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Options Terminology

From OptionMonster Education:

Options Terminology

Calls

The right, but not the obligation, to buy a specific number of shares of the underlying security at a defined price, until the expiration date.

Puts

The right, but not the obligation, to sell a specific number of shares of the underlying security at a defined price until the expiration date.

Strike price

The price at which option holders can exercise their rights.

Exercise

The process in which the buyer of an option takes, or makes, delivery of the underlying contract.

Assignment

The process by which the seller of an option is notified that the contract has been exercised.

Expiration

The time at which an option can no longer be exercised.

In the Money (ITM)

A call (put) option whose strike price is below (above) the stock price.

At the Money (ATM)

An option whose strike price is roughly equal to the stock price.

Out of the Money (OTM)

A call (put) option whose strike price is above (below) the stock price.

American style

An option that can be exercised at any time before expiration

European style

An option that can be exercised only at expiration. (Note: These are mainly index securities.)

Intrinsic value

The amount that an option is in the money.

Time value

The price of an option less the intrinsic value.

More Options Education:

- The ABCs of Options

- Basic Strategies — with Examples

- Advanced: Learn how options chains work at OptionMonster

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