## 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**

**Ratio Calendar Spread**

Selling more near-term options than longer-term ones purchased, all with the same strike; either puts or calls.

**Ratio Spread**

Constructed with either puts or calls, the strategy consists of buying a certain amount of options and then selling a larger quantity of more out-of-the-money options.

**Ratio Strategy**

A strategy in which one has an unequal number of long securities and short securities. Normally, it implies a preponderance of short options over either long options or long stock.

**Ratio Write**

Selling of call options in a ratio higher than 1 to 1 against the stock that is owned.

**Return if Exercised**The return that a covered call writer would make if the underlying stock were called away

**Series**

All option contracts of the same class that also have the same unit of trade, expiration date and strike price.

**Settlement Price**

The official price at the end of a trading session. This price is established by The Options Clearing Corporation and is used to determine changes in account equity, margin requirements, and for other purposes.

**Short Position**A position wherein a person's interest in a particular series of options is as a net writer.

**Spread Order**An order to simultaneously transact two or more option trades. Typically, one option would be bought while another would simultaneously be sold. Spread orders may be limit orders, not held orders, or orders with discretion

**Spread Strategy**Any option position having both long options and short options of the same type on the same underlying security

**Straddle**

The purchase or sale of an equal number of puts and calls having the same terms.

**Strike Price**

The stated price per share for which the underlying security may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

**Synthetic Put**A strategy equivalent in risk to purchasing a put option where an investor sells stock short and buys a call.

**Terms**

The collective name denoting the expiration date, striking price, and underlying stock of an option contract.

**Theoretical Value**

The price of an option, or a combination of options, as computed by a mathematical model.

**Theta**

A measure of the rate of change in an option's theoretical value for a one-unit change in time to the option's expiration date.

**Time Decay**

A term used to describe how the theoretical value of an option "erodes" or reduces with the passage of time.

**Time Value**

The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value.

**Underlying Security**

The security subject to being purchased or sold upon exercise of the option contract.

**Undervalued**

Describing a security that is trading at a lower price than it logically should. Usually determined by the use of a mathematical model.

**Unit of Trading**

The minimum quantity or amount allowed when trading a security. The normal minimum for common stock is 1 round lot or 100 shares. The normal minimum for options is one contract (which normally covers 100 shares of stock).

**Vega**

A measure of the rate of change in an option's theoretical value for a one-unit change in the volatility assumption.

**Vertical Spread**

Most commonly used to describe the purchase of one option and sale of another where both are of the same type and same expiration, but have different strike prices. Also used to describe a delta-neutral spread in which more options are sold than are purchased.

**Volatility**

A measure of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualized standard deviation of returns.

**Write**

To sell an option. The investor who sells is called the writer.

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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.