Thread by @3Stocksaday

Some Option Definitions:

American Style Option - An option contract that may be exercised at any time between the date of entry and the
expiry. Most US and ASX options are American style.

Ask Price - The price at which a seller is offering to sell an option or stock

Assignment - The receipt of an exercise notice by an option seller that obligates him to honour the option contact
at the specified strike price.

At-the-money - The strike price of the option is equal to the current price of the underlying share

Automatic Exercise - A protection procedure whereby there is an exercise of the option if it is in the money
on expiry on behalf on the holder

Bid Price - The price at which a buyer is willing to buy an option or stock.

Black Scholes - A formula commonly used to determine the fair price of an option taking into account underlying
price, time and volatility

Break-even - The price point at which the cost of a position is offset by the growth in its Value

Buy to open - Buy an option to open a new contract

Buy to close - Buy an option to close an existing sold contract

Buy-write - Covered call approach that involves buying stock and immediately selling a call

Clearing House - A regulated body that ensure an orderly options market. The source of cash margin for uncovered
sold options positions

Collateral - The loan value of marginable securities. These may offset the necessity for a "cash-margin'' in
uncovered sold options positions

Combination - A general term for any position involving two or more option legs e.g. Spreads/butterfly

Contango - A term originating from the oil market that indicates normal market conditions. This is when further
month implied volatility is higher than nearer month

Contract size – The amount of underlying asset covered by the option contract. This is generally 100.

Cover – To buy to close a previously sold option.

Credit Spread –An option spread in which the premium received from the sold leg is larger than the premium paid
for the bought leg, so bringing money into the account. Such positions are usually subject to a cash margin
requirement

Day order – An order that expires at the end of the trading day if not executed

Debit Spread – An option spread in which the premium received from the sold leg is less than the premium paid
for the bought leg, thereby bringing money into the account

Exercise – To follow through on the rights of holding of an option, to buy (in the case of a call) or sell (in the case
of a put) the underlying security.

Exercise Price – The price at which the option holder may buy or sell the underlying security. (see also strike price)

Delta – The amount the value of an option will change for a 1c change in price in the underlying share

Gamma – The rate of change in an option's delta for a one cent change in the price of the underlying security.

Greeks – A set of mathematical variables involved in the calculation of stock option prices e.g. Delta, Theta (time)

Extrinsic Value – Also known as "Premium Value" or "Time Value". It is the difference between an option's price
and the intrinsic value

Fair Value – the worth of an option or futures contract as determined by a mathematical model.Also sometimes used to indicate intrinsic value

In-the-money – An option that has some intrinsic value (i.e. Will have some value if today was the expiry day). E.g.
in a call option - the strike price is lower than the current share price

Leg – In an option strategy involving one than one particular option, each option is known as a leg

Legging In – Entering/Exiting each leg of a combination options trading position separately.

Limit Order - An order to buy or sell at a specified price (the limit).

@UnrollHelper