An American Option is a type of options contract that can be exercised on any business day prior to its expiry date, providing flexibility to the option holder. This contrasts with a European Option, which can only be exercised at its expiration date.
Describing a call or put option in which the exercise price is the same (or very nearly the same) as the current market price of the underlying asset.
A Buy-In is a procedure used in options trading and securities transactions to manage the responsibility for the delivery or acceptance of stock when the original agreement is not met.
A call option is a financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price within a fixed timeframe.
The Chicago Board Options Exchange (CBOE) is the largest U.S. options exchange and a pioneer in options trading, providing a platform for trading standardized options contracts based on various securities and financial products.
CME Group Inc. is a prominent global markets company, composed of four principal exchanges— the Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX)—enabling investors and traders to hedge and tap into risk management assets and strategies.
A covered option is a type of option contract that is backed by the shares underlying the option. It involves the holder of the option also owning the equivalent amount of the underlying shares, reducing the risk compared to naked options.
Electronic trading refers to the process of buying and selling financial instruments, such as stocks and options, through electronic platforms via the Internet. This modern method of trading allows customers to place orders online through brokers, often at lower commission rates compared to traditional or discount brokers.
A European Option is a type of financial derivative that can only be exercised on its expiration date, unlike American options, which can be exercised at any time before expiration.
The exercise price, also known as the strike price or striking price, is the predetermined price per share at which an option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying security.
A futures option is a derivatives contract that grants the holder the right, but not the obligation, to buy or sell a futures contract at a predetermined price before the option expires.
A grantor is an entity, often an individual or trustee, that transfers, or 'grants,' assets or rights to another party; in the context of investments and law.
This term is used in options trading to describe an option that would result in a gain if exercised at the current market price. It's the opposite of 'out of the money' where the option would result in a loss.
A listed option refers to a put or call option that has been authorized for trading on an exchange, also known as an exchange-traded option. These options feature standardized terms and are regulated by a governing body, ensuring fair and transparent trading.
Market risk is the potential financial loss arising from fluctuations in market prices. This can include risks from buying in a falling market or selling in a rising market. Hedging with futures contracts or options can mitigate, but not eliminate, these risks.
Canada's oldest stock exchange and second-largest in dollar value of trading, known for trading stocks, bonds, futures, and options through a specialist system combined with automated systems.
A naked option refers to an options contract where the buyer or seller does not hold the underlying asset associated with the option. This type of position can expose the writer to unlimited losses or substantial gains.
The OEX, pronounced as three letters, is Wall Street shorthand for the Standard & Poor's 100 stock index, composed of stocks for which options are traded on the Chicago Board Options Exchange (CBOE).
An option holder is someone who has bought a call or put option but has not yet exercised or sold it. Call option holders want the price of the underlying security to rise, while put option holders want it to fall.
An optionee is an individual or entity that receives or purchases an option, which grants them the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time period.
An optionor is a party who grants or sells an option, allowing another party, known as the optionee, the right but not the obligation to execute a transaction, typically involving the purchase or sale of an asset, under specified terms within a defined timeframe.
Out of the Money (OTM) is a term used to describe an options contract that currently holds no intrinsic value. Specifically, a call option is OTM if the strike price is higher than the current market value of the underlying asset, whereas a put option is OTM if the strike price is lower than the current market value of the underlying asset.
Premium income refers to the income received by an investor who sells a put option or a call option. This income serves as compensation for the risk taken by writing the options.
A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.
The phrase 'Put to Seller' is used when a put option is exercised. The option writer is obligated to buy the underlying shares at the agreed-upon price.
Organized, national exchanges where securities, options, and commodities futures contracts are traded by members for their own accounts and for the accounts of customers.
A straddle is an options strategy involving the purchase of both a put and a call option on the same asset, with the same strike price and expiration date. This strategy capitalizes on significant price movements in either direction.
The strike price, also known as the exercise price, is the predetermined price at which the owner of an option can buy or sell the underlying asset before or at the expiration date.
A tax straddle is a technique that was once used to postpone tax liability by showing a short-term loss in the current tax year and realizing a long-term gain in the following tax year.
An uncovered option, also known as a naked option, refers to an option contract where the writer of the option does not hold the underlying security or the sufficient cash to cover the position, making it a high-risk strategy.
Writing naked refers to a highly speculative strategy where an options trader sells options without holding the underlying security, exposing them to significant risk.
