Options and Futures Glossary

Here are some of the related terms and teminology used in Options and Futures Trading.

Bid - The highest offered price at a specified time.

Black-Scholes Model – A theoretical method of pricing using strike price, market price, interest rates, expiration date and other factors.

Butterfly Spread – A trading strategy consisting of the purchase of two identical options, together with the sale of one option with a higher strike price, and one option with an lower strike price.

(All options are of the same type, have the same underlying asset and the same expiration date.)

Calendar Spread – A trading strategy consisting of one long and one short option of the same type with the same exercise price, but which expire in different months.

Call – An options contract conferring the right to buy an underlying asset, such as 100 shares of stock, at a pre-set price, by a specified date.

Condor – A trading strategy consisting of the sale (or purchase) of two options with consecutive exercise prices, together with the sale (or purchase) of one option with a lower exercise price and one option with a higher exercise price.

Covered Call – A trading strategy which consists of holding a long position in an asset and selling call options on that same asset.

Delta - A ratio comparing the change in the price of an option to that of a change in the underlying asset.

Exercise Price – See Strike Price

Hedge – A technique of reducing risk by taking positions which tend to move in opposite directions.

Historic Volatility – (See Volatility) Calculated by using the standard deviation of underlying asset price changes from close to close trading for the prior 21 days.

Holder – The buyer of an option. (See Writer)

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

Intrinsic Value - The difference between the underlying asset's price and the strike price. (For both puts and calls, if the difference is negative, the value is given as zero.)

Last Trading Day - This is the final day when trading may occur in a given futures or options contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement.

Naked Option - An option written (sold) without a position in the underlying asset.

Option – A contract to buy (call) or sell (put) an underlying asset at a pre-set price by ('American style') or on ('European style') a specified date.

Open Interest - The total number of options contracts not closed or delivered on a given day.

Out-of-the-Money - An option whose exercise price has no intrinsic value.

Premium - The price an option buyer pays to an option seller.

Put - An option contract granting the right to sell an asset at a pre-set price within a specified time.

Straddle - A trading strategy consisting of a long (short) call and a long (short) put, in which both options have the same strike price and expiration date.

Strangle - A trading strategy consisting of a long (short) call and a long (short) put in which both options have the same expiration date, but different strike prices.

Strike Price - The price at which an underlying asset must be bought (call) or sold (put), if an option is exercised.

Time Value - The amount by which the current market price of a option exceeds its intrinsic value.

Volatility - A measurement of degree of change in price over a specified period of time.

Writer - The seller of either a call or put option.

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