Stock Options Vocabulary 2
Exercise strike: the other name for strike price.
Exercise settlement amount: this is calculated by subtracting the exercise price of the option and the exercise settle value of the index in the day when the option was exercised, multiplied by the index multiplier.
Expiration date: the last day in which the holder can exercise the option by submitting an exercise notice.
Expiration time: this is the time by which the holder must submit his exercise notice during the expiration date.
Grant Date: the day in which a stock option is first offered or proposed to an individual
Hedge: is a strategy by which the investor performs a transaction which offsets or compensates for an existing, current position with the intention of limiting investment losses.
Holder: the person that buys the stock option.
Incentive Stock Option: is a kind of employee stock option that enjoys favorable tax treatment under section 422 of the Internal Revenue Code
In-the-money: a call option is said to be in-the-money if the option’s strike price is less than the amount as that of the underlying stock’s current fair market price whereas a put option is said to be in-the-money if the option’s strike price is more than the amount as that of the underlying stock’s current fair market price.
Intrinsic Value: the total by which a stock option is in-the-money.
LEAPS: is an acronym which stands for Long-term Equity AnticiPation Securities also know as long-term stocks or long-term index options that can be exercised for as long as three years.
Long position: a position by which an investor buys more stock options compared to those that he sells in the same series of options.
Margin requirement: the sum by which a naked or uncovered option writer is required to give to maintain a covered position.
Naked Writer: same as uncovered call writing or uncovered put writing.
Non-qualified Stock Option: a kind of employee stock option that does not qualify under section 422 or 423 of the Internal Revenue Code and therefore has no favorable tax treatment.
Opening purchase: is a transaction by which the buyer intends to make or add to his long position in a series of options.
Opening sale: is a transaction by which the seller intends to make or add to his short position in a series of options.
Open interest: constitutes of the total stock options that are still available in the stock market or in a given class or series of options.
Out-of-the-money: a call option is said to be out-of-the-money if the option’s strike price is more than the amount as that of the underlying stock’s current fair market price whereas a put option is said to be out-of-the-money if the option’s strike price is less than the amount as that of the underlying stock’s current fair market price.
Premium: is the amount by which the stock option is sold. This is determined by the interaction of the supply and demand of stock options and is paid by the buyer of the stock option to earn the right to exercise the stock option.