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Options – ABC

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

A

An option traded on the American Stock Exchanges which can be exercised at any time prior to expiration.
The price at which a seller is offering to sell an option or stock. It is also the price which buyer must pay if buying the security or option at market order.
This occurs when the options holder exercises his/her option and the option writer (seller) is assigned the obligation to perform under the terms of the options contract.
When the strike price of an option is equal to the market price of the underlying security.
When a stock owner continues to purchase more shares or options at lower prices than the original purchase in order to reduce the average cost basis.
ATR is calculated by using historical price data thus allowing traders to measure daily volatility of a security. The range defines the price spread over a defined period of time (usually 14 days).

B

Term used to describe a downward movement in market or security value.
Term used to describe an upward movement in market or security value.
When you sell a call option and buy a call option at a higher strike price. For example: You sell the 40 call and buy the 45 call.
When you sell a put option and buy a put option at a higher strike price. For example: You sell the 45 put and buy the 50 put.
Used to measure the movement of a security compared to the market as a whole. Theoretically, a beta less than 1 means that the security is less volatile than the market and a beta greater than 1 means that the security is more volatile than the market. For example: If a security's beta is 1.4 then it is telling us that the the security is 40% more volatile than the market.
The price at which a buyer is offering to buy an option or stock. It is also the price which seller must accept if selling the security or option at market order.
A mathematical formula which uses the following parameters to determine the value of an option: * underlying security or index price * exercise price of the option * expiration date of the option * expected dividends to be paid over the life of the option * expected risk free interest rate over the life of the option * expected volatility of the underlying security or index over the life of the option
A four-legged option spread that involves a long call and a short put at the same strike price coupled with a short call and a long put at another strike price. Example: buying the Jan 1 XYZ 40 Call and selling 1 XYZ 45 Call; and simultaneously buying 1 XYZ 45 Put and selling 1 XYZ 40 Put.
A theoretical option pricing formula used to determine a trade's break-even point. It uses the option's expiration date to determine the price at which an option strategy results in that break-even point. In reality an option begins to gain or lose value well before the stock price reaches the theoretical break-even price.
When you sell a call option and buy a call option at a lower strike price. For example: You sell the 50 call and buy the 45 call.
When you sell a put option and buy a put option at a lower strike price. For example: You sell the 50 put and buy the 45 put.
This strategy involves three strike prices with both limited risk and limited profit potential. For example: To enter into a long call butterfly you buy one call at a lower strike price(1 MIKI 35 Call), sell two calls at the middle strike price (2 MIKI 40 Call) and buy one call at a higher strike price (1 MIKI 45 Call). To enter into a long put butterfly you buy one put at a higher strike price (1 MIKI 55 Put), sell two puts at the middle strike price (2 MIKI 50 Put) and buy one put at a lower strike price (1 MIKI 45 Put).
This strategy is similar to a covered call, but the shares are purchased at the same time that the Call options are sold. See Covered Call.

C

An option contract that gives the holder of the option the right, but not the obligation, to buy the underlying security at a specified price before expiration of the option term.
An option strategy that involves buying an option further out in time and then selling an equal number of contracts expiring at a time prior to the purchased options. For example: Buy 1 MIKI Feb 50 call (longer time until expiration) and Sell 1 MIKI Jan 55 call (shorter time until expiration). See Horizontal spread, Diagonal Spread.
When you sell a Call option it is said that you wrote a Call option. An option writer is an option seller. Therefore, Call Writing is Call selling. Call writing is considered very risky.
When a Call option is sold and it is not secured by the underlying security, rather it is secured by cash. The risk involved in this strategy is considered unlimited. This strategy is AKA "Short Call" or "Cash Covered Short Call". See Naked Option.
This is when you sell a Put option which is secured by the cash you have on hand in the event that the option is exercised or assigned to you. See Naked Option.
To close a Buy transaction you would sell an offsetting position to the one you hold. By offsetting the current position you hold you are closing out an existing position. For example: You purchased and now hold 1 MIKI 50 Call option, to offset and close out this transaction you would sell 1 MIKI 50 Call option.
This is considered a protective strategy in that it involves selling a Call and buying a Put around a previously owned stock position. The Call and Put options need not expire at the same time and the Call position is sold at a higher price than the current stock price and the Put option is purchased at a lower price than the current stock price. For example: You own 100 shares of MIKI at $45 and the price increased to $60, you could enter into a collar trade by buying a 57 Put and selling a 65 Call. The Call position allows the stock to capture some potential unrealized increase in the stock price while the Put allows you to protect the stock price against a major decrease in price - the Put is your insurance policy.
There are a variety of Condor Spreads and they always involve four strike prices. Regardless of which Condor you enter you are involved in both limited risk and limited profit potential. For example: You can enter into a Bear Call Spread (Sell a Call and Buy a Call) and simultaneously enter into a Bull Put Spread (Sell a Put and Buy a Put).
Options trade in contracts whereas stocks trade in units of shares. Each option contract contains 100 shares (although now they have mini-contracts which contain 10 shares).
When you buy a option, or stock, to close out an existing short position.
Where an investor sells call options while simultaneously owning an equivalent position in the underlying security. For example: Owner holds 100 shares of MIKI and simultaneously sells 1 contract (100 shares) Call options. In the event the option is exercised or assigned to Owner then the shares are used to satisfy Owner's obligation. See Buy-Write.
A Bull Put Spread and a Bear Call Spread are considered Credit Spreads as they immediately add cash to your account upon entering the trade. You get paid upfront.
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