Education > Investing > Options > Options Terminology

Options Terminology

  • At-the-money. This occurs when the price of the underlying asset is the same as the strike price of the option.

  • ATM. Abbreviation for "at the money".

  • Contract Size. Refers to the amount of the underlying asset. For stock options it is 100 shares per option.

  • Exercise. Electing to buy or sell the underlying security at the strike price.

  • Expiration date. The date on which the option expires.

  • Implied volatility. This is the estimation of the volatility of the underlying security during the life of the option.

  • Intrinsic Value. The amount of profit that would be realized if the option were to be exercised. This is determined by the amount that the option is in-the-money.

  • In-the-money. For a call option this means that the price of the underlying asset is above the strike price of the option. For a put option this means that the price of the underlying asset is below the strike price of the option. This is sometimes abbreviated as "ITM".

    Example: If a stock is trading at $54 then a call option with a strike price of $50 would be in the money by $4 and a put option with a strike price of $60 would be in the money by $6.

  • Near-the-money. "Near-the-money" is a more informal term meaning that the price of the underlying is near the strike price.

  • Out-of-the-money. For a call option this occurs when the price of the underlying asset is below the strike price of the option. For a put option this means that the price of the underlying asset is above the strike price of the option. This is sometimes abbreviated as "OTM". Out-of-the-money options have only time value and no intrinsic value.

    Example: If a stock is trading at $54 then any call option with a strike price above $54 would be out-of-the-money. And any put options with a strike price below $54 would be out-of-the-money.

  • OTM. Abbreviation for "out of the money".

  • Premium. To the buyer, this is the cost of the option. To the writer, this the amount of money received for selling the option.

  • Strike price. The price at which the option can be exercised. Also, the price at which the option begins to build intrinsic value.

  • Time Value. The value of the time remaining before expiration. Also, the portion of the value that exceeds intrinsic value. At expiration the time value is always zero.

  • Weeklys. Options that only have one week of time value when they are listed.

Stocks

Intro to Stocks
Types of Stocks
IPOs
IPO fraud
Trading IPOs
Poison Pill

Bonds

Intro to Bonds
Bond Prices
Bond Risks
Types of Bonds
Muni Bonds
Terminology

Options

Intro to Options
Types of Options
Options Terminology
Advantages & Disadvantages
Options Valuation
Implied Volatility

Strategies

Emerging Markets

Analysis

Cash Flow Valuation