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The rate of change in an option's delta for a one-unit change in the price of the underlying security. See also Delta.
Good Until Canceled (GTC)
A designation applied to some types of orders, meaning the order remains in effect until it is either filled or canceled. See also Stop Limited and, Trading Limit.
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A conservative strategy used to limit investment loss by effectinga transaction which offsets an existing position.
The mathematical quantity that is equal to the delta of an option. It is useful in that a theoretically neutral hedge can be established by taking offsetting positions in the underlying stock and its call options. See also Facilitation and Delta.
The purchaser of an option.
An option strategy in which the options have the same striking price, but different expiration dates.
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A measure of the volatility of the underlying stock, it is determined by using option prices currently existing in the market at the time rather than using historical data on the price changes of the underlying stock. See also Volatility.
Incremental Return Concept
A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he (she) has targeted to sell -- possibly at substantially higher prices.
A compilation of the prices of several common entities into a single number. See also Price-Weighted Index, Capitalization-Weighted Index.
An option whose underlying entity is an index. Most index options are cash-based.
An organization, probably very large, engaged in professional investing in securities. Normally a bank, insurance company, or mutual fund.
A term describing any option that has intrinsic value. A call option is in-the-money if the underlying security is higher than the striking price of the call. A put option is in-the-money if the security is below the striking price. See also Out-of-the-Money and Intrinsic Value.
The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money. For call options, this is the difference between the stock price and the striking price, if that difference is a positive number, or zero otherwise. For put options it is the difference between the striking price and the stock price, if that difference is positive, and zero otherwise. See also In-the-Money, Time Value Premium and Parity.
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Last Trading Day
The very last full day of open trading before an options expiration day, usually the third Friday of the expiration month.
Long-term Equity Anticipation Securities, or LEAPS®, arelong-term stock or index options. LEAPS®, like all options,are available in two types, calls and puts, with expirationdates up to three years in the future.
A risk-oriented method of establishing a two-sided position. Rather than entering into a simultaneous transaction to establish the position (a spread, for example), the trader first executes one side of the position, hoping to execute the other side at a later time and a better price. The risk materializes from the fact that a better price may never be available, and a worse price must eventually be accepted.
Letter of Guarantee
A letter from a bank to a brokerage firm which states that a customer (who has written a call option) does indeed own the underlying stock and the bank will guarantee delivery if the call is assigned. Thus the call can be considered covered. Not all brokerage firms accept letters of guarantee. Also: letter issued to O.C.C. by member firms covering a guarantee of any trades made by one of its customers, (a trader or broker on the exchange floor).
In investments, the attainment of greater percentage profit and risk potential. A call holder has leverage with respect to a stock holder - the former will have greater percentage profits and losses than the latter, for the same movement in the underlying stock.
See Trading Limit.
An order to buy or sell securities at a specified price (the limit). A limit order may also be placed "with discretion". In this case, the floor broker executing the order may use his (her) discretion to buy or sell at a set amount beyond the limit if he (she) feels it is necessary to fill the order.
A put or call option that is traded on a national options exchange. Listed options have fixed striking prices and expiration dates. See also Over-the-Counter Option.
A trader on a futures exchange who buys and sells for his own account and may sometimes also fill public orders.
A statistical distribution that is often applied to the movement of stock prices. It is a convenient and logical distribution because it implies that stock prices can theoretically rise forever but cannot fall below zero.
A position wherein an investor's interest in a particular seriesof options is as a net holder (i.e., the number of contractsbought exceeds the number of contracts sold).