All or None Order: An order which must be filled for the full size of the order before it can be executed.

American-style Option: An option contract that may be exercised at any time between the date of purchase and the expiration date.

Ask: The price at which a seller will sell a security.

Assignment: The receipt of an exercise notice by an option writer (seller) that obligates them 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 or near the market price of the underlying security.

Bear Market: A term to describe a declining stock market.

Bid: The price at which a purchaser is willing to buy a security.

Bond: A certificate of debt, usually long-term, whereby the issuing company normally promises to pay the bond holder a specified amount of interest for a specified length of time, and to repay the loan on the expiration date.

Bull Market: A term to describe a rising stock market.

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Calendar Spread: The simultaneous sale and purchase of either calls or puts with the same strike price but different expiration months.

Call: An option contract that gives the holder the right, but not the obligation, to buy the underlying security at a specified price for a certain, fixed period of time.

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 Transaction: A transaction in which at some point prior to expiration, the option holder makes an offsetting sale of an identical option, or the option writer makes an offsetting purchase of an identical option. A closing transaction in an option reduces or cancels out an investor's previous position as the holder or the writer of that option.

Covered Call Option Writing: A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security.

Covered Put Option Writing: A strategy in which one sells puts and simultaneously is short an equivalent position in the underlying security.

Currency Option: The right to buy or sell one currency against another currency at a specified price during a specified period.

Day Order: An order which remains in effect only until executed or till the end of the trading day.

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Delta: The amount by which the price of an option will change for a corresponding change in the underlying security.

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

Dividend: The payment designated by the Board of Directors of a company to be distributed to shareholders.

Equity (or stock) Options: Options on shares of an individual common stock.

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

Ex-dividend: Or, "without dividend." A buyer of a stock that is selling "ex-dividend" does not receive the recently declared dividend. Dividends are payable on a fixed date to shareholders recorded on the books of the company as of a previous date of record.

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: The last day on which an option contract may be exercised. All holders of options must indicate their desire to exercise, if they wish to do so, by this date.

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

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Fill or Kill Order: An order which must be executed for the full size of the order when voiced or else cancelled.

Floor Broker: A participant who handles and executes orders in the trading crowd on an exchange floor.

Futures: Exchange traded contracts specifying a future date of delivery or receipt of a certain amount of a specific tangible or intangible product.

Good-till-Cancelled Order: An order which remains in effect until it is cancelled or executed.

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

Holder: The purchaser of an option.

Immediate or Cancel Order: An order which must be executed in whole or part when voiced or else cancelled.

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.

Intrinsic Value: The difference between the strike price and the market value of the underlying security for an in-the-money option. At-the-money and out-of-the money options have no intrinsic value.

Inverse (or European) Terms: An option quoted on a currency pair in the reciprocal. For example, an option on the Deutsche mark quoted in U.S. cents could be quoted in the inverse as an option on U.S. dollars quoted in Deutsche marks.

LEAPS®: Long-term Equity Anticipation Securities®, or LEAPS®, are long-term stock or index options with expirations dates available for up to three years in the future.

Limit Order: An order which may be executed only at the specified limit price, or better.

Liquidity: The ability of a market to provide a sufficient amount of bids and offers so as to assure fair prices.

Long Position: Signifies ownership of a financial instrument or an investor's interest in a particular series of options as a net holder (i.e., the number of contracts bought exceeds the number of contracts sold).

Margin: Refers to the cash or securities required to be deposited with a brokerage firm or clearing firm as collateral.

Market Order: An order which must be executed at the prevailing best bid or offer.

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Notice of Exercise: The notice originated by an option holder and assigned to an option writer stating that an option is being exercised.

Opening Transaction: A purchase or sale transaction by which a person establishes or increases a position as either the holder or the writer of an option.

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

Options Clearing Corporation, The (OCC): The OCC is the registered clearing agency of all options listed on stock exchanges in the United States and is subject to regulation by the Securities and Exchange Commission (SEC). The OCC is rated 'AAA' by the rating agency of Standard and Poor's Corporation.

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.

Position Limits: An exchange rule limiting the maximum number of options on the same side of the market with respect to a single underlying security that may be held or written by a single investor or group of investors acting in concert. These limits differ for options on different underlying stocks, indices and currencies.

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, but not the obligation, to sell the underlying security at a specified price for a certain fixed period of time.

Quote: The highest bid to buy and the lowest offer to sell a security in a given market at a given time.

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Record date: The last date in which a shareholder must be registered with a company in order to receive a declared dividend or to vote on company matters.

Registered Options Trader (ROT): A participant on the exchange trading for their own or their firm's account who is responsible for making two-sided markets in response to requests. Also referred to as a market maker.

Regular Way Delivery: Unless otherwise specified, securities sold are to be delivered to the buying broker by the selling broker and payment made to the selling broker on the third business day after the transaction.

Secondary Market: A market that provides for the purchase or sale of previously sold or bought options through closing transactions or for securities after the completion of the primary distribution.

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

Settlement: The conclusion of a securities or options transaction when a customer pays a broker/dealer for securities or options purchased or delivers securities or options sold and receives from the broker the proceeds of the sale.

Short Position: The amount of stock that an individual has sold and is not owned or 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).

Specialist: A participant of the exchange who trades for their firm's or their own account and is responsible for maintaining a fair and orderly market in whatever issue has been allocated to them by providing bid and ask markets. They are also responsible for orders entrusted to them for execution.

Spread: A strategy involving the simultaneous sale and purchase of two different series of options with different strike prices or expiration months.

Stop order: An order to buy or sell at a specific price or better. A stop order becomes a market order when the stock sells at or beyond the specified price and may not be executed at that price.

Stop limit order: An order which becomes eligible for execution at a specified limit price when the stop price is reached.

Straddle: The simultaneous sale or purchase of both a call and a put with the same expiration month and with the same strike price.

Strangle: The simultaneous sale or purchase of both a call and a put with the same expiration month and different strike prices.

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.

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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 Option Writing: A short call option position in which the writer does not own an equivalent position in the underlying security represented by their option contracts.

Uncovered Put Option 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.

Vertical Spread: The simultaneous sale and purchase of either calls or puts with the same expiration month but different strike prices.

Volatility: A measure of the fluctuation in the market price of a security. Mathematically, volatility is the annualized standard deviation of returns.

Writer: The seller of an options contract.
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