View some options trading terms below. You can also view other stock trading terms that are helpful in this blog. Happy investing!
An Option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
Referring to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered.
The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.
The Chicago Board Options Exchange; the first national exchange to trade listed stock options.
A term used to refer to all put and call contracts on the same underlying security.
A transaction in which the purchaser’s intention is to reduce or eliminate a short position in a given series of options.
A transaction in which the seller’s intention is to reduce or eliminate a long position in a given series of options.
A trade that reduced an investor’s position. Closing buy transactions reduce short positions and closing sell transactions reduce long positions.
Any position involving both put and call options that is not a straddle.
To buy back as a closing transaction an option that was initially written.
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security.
An option strategy in which a call option is written against long stock on a share-for-share basis.
Covered Call Option Writing
A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security or strategy in which one sells put options and simultaneously is short an equivalent position in the underlying security.
Covered Put Write
A strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security.
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock.
The expiration dates applicable to various classes of options. There are three cycles: January/April/July/October, February/May/August/November, and March/June/September/ December.
An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.
To take securities from an individual or firm and transfer them to another individual or firm. A call writer who is assigned must deliver stock to the call holder who exercised. A put holder who exercises must deliver stock to the put writer who is assigned.
The process of satisfying an equity call assignment or an equity put exercise. In either case, stock is delivered. For futures, the process of transferring the physical commodity from the seller of the futures contract to the buyer. Equivalent delivery refers to a situation in which delivery may be made in any of various, similar entities that are equivalent to each other (for example, Treasury bonds with differing coupon rates).
The amount by which an option’s price will change for a one-point change in price by the underlying entity. Call options have positive deltas, while put options have negative deltas. Technically, the delta is an instantaneous measure of the option’s price change, so that the delta will be altered for even fractional changes by the underlying entity.
A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option.
Be sure that you learned about options trading terms A-B.
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