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Options Glossary
American-Style option

Assignment

At-the-money

BBH

BDH

BHH

BKX

Call

Capped-style option

Class of options

Closing purchase

Closing sale

Covered call option writing

Derivative security

DJX

Dollar-Weighted Volume

Dollar-Weighted Put/Call Ratio

Equity options

European-style options

Exercise

Exercise price

Exercise settlement amount

Expiration cycle

Expiration date

Expiration time

FLEX Options

HHH

Hedge

Holder

In-the-money

Intrinsic value

LEAPS®

Long position

Margin requirement (for options)

Market Implied Volatility

Merrill Lynch's HOLDRs

MNX

Naked writer

NASDAQ Composite

NDX

OEX

Opening purchase

Opening sale

Open interest

OSX

Out-of-the-money

Premium

Put

Put/Call Ratio

QQQ

RLX

RUT

Secondary market

Series

Short position

SMH

SOX

SPX

Statistical Volatility

Strike price

Time value

Type

Uncovered call writing

Uncovered put writing

Underlying security

Writer

XAU

XOI




Portions of this Glossary is courtesy of CBOE website.

Please also visit our Trading Terminology page for the lingo we use in our Trading Room.

Please also visit our Price Intensity Charts Indicators page for specific information about what all these indicators mean.

American-Style Option
An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style.

Assignment
The receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

At-the-money
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security.

Biotech HOLDRS
A basket of biotech stocks that is maintained by the Merrill Lynch.
     Components are updated daily.

Broadband HOLDRS
A basket of internet broadband stocks that is maintained by the Merrill Lynch.
     Components are updated daily.

B2B HOLDRS
A basket of internet business-to-business stocks that is maintained by the Merrill Lynch.
     Components are updated daily.

Banking Index
A basket of banking stocks that is maintained by the Philadelphia Stock Exchange.
     Components are updated daily.

Call
An Option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.

Capped-style Option
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price.

Class of Options
Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security.

Closing Purchase
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a given series of options.

Closing Sale
A transaction in which the seller's intention is to reduce or eliminate a long position in a given series of options

Covered call Option Writing
A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security or strategy in which one sells put options and simultaneously is short an equivalent position in the underlying security.

Derivative Security
A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.

Dollar-Weighted Volume
The option price multiplied by option volume.

Dollar-Weighted Put/Call Ratio
A ratio of sum of dollar volume of puts to sum of dollar volume of calls.

Dow Jones Industrial Index Options
Dow Jones Industrial Index Options is maintained by the CBOE.
     Components are updated when Dow Jones Industrial Index components
     are changed by NYSE.

Equity Options
Options on shares of an individual common stock.

European-style Options
An option contract that may be exercised only during a specified period of time just prior to its expiration.

Exercise
To implement the right under which the holder of an option is entitled to buy (in the case of a call) or sell (in the case of a put) the underlying security.

Exercise Price
See Strike price.

Exercise Settlement Amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

Expiration Cycle
An expiration cycle relates to the dates on which options on a particular underlying security expire. A given option, other than LEAPS®, will be assigned to one of three cycles, the January cycle, the February cycle or the March cycle.

Expiration Date
Date on which an option and the right to exercise it, cease to exist.

Expiration Time
The time of day by which all exercise notices must be received on the expiration date.

Flex Options
Exchange traded equity or index options, where the investor can specify within certain limits, the terms of the options, such as exercise price, expiration date, exercise type, and settlement calculation.

Gold & Silver Index
A basket of internet stocks that is maintained by the Philadelphia Stock Exchange.
     Components are updated daily.

Hedge
A conservative strategy used to limit investment loss by effecting a transaction which offsets an existing position.

Holder
The purchaser of an option.

In-the-Money
A call option is in-the-money if the strike price is less than the market price of the underlying security. A put option is in-the-money if the strike price is greater than the market price of the underlying security.

Internet HOLDRS
A basket of internet stocks that is maintained by the Merrill Lynch.
     Components are updated daily.

Intrinsic value
The amount by which an option is In-the-Money(see above definition).

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

Long position
A position wherein an investor's interest in a particular series of options is as a net holder (i.e., the number of contracts bought exceeds the number of contracts sold).

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.

Market Implied Volatility
This is the volatility that the underlying asset would need to have for the option pricing model to produce the same thoeretical option price as the actual option price.

Merrill Lynch's HOLDRS
Merrill Lynch's baskets of stocks targeted for specific economic sectors.

Mini NASDAQ-100 Index
The one-tenth of NASDAQ-100 Index. It is maintained by the NASDAQ.

Naked writer
See Uncovered call writing and Uncovered put writing.

NASDAQ-100 Index
A basket of one hundred largest non-banking NASDAQ stocks that is maintained by the NASDAQ.
     Components are updated daily.

NASDAQ-100 Tracking Stock(QQQ)
The one-fortieth of NASDAQ-100 Index. It is maintained by the American Stock Exchange.

Composite
All stocks that trade on NASDAQ (except the very small stocks listed on NASDAQ bulletin board).

Oil & Gas Index
A basket of oil and gas stocks that is maintained by the American Stock Exchange.
     Components are updated quarterly.

Oil Services Index
A basket of oil services stocks that is maintained by the Philadelphia Stock Exchange.
     Components are updated daily.

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.

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

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.

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.

Retail Index
A basket of retail stocks that is maintained by Standard & Poor's. Components are updated quarterly.

Russell-2000 Index Options
A basket of two thousand mid-cap stocks that is maintained by Frank Russell Company.
     Components are updated quarterly.

S&P-100 Index
A basket of one hundred largest stocks that is maintained by the Standard & Poor's.
     Components are updated monthly.

S&P-500 Index
A basket of five hundred largest stocks that is maintained by the Standard & Poor's.
     Components are updated monthly.

Secondary market
A market that provides for the purchase or sale of previously sold or bought options through closing transactions.

Semiconductor HOLDRS
A basket of semiconductor stocks that is maintained by the Merrill Lynch.
     Components are updated daily.

Semiconductor Index
A basket of semiconductor stocks that is maintained by the Philadelphia Stock Exchange.
     Components are updated daily.

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

Short position
A position wherein a person's interest in a particular series of options is as a net writer (i.e., the number of contracts sold exceeds the number of contracts bought).

Simple Put/Call Ratio
A ratio of volume of puts traded to volume of calls traded.

Statistical Volatility
A measure of the fluctuation in the recent price swings of the underlying asset on a percentage basis. Mathematically, volatility is the annualized standard deviation of returns.

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.

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.

Type
The classification of an option contract as either a put or a call.

Uncovered call writing
A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

Uncovered put writing
A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.

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

Writer
The seller of an option contract.




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