Options Fundamentals

Assignment

Assignment occurs when an option seller is required to fulfil the contractual obligation associated with an exercised option.

At the Money

An option is at the money when its strike price is at or very close to the current price of the underlying asset. Example AMZN ≈ $260 $260 option ≈...

Breakeven Price

Breakeven price is the underlying price at which an options position reaches a defined zero profit or loss point under specified assumptions. For a...

Call Option

A call option gives its buyer the right, but not the obligation, to buy the underlying asset at the option's strike price according to the contract...

Contract Multiplier

The contract multiplier determines how the quoted option value translates into the economic value of the contract. For standard US equity options,...

Exercise

Exercise is the process through which an option holder uses the contractual right provided by the option. For a call, this generally means exercisi...

Expiration

Expiration is the point at which an option reaches the end of its contractual life and its remaining rights and obligations are determined accordin...

Expiration Date

The expiration date is the date associated with the end of an option contract's life, subject to the contract's exercise and settlement rules.

Extrinsic Value

Extrinsic value is the portion of an option's premium above its intrinsic value. In simplified form: Extrinsic Value = Option Premium − Intrinsic V...

In the Money

An option is in the money when it has intrinsic value based on the relationship between the underlying price and strike price. A call is in the mon...

Intrinsic Value

Intrinsic value is the amount by which an option is currently in the money. For a call: Intrinsic Value = max(Underlying Price − Strike Price, 0) F...

Long Option

A long option position exists when a trader owns an option contract. This could be: a long call or a long put.

Moneyness

Moneyness describes the relationship between an option's strike price and the price of its underlying asset. Options are commonly described as: In...

Option

An option is a financial contract that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price u...

Option Buyer

The option buyer is the party that pays the premium to acquire the rights provided by the option contract.

Option Chain

An option chain is a listing of available option contracts for an underlying asset, typically organized by expiration date, strike price and option...

Option Contract

An option contract defines the specific terms of an options position, including the underlying asset, option type, strike price and expiration. For...

Option Holder

The holder is the party that owns the option contract and therefore holds the rights provided by it.

Option Price

Option price is the market value at which an option contract is quoted or traded. It is commonly referred to as the option's premium.

Option Seller

The option seller is the party that sells an option and receives the premium in exchange for taking on the contractual obligation associated with t...

Option Writer

An option writer is the party that sells or creates the short side of an option contract and assumes the corresponding contractual obligation.

Out of the Money

An option is out of the money when it has no intrinsic value based on the current relationship between the underlying price and strike price. A cal...

Put Option

A put option gives its buyer the right, but not the obligation, to sell the underlying asset at the option's strike price according to the contract...

Short Option

A short option position exists when a trader has sold an option and holds the corresponding obligation associated with that contract.

Strike Price

The strike price is the price specified in an option contract at which the underlying asset can be bought or sold if the option is exercised accord...

Time Value

Time value is a commonly used term for the portion of an option's premium associated with the possibility that its value may change before expirati...