than today.; They answer different questions. A single extreme spike drags IV rank down for months; IV percentile is unaffected by it and usually the steadier reading.
At-the-money · also ATM: The strike closest to the current price of the underlying, where the call and put are priced most similarly and time value is greatest.; On index options the reference should be the synthetic future rather than spot, because the options are priced off forward value. Taking ATM from spot can select a strike or two away on high-carry days.
In-the-money and out-of-the-money · also ITM, OTM: A call is in-the-money when the underlying is above its strike and out-of-the-money when below; for a put the relationship is reversed. In-the-money options carry intrinsic value; out-of-the-money options are entirely time value.
Synthetic future · also Synthetic futures price: The forward price of an underlying implied by its own option prices, computed at a strike as strike plus call price minus put price. It reflects the cost of carry actually embedded in the options.; This is the correct reference for selecting at-the-money and for measuring how far a strike sits from fair value, because it is the price the options are themselves quoting against.
SPAN margin · also SPAN: The exchange's portfolio-based margin requirement, computed by revaluing your whole position across a grid of price and volatility scenarios and charging the worst outcome. Because it assesses the portfolio rather than each leg, offsetting legs reduce the requirement.; This netting is why a defined-risk spread blocks far less capital than its two legs would separately, and why margin — not notional — is the right denominator when comparing option structures.
Exposure margin: An additional margin the exchange charges on top of SPAN, calculated as a percentage of contract value. Total initial margin is SPAN plus exposure.
Delta: The rate at which an option's price changes for a one-point move in the underlying, between 0 and 1 for calls and 0 and -1 for puts. A 0.40-delta call gains roughly ₹0.40 per ₹1 move.; Delta is also used loosely as the market's estimate of the probability the option finishes in-the-money — a rough reading, but the reason strikes are often selected by delta rather than by distance.
Gamma: The rate at which delta itself changes as the underlying moves. Gamma is largest at-the-money and grows sharply as expiry approaches, which is why near-expiry at-the-money positions change character so quickly.
Theta · also Time decay: The amount an option's price decays per day from the passage of time alone, holding everything else constant. Theta is negative for option buyers and positive for sellers.; Decay is not linear. At-the-money premium falls roughly with the square root of remaining time, while far out-of-the-money premium decays much faster — which is what makes the choice of expiry a real decision rather than a preference.
Vega: The change in an option's price for a one-point change in implied volatility. Long options are long vega; short options are short vega.
Straddle: A position in a call and a put at the same strike and expiry. Long straddle buys both and profits from a large move in either direction; short straddle sells both and profits if the underlying stays near the strike.
Strangle: A position in an out-of-the-money call and an out-of-the-money put at different strikes. Compared with a straddle it costs less to buy and collects less to sell, and needs a larger move to pay off.
Iron condor: A four-leg, defined-risk structure: sell an out-of-the-money call spread and an out-of-the-money put spread on the same expiry. It profits when the underlying finishes between the two short strikes, and both maximum profit and maximum loss are fixed at entry.
Butterfly: A three-strike structure — buy one lower strike, sell two of a middle strike, buy one higher strike — that pays most when the underlying settles at the middle strike. Risk and reward are both capped.
Jade lizard: A short put combined with a short call spread, sized so that the total credit received is larger than the width of the call spread. Constructed that way the position carries no risk above the call spread, leaving downside as the only exposure.; The credit-exceeds-width condition is what makes it a jade lizard. Without it the structure is just a short put plus a call spread and does carry upside risk.
Calendar spread · also Time spread, Horizontal spread: Selling a near-dated option and buying a longer-dated option at the same strike, so the position profits from the faster decay of the near leg.
Lot size · also Market lot: The fixed number of units in one derivatives contract, set by the exchange per underlying and revised periodically. Derivative orders are placed in whole lots.
Freeze quantity · also Freeze limit: The largest order size an exchange accepts for a contract in a single order. Anything larger must be split into multiple orders, which is why large positions are worked in slices rather than sent at once.
Weekly and monthly expiry: Indian index options list both weekly contracts, expiring on a fixed weekday, and monthly contracts expiring in the last week of the month. Stock options are monthly only.; Weeklies offer more expiries and cheaper premiums; monthlies decay more slowly per day and block margin for longer. Which is better depends on the structure, not on the calendar.

Order flow & market profile

Footprint chart · also Footprint, Order flow chart, Cluster chart: A candlestick in which every price level traded inside the bar is shown, split into volume that transacted at the bid and volume that transacted at the ask. Instead of four summary numbers per bar you see the distribution of activity within it.; This is what separates 'the bar closed green' from 'buyers actually paid up into the high'.
Delta (order flow) · also Bar delta: Within a bar, the volume that traded at the ask minus the volume that traded at the bid. Positive delta means more volume was transacted by aggressive buyers lifting the offer.; Order-flow delta is unrelated to option delta, which measures price sensitivity. Same word, different concept.
Cumulative volume delta · also CVD, Cumulative delta: The running total of bar-by-bar delta across a session, plotted as a line. It shows which side has been aggressive since the open rather than in the most recent bar.; Divergence is the standard read: price making a new high while CVD makes a lower high means each push is being driven by less aggressive buying.
Imbalance · also Volume imbalance, Stacked imbalance: A price level where buying and selling volume are lopsided beyond a chosen ratio, measured diagonally across the bid and ask ladder. Stacked imbalances mark levels that were taken decisively.
Absorption: Large volume trading at a price without price moving away from it, implying a resting participant is filling against the aggression rather than stepping aside.; Absorption is the opposite of a breakout on volume: the same heavy trade, but with the price refusing to follow.
Exhaustion: A surge of aggressive volume at an extreme that fails to extend and reverses shortly after, suggesting the last willing participants have already acted.
Market profile · also TPO chart, TPO profile: A distribution of a session's trading built from time: each price is marked once per time bracket it traded in, producing a shape that shows where the market spent its time.; Market profile is built from time; volume profile is built from traded volume. The two often disagree, and the disagreement is itself informative.
Volume profile: A distribution of traded volume by price over a chosen period, showing where business was actually done rather than where price merely passed.
Point of control · also POC: The price with the greatest traded volume (or the most time brackets) in the period being profiled — the level the market treated as fairest.
Value area · also VAH, VAL: The band of prices containing roughly 70% of the period's volume or time, bounded by the value area high and value area low. It describes where the market accepted price rather than merely visited it.
Single print: A price that traded in only one time bracket of a market profile, marking a fast move through a level where no acceptance was established.
Auction market theory: The framework underlying profile analysis: markets move to advertise price, seek acceptance at a level, and move on when the level is rejected. Profiles are a way of reading where acceptance has and has not occurred.

Stock screening & technical analysis

Weinstein stage analysis · also Stage 2, Weinstein stages: A four-stage classification of where a stock is in its cycle, taken from the relationship between price and a 30-week moving average and that average's slope. Stage 1 is basing, Stage 2 advancing, Stage 3 topping, Stage 4 declining.; Stan Weinstein's framework holds that buying should be confined to Stage 2 — the phase where price is above a rising 30-week average, typically with expanding volume.
Mansfield relative strength · also Mansfield RS: A relative-strength measure that compares a stock with its index and normalises the result so that zero represents index performance. Readings above zero indicate genuine outperformance.; The zero line is the point. A raw price-ratio line rises whenever the stock rises; the Mansfield version rises only when the stock beats the index.
Pocket pivot: An up-day whose volume exceeds the highest down-day volume of the previous ten sessions, occurring inside a constructive base. It is read as evidence of institutional accumulation appearing before a formal breakout.
Volatility contraction pattern · also VCP: A base built from a series of progressively shallower pullbacks on diminishing volume, indicating that supply is being absorbed and fewer holders are willing to sell.
Cup with handle: A base shaped as a rounded decline and recovery (the cup) followed by a shallow drift lower (the handle), with the breakout taken above the handle's high.
Market breadth · also Breadth: Measures of how many stocks are participating in a market move, as distinct from what the index level is doing — advance/decline counts, the share of stocks above their 50- and 200-day averages, new highs against new lows, and up versus down volume.; Narrowing breadth on a rising index — fewer stocks doing the work — is the classic late-trend warning that the index level alone cannot show.
Relative strength · also RS: A stock's performance measured against a benchmark rather than in absolute terms, used to find leadership.; Distinct from the Relative Strength Index (RSI), which is a momentum oscillator on a single instrument and unrelated.
Base · also Consolidation: A period of sideways consolidation after an advance, during which the stock builds a price range instead of trending. Breakouts are measured from the base's high.

Backtesting & algo trading

Backtest · also Backtesting: A simulation of a trading strategy over historical data to estimate how it would have performed. For options the simulation is only meaningful if it uses actual traded option prices rather than prices reconstructed from a model.; A backtest is one ordering of one history. It establishes that a rule would have worked, not that it will.
Forward test · also Paper trading, Paper trade: Running a strategy against live market data with simulated fills, so the logic and timing are tested without capital at risk.; Unlike a backtest, a forward test cannot benefit from hindsight in choosing its data — which is why it is the stronger evidence of the two.
Look-ahead bias: A flaw in which a simulation uses information that would not have been available at the moment of the decision — for example ranking instruments on a full-period return and then 'testing' that ranking from the start.
Survivorship bias: A flaw in which a test runs only over instruments that still exist today, silently excluding those that were delisted, merged or wound up, and so overstates the result.
Point-in-time: A simulation that at every decision date uses only the information available on that date. It is the property that makes a rotation or ranking backtest trustworthy, and its absence is the most common reason such results cannot be reproduced live.
Overfitting · also Curve fitting: Tuning a strategy until it fits the particular history it was tested on, capturing that period's noise rather than a durable effect. The signature is a result that collapses when any parameter is nudged.
Parameter sweep · also Optimisation grid: Running a strategy across a grid of parameter values rather than a single set, to see the shape of the surface instead of one point on it.; A strategy that stays profitable across a neighbourhood of settings is more credible than one that only works at a single tuned value — the sweep is how you tell the two apart.
Equity curve: The value of an account plotted over the life of a strategy. Its shape — how deep the falls are and how long recovery takes — usually says more than the final return.
Maximum drawdown · also Max DD, Drawdown: The largest peak-to-trough decline in account value over a period, stated as a percentage. Recovery is asymmetric: 20% down needs 25% to recover, 50% needs 100%, 70% needs 233%.
Expectancy · also Expected value, EV: The average result of a single trade, computed as (win rate × average win) − (loss rate × average loss). Positive expectancy is the definition of an edge.; Win rate alone says nothing. A 70% win rate making ₹500 and losing ₹1,500 has negative expectancy and loses money.
Return on margin · also ROM: Profit measured against the margin actually blocked to hold a position, rather than against its notional value. Because SPAN nets offsetting legs, it is the only comparison that is fair across option structures of different shapes.
Slippage: The difference between the price a strategy assumed and the price it actually received. Backtests that ignore it flatter strategies that trade often or in illiquid strikes.
Monte Carlo simulation: Reshuffling a strategy's trade sequence many times to produce a distribution of outcomes instead of the single path the backtest happened to produce — median return, worst-case drawdown, and the share of runs that end below the starting balance.; If a strategy looks excellent on one path but a meaningful fraction of shuffles end in ruin, the original result was ordering luck.

Risk & position sizing

Position sizing: Choosing how many shares or lots to trade so that being wrong costs a fixed, survivable amount: (account equity × risk per trade %) ÷ (entry price − stop-loss price).; The output that matters is the rupee loss at the stop, not the notional size of the position.
Risk of ruin: The probability that a run of losses takes an account below a level defined as failure, given win rate, payoff ratio and risk per trade.; It is why sizing matters more than entry accuracy: a genuinely profitable edge risked at 10% per trade can still be wiped out by an ordinary losing streak.
Kelly criterion · also Kelly formula: The bet size that maximises the long-run growth rate of capital: f* = W − (1 − W) ÷ R, where W is win probability and R is the ratio of average win to average loss.; Full Kelly is too volatile in practice because W and R are estimates from a limited sample. Half or quarter Kelly retains most of the growth at a fraction of the drawdown. A negative f* means there is no edge and the correct size is zero.
R-multiple · also R multiple: A trade's result expressed in units of the amount risked. Risking ₹5,000 and making ₹15,000 is a 3R win. It makes results comparable across positions of different sizes.
Drawdown recovery: The gain required to return to a previous peak after a loss, which grows faster than the loss itself: 20% needs 25%, 33% needs 50%, 50% needs 100%, 70% needs 233%.

Mutual funds

Net asset value · also NAV: The per-unit value of a mutual fund scheme, published once each business day after markets close. In India, AMFI publishes NAVs for every scheme daily.
XIRR: The annualised internal rate of return for a series of cashflows on irregular dates. It is the correct return measure for a SIP, where every instalment has been invested for a different length of time.; A simple CAGR computed from total invested against final value misstates a SIP's return, because it treats money contributed last month as though it had been invested from the start.
CAGR · also Compound annual growth rate: The constant annual growth rate that would take a single investment from its starting value to its ending value over the period. It applies to a lumpsum, not to a stream of contributions.
Systematic investment plan · also SIP: A fixed amount invested in a scheme at regular intervals, usually monthly, so units are bought across a range of NAVs rather than at one price.
Rolling returns: Returns computed from every possible start date across a window — for example all three-year periods in the last decade — rather than only the most recent one.; Trailing returns depend heavily on where the window happens to end. A fund with a strong three-year trailing number and a wide rolling distribution was well positioned at the endpoint, not consistent.
Expense ratio · also TER: The annual cost of running a scheme, charged as a percentage of assets and already deducted from the published NAV.
Momentum rotation: A rule that periodically moves capital into whichever funds have recently performed best, rebalancing on a fixed schedule.; Only meaningful when tested point-in-time. Ranking funds on today's data and backtesting that list produces a result that could never have been achieved.

Where these are used

Most of these terms describe things you can look at directly rather than concepts to take on trust. Option chain, open interest and implied volatility terms appear in Options Analytics; the order-flow and profile terms in Footprint Charts; screening and stage-analysis terms in the stocks scanner; backtesting terms in Algo & Backtest; and the fund terms in Mutual Funds. Every option structure named above is laid out strategy by strategy in Options School, and the position-sizing and risk terms have free calculators on the tools page — both free, no login required.