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:
- Basic Strategies — with Examples
- Advanced: Learn how options chains work at OptionMonster
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