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Common Options Trading Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Last Trading Day
The very last full day of open trading before an options expiration day, usually the third Friday of the expiration month.

LEAPSŪ
Long-term Equity Anticipation Securities, or LEAPSŪ, are long-term stock or index options. LEAPSŪ, like all options, are available in two types, calls and puts, with expiration dates up to three years in the future.

Leg
A risk-oriented method of establishing a two-sided position. Rather than entering into a simultaneous transaction to establish the position (a spread, for example), the trader first executes one side of the position, hoping to execute the other side at a later time and a better price. The risk materializes from the fact that a better price may never be available, and a worse price must eventually be accepted.

Listed Option
A put or call option that is traded on a national options exchange. Listed options have fixed striking prices and expiration dates

Margin Requirement (for options)
The amount an uncovered (naked) option writer is required to deposit and maintain to cover a position. The margin requirement is calculated daily.

Married Put and Stock
The simultaneous purchase of stock and the corresponding number of put options. This is a limited risk strategy during the life of the puts because the stock can be sold at the strike price of the puts.

Married Put Strategy
A put and stock are considered to be married if they are bought on the same day, and the position is designated at that time as a hedge.

Neutral
Describing an opinion that is neither bearish nor bullish. Neutral option strategies are generally designed to perform best if there is little or no net change in the price of the underlying stock or index

Non-Equity Option
An option whose underlying entity is not common stock; typically refers to options on physical commodities and index options

Opening Purchase
A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.

Opening Sale
A transaction in which the seller's intention is to create or increase a short position in a given series of options.

Opening Transaction
A trade which adds to the net position of an investor. An opening buy transaction adds more long securities to the account. An opening sell transaction adds more short securities.

Open Interest
The number of outstanding option contracts in the exchange market or in a particular class or series.

Options Clearing Corporation (OCC)
The issuer of all listed option contracts that are trading on the national option exchanges.

Out-of-the-money
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

Over-the-Counter Option (OTC)
An option traded off-exchange, as opposed to a listed stock option. The OTC option has a direct link between buyer and seller, has no secondary market, and has no standardization of striking prices and expiration dates

Position Limit
The maximum number of put or call contracts on the same side of the market that can be held in any one account or group of related accounts. Short puts and long calls are on the same side of the market. Short calls and long puts are on the same side of the market.

Premium
The price of an option contract, determined in the competitive marketplace, which the buyer of the option pays to the option writer for the rights conveyed by the option contract.

Put
An option contract that gives the holder the right to sell the underlying security at a specified price for a certain fixed period of time.

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If you did not find the term you were looking for here, you might try the CBOE  Chicago Board Options Exchange. They have a broad selection of option terms and trading tools.

 

 

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