Glossary of Options

OPTION TYPES

Call - The right, not the obligation, to buy stock at a specific price. The call buyer owns the right, whereas the call seller has the obligation.

Put - The right, not the obligation, to sell stock at a specific price. The put buyer owns the right, whereas the put seller has the obligation.

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OPTIONS CONTRACTS

Notional Contract Size – Represents the amount of the underlying asset controlled by one options contract. For example, one standard listed options contract controls 100 shares of stock.

Contract Multiplier - Represents the number of underlying assets (shares) controlled by an options contract. For standard equity options, one contract controls one hundred shares of the underlying. The contract multiplier in this case is 100 [1:100].

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UNDERLYING ASSETS

Stock – A security that represents partial ownership (measured in shares) of a company. Options contracts on single-name stocks derive their value from the price of the underlying shares.

Index – An indicator or measurement tool that tracks the performance of a group of assets or a basket of securities. Options on an index are typically cash-settled because the index itself is not directly tradeable.

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EXPIRATION

Expiry/Expiration - The specified date and time when the options contract ends (or expires).

LEAPS [ Long-Term Equity Anticipation Securities ] – LEAPS options have the same characteristics as those of standard listed options, but with expiration dates up to three years in the future.

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MONEYNESS

Strike Price - The price paid or received for the underlying asset if the options contract is exercised.

· At-the-Money – Describes an options contract that has a strike price equal to the market price of the underlying asset.

· In-the-Money -

Calls – A call option is described as “in-the-money” or ITM if the market price of the underlying asset is above the strike price.

Puts – A put option is described as “in-the-money” or ITM if the market price of the underlying asset is below the strike price.

· Out-of-the-Money -

Calls – A call option is described as “out-of-the-money” or OTM if the market price of the underlying asset is below the strike price.

Puts – A put option is described as “out-of-the-money” or OTM if the market price of the underlying asset is above the strike price.

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PREMIUM

Premium/Price - The amount paid or received for the options contract.

Intrinsic Value – Represents the “current value” portion of an option, which is the difference between the current price of the underlying and the strike price of the option. The intrinsic value is the amount an option is “in-the-money.” For example, stock XYZ is trading at $200. The 195 calls can be described as in-the-money and have $5 of intrinsic value.

Time Value – Represents the portion of the option’s premium based on the amount of time remaining until its expiration date. Time value is often estimated as the difference between the option’s premium and its intrinsic value.

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OPTION GREEKS

Greeks - Measures that determine the sensitivity of the option’s price to changes in certain variables like the price of the underlying asset, the rate of change in the price of the underlying asset, time decay, implied volatility, and interest rates.

Delta - Measures the change in the option price given a $1 change in the price of the underlying asset.

Gamma - Measures the change in Delta for a $1 change in the price of the underlying asset.

Theta - Measures the change in the option price as time to expiration decreases. Also known as time decay. Since both puts and calls are susceptible to time decay, theta is always expressed as a negative number.

Vega - Measures the change in the option price for a 1% change in the implied volatility of the underlying asset. Recall that volatility is simply a measure of the amount a stock price fluctuates. It is worth mentioning that there are two types of volatility: historical and implied. Historical volatility is calculated using past, or historical, prices of the stock. Implied volatility is a forward-looking measure that is calculated using an options pricing model and the current option price as an input to “imply” the future volatility of the stock.

Rho - Measures the change in the option price for a 1% change in the risk-free interest rate.

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WHAT IS THE OCC?

OCC [Options Clearing Corporation] - Established in 1973, the OCC is the only company that clears and settles every listed options trade in the U.S. This means that it functions “as the buyer to every seller and the seller to every buyer” in the U.S. listed options market. It plays a key role by promoting stability and financial integrity in the marketplaces, overseeing options' exercise and settlement processes, and managing the risks involved in the clearing and settlement process itself. By acting as guarantor, the OCC ensures that the obligations of the contracts it clears are fulfilled.

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-Powered by The Options Institute

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Disclaimer: Cboe and Webull are separate and unaffiliated companies. This content is provided by Cboe and does not reflect the official policy or position of Webull. This content is for educational purposes only and is not investment advice or a recommendation or solicitation to buy or sell securities.

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