Home About Us! WEALTH MANAGER™ Executive Counsel™ Contact Us!
Equity Option Option Income Fixed Income Mutual Funds Real Estate
BASIC OPTION DEFINITIONS
CALL OPTION: An option contract that gives the owner the right to buy the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a Call option, the contract represents an obligation to sell the underlying stock if the option is assigned.
CALL OPTION COVERED: An option strategy in which a Call option is written against an equivalent amount of long stock. Example: write 2 XYZ May 40 Calls while owning 200 or more XYZ shares of stock.
COVERED OPTION: An option contract backed by the shares of the underlying security. A short Call position is covered if the writer has a long stock or long call position. A short Put position is covered if the writer is short stock or long another put.
EXERCISE: To invoke the rights granted to the owner of an option contract. In the case of a Call, the option owner buys the underlying stock. In the case of a Put, the option owner sells the underlying stock.
EXPIRATION DATE: The date on which an option and the right to exercise it cease to exist. The expiration date occurs on Saturday after the third Friday of each month.
IN THE MONEY: An adjective used to describe an option with intrinsic value. A Call option is in the money if the stock price is above the strike price. A Put option is in the money if the stock price is below the strike price.
INTRINSIC VALUE: The in-the-money portion of an option's price.
MARRIED PUT OPTION: A put option contract purchased simultaneously with the underlying security.
OPTION: A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration) . The contract also obligates the writer to meet the terms of delivery if the contract right is exercised by the owner.
OPTIONS CLEARING CORPORATION: A corporation owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all option contracts.
OUT OF THE MONEY: An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A Call option is out of the money if the stock price is below its strike price. A Put option is out of the money if the stock price is above its strike price.
PUT OPTION: An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a Put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.
PUT OPTION COVERED: An option strategy in which a Put option is written on an underlying security where the writer is short the underlying security, or long a put on the underlying security, or has an equivalent amount of cash to cover the purchase of the underlying security should the written put option be exercised.
STRIKE PRICE: The price at which the owner of an option can purchase (Call) or sell (Put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.
TIME VALUE: The portion of an option's total price that exceeds its intrinsic value. The price of an out-of-the-money option consists entirely of time value.
UNCOVERED OPTION: A short option position is not fully collateralized if notification of assignment is received. A short Call position is uncovered if the writer does not have a long stock or long call position. A short Put position is uncovered if the writer is not short stock or long another put.
WRITE / WRITER: To, sell an option that is not owned through an opening sale transaction. While this position remains open, the writer is subject to fulfilling the obligations of that option contract; i.e., to sell stock (in the case of a Call) or buy stock (in the case of a Put) if the option is assigned. An investor, who sells an option, is called the writer, regardless of whether the option is covered or uncovered.
Equity Option Option Income Fixed Income Mutual Funds Real Estate
Home About Us! WEALTH MANAGER™ Executive Counsel™ Contact Us!
INFORMATION DISCLOSURE NOTICE: This information is obtained from internal and external sources that are considered reliable, but the information's accuracy is not guaranteed by Executive Advisors LLC. Neither the information nor any opinion that may be expressed constitutes a solicitation by Executive Advisors LLC for the purchase or sale of any security referred to herein. This firm and/or its officers, managers or members and/or members of their families may have a position in the securities mentioned and/or options relating to these securities and may make purchase and/or sales of these securities and/or options relating to these securities from time to time on the open market or otherwise.