A equity or ETF option contract specifying the delivery of anything other than 100 shares of the underlying stock, or an index option contract specifying the delivery of anything other than 100 times the underlying index value (cash settlement value). The deliverables of an adjusted equity or ETF option can include a quantity other than 100, multiple underlying securities, cash in lieu, or any combination of these
An option that can be exercised any time between the time it was purchased and the expiration date. All listed equity options traded in the United States are American-style options
A notice received by an option seller stating that the option sold has been exercised by the option owner
a term used to describe options that have a strike price equal to the price of the underlying security. While technically, at-the-money means that the strike price is equal to the price of the underlying, often the option with the strike closest to the price of the underlying security may be considered the “at-the-money option.”
For an option spread involving two expiration months, the month that is farther away in time.
An underlying stock price at which an option strategy will realize neither a profit nor a loss, generally at option expiration.
a Buy/Write strategy consists of simultaneously purchasing a stock and selling a Call option (to open) on that same stock. A Buy/Write strategy is similar to the Covered Call strategy, the only difference is the stock is already owned in the case of a Covered Call strategy. Generally, one Call option is sold for every 100 shares of stock.
an order action used to establish a new long option position (used for both long Calls and Puts).
an order action used to buy back (i.e. close out) an existing short option position (used for both short Calls and Puts)
an option contract that gives the owner the right (but not the obligation) to buy the underlying stock, index (cash), ETF, etc. at a specified price (the strike price) for a certain, fixed period of time (until its expiration).
an option strategy that consists of selling an uncovered Put while maintaining the full cash amount required to cover the cost of assignment, in the event that it occurs.
A transaction that eliminates (or reduces) an open option position. A closing sell transaction eliminates or reduces a long position. A closing buy transaction eliminates or reduces a short position.
a Collar is a type of hedging strategy that usually consists of purchasing an out- of-the-money Put and simultaneously selling an out-of-the-money Call on the same underlying stock or ETF. A Collar is usually initiated with the intent of protecting the underlying stock or ETF, but at a lower cost than a Protective Put.
The fee charged by a brokerage firm for its services in the execution of a stock or option order on a securities exchange.
a Covered Call strategy consists of selling a Call option against a long stock or ETF position of the same underlying. In order for the Call to be considered “covered” one Call option is usually sold for every 100 shares of stock owned.
Any cash received in an account from the sale of an option or stock position. With a complex strategy involving multiple parts (legs), a net credit transaction is one in which the total cash amount received is greater than the total cash amount paid.
Any cash paid out of an account for the purchase of an option or stock position. With a complex strategy involving multiple parts (legs), a net debit transaction is one in which the total cash amount paid is greater than the total cash amount received.
this Greek measures how much an option’s price is expected to change with a corresponding $1.00 change in the price of the underlying stock, ETF or index.
an asset whose value is derived from the value of a different (underlying) asset. An option contract is a type of derivative.
an option that can only be exercised on the expiration date. Most index options are European style options.
when the owner of an option contract invokes his/her right to take delivery of the contract deliverables. For Call options, the owner buys the underlying stock, index (cash), ETF, etc. when the option is exercised. For Put options, the owner sells the underlying stock, index (cash), ETF, etc. when the option is exercised.
the date at which an option no longer trades and has expired. All options have an expiration date.
the difference between the price of the option and the intrinsic value. For example, for a stock with a value of $50.00, a $45.00 Call option priced at $8.00, has $5.00 of intrinsic value and $3.00 of extrinsic value. Extrinsic value is also known as “time value”.
For an option spread involving two expiration months, the month that is nearer in time.
this Greek measures how much the Delta is expected to change with a corresponding $1.00 change in the price of the underlying stock, ETF or index.
within the world of options, this term references Delta, Gamma, Theta, Vega and Rho, which are tools used to measure the different factors that affect the price of an option. Implied Volatility, while not technically a Greek, is usually grouped with the Greeks since it forecasts future volatility of the underlying security, derived from the price(s) of the option(s).
the actual (realized) volatility of the underlying stock or index.
the volatility of the underlying stock, index or ETF as implied by the prices of the options of that stock, index or ETF. The implied volatility value is found by entering the option price into an options pricing formula (such as Black-Scholes), and solving for the volatility component.
a term used to describe options that have a strike price below the price of the underlying security (in the case of Call options), or above the price of the underlying security (in the case of Put options).
the in-the-money amount of an option. For example, if a stock has a value of $50.00, then a $45.00 Call option on that stock has $5.00 of intrinsic value.
short for "Long Term Equity AnticiPation Securities", LEAPS are essentially long dated options, with expirations dates that are generally longer than 9 months.
1- One part of a complex position composed of two or more different options and/or a position in the underlying stock.
2- Instead of entering one order to establish all parts of a complex position simultaneously, one part is executed with the hope of establishing the other part(s) later at a better price.
an order type placed with a broker to buy or sell a set number of shares or contracts at a specified price or better.
an option contract, stock, or security that is held in an account. In regard to options, the “buy to open” action is used to initiate a long position.
an option strategy which involves simultaneously buying both a Put and a Call with the same strike price and expiration date, on the same underlying security.
The amount of cash and/or securities an option writer is required to deposit and maintain in a brokerage account to cover an uncovered (naked) short option position. This cash can be seen as collateral pledged to the brokerage firm for the writer’s obligation to buy (in the case of a put) or sell (in the case of a call) shares of underlying stock in case of assignment.
an order type placed with a broker to buy or sell a set number of shares or contracts at the best available price in the market.
a term used to describe the relationship of the strike price of the option to the price of the underlying security.
an order consisting of more than one component which may consist of Call options, Put options, stock, or a combination of any of these. For example, Buy/ Writes, straddles, and spreads are all considered multi-leg orders. Multi-leg orders are also referred to as "advanced option orders".
a short Call or short Put position that is not accompanied (covered) by a position in the underlying security.
formerly known as the Options Clearing Corporation, the OCC is the world’s largest equity derivatives clearing organization. The OCC clears all listed option trades, keeps track of opening and closing option transactions (also known as "open interest"), exercise requests and option assignments among other things.
the number of option contracts that exist for a particular security. When an option order is executed “to open”, the open interest will increase by the quantity specified in the order. Option orders executed “to close” decrease the open interest by the quantity specified in the order. The open interest numbers are maintained by the OCC and updated daily.
A transaction that creates (or increases) an open option position. An opening buy transaction creates or increases a long position; an opening sell transaction creates or increases a short position (also known as writing).
a listing of all of the available Calls and Puts, on all available expirations for a specific stock, index or ETF.
A mathematical formula used to calculate an option’s theoretical value using as input its strike price, the underlying stock’s price, volatility and dividend amount, as well as time until expiration and risk-free interest rate.
Generated by an option pricing model are the option Greeks: delta, gamma, theta, vega and rho. Well-known and widely used pricing models include the Black-Scholes, Cox-Ross-Rubinstein and Roll-Geske-Whaley.
a term used to describe options that have a strike price above the price of the underlying security (in the case of Call options), or below the price of the underlying security (in the case of Put options).
the amount of a security owned or borrowed by an investor including long or short stock and long or short option positions on that same underlying security.
the cost of purchasing an option or amount collected from selling an option.
a Protective Put is a hedging strategy that consists of purchasing a Put option against a long stock or ETF position. The purchase of the Put allows the owner to sell the stock at the strike price of the Put anytime up until the expiration date.
an option contract that gives the owner the right (but not the obligation) to sell the underlying stock, index (cash), ETF, etc. at a specified price (the strike price) for a certain, fixed period of time (until its expiration).
this Greek measures how much an option’s price is expected to change with a corresponding 1% change in interest rates.
an option strategy which involves simultaneously closing out an existing option position while opening a new option position (of the same underlying) with a different strike and/or expiration.
an order action used to close out an existing long option position (used for both Calls and Puts).
an order action used to establish a new short option position (used for both Calls and Puts).
a Sell/Write strategy consists of simultaneously shorting a stock and selling a Put option (to open) on that same stock. Generally, one Put option is sold for every 100 shares of stock shorted.
an option, ETF or stock position that has been sold without having previously been purchased or owned in the account. In regard to options, the "sell to open" action is used to initiate a short position.
an option strategy which involves simultaneously selling (writing) both a Put and a Call with the same strike price and expiration date, of the same underlying security.
an order consisting of only one component, either a specific option or a specific stock. For example, an order to buy to open 10 XYZ 01/22/2011 20.00 C Call options is considered a single leg order.
an equity or ETF option contract specifying the delivery (in the case of Calls) or sale (in the case of Puts) of 100 shares of stock.
a market order that is only activated when a bid/offer quotes at or through the stop price. For option sell-stop orders, the order is activated when the offer is at or below the stop price. For option buy-stop orders, the order is activated when the bid is at or above the stop price. There is no guarantee that execution of a stop order will be at or near your stop price.
an order that becomes a limit order once a quote occurs at or through the designated stop price. A stop limit order instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order, as such, execution is not guaranteed even if the stop price is reached.
the price at which the owner of an option has the right to buy (in the case of Call options) or sell (in the case of Put options) the underlying security. Used interchangeably with "strike" or "exercise price".
this Greek measures how much an option’s price is expected to change for a one day decrease in its time to expiration (assuming all other factors remain constant).
time value is another name for extrinsic value, and represents the difference between the option price and the intrinsic value.
a stop order request set at a price level (or % level) that is above (for short positions) or below (for long positions) the current price that adjusts as the price fluctuates. For a long position, a trailing stop is set below the current price and rises as the price advances. Should the price decline and reach the trailing stop, then a market order would be sent to close out the position. As long as the price remains above the trailing stop, the position is held.
the security or asset on which the option contract is written.
to close out an existing covered Call or covered Put position. For example if you initiated a Buy/Write position and you want to “unwind” this position, you would simultaneously sell the stock and buy back (to close) the Call.
this Greek measures how much an option’s price is expected to change with a corresponding 1% change in the implied volatility of the underlying stock, ETF or index.
the number of option contracts that have traded on a given day. Unlike open interest, volume for options is re-set to zero at the beginning of every trading day (like stocks).
To sell a call or put option contract that has not already been purchased (owned). This is known as an opening sale transaction and results in a short position in that option. The seller (writer) of an equity option is subject to assignment at any time before expiration and takes on an obligation to sell (in the case of a short call) or buy (in the case of a short put) underlying stock if assignment does occur.