What is an 'Axe'

An axe is the interest that a trader shows in buying or selling a security that is typically already on their books. If a trader holds a long position, but has short-term concerns, that trader’s axe toward short-term put options may be significant. 

BREAKING DOWN 'Axe'

The term axe may be derived from the phrase “axe to grind,” which means to possess an ulterior motive or selfish aim. Traders often use the term axe to represent someone’s interest in buying or selling a security that is already on their books. The term was historically used to reference bond holdings, but traders have expanded the use to any securities. In conversation, the term is often used to speculate about a trader’s plans with regards to a security they hold.

The term axe should not be confused with ax, which is a market marker central to the price action of a specific security.

Example Usage

The term axe can be used in many different ways, which makes the context of the conversation important to consider.

Suppose that a trader has a large position in a given security. If that trader shops around for quotes with the intent of selling the stake, the trader that provides the quote may be at a disadvantage if he or she is unaware that the first trader has an axe with regard to the security. The second trader may ask, “do they have an axe on this security?” which means, “do they have plans to sell this security?”

Traders may also use the term to represent securities related to the securities that they hold. For instance, a trader may hold a long position and have an axe toward put options if they’re nervous about the stock’s short-term prospects.

The Bottom Line

The term axe represents a trader’s sentiment about a given security that they’re holding or a related security. Often times, the term is used in conversation when speculating about a trader’s motives when it comes to buying or selling a security they’re holding. It’s important to understand the context of the situation when interpreting the term since it’s usage various widely in conversation. The term shouldn’t be confused with ax, which is a central market marker in a given security.

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