Option: related pages
American option An option which can be exercised at the strike price at anytime before the expiry date.
European option An option that can be exercised only at a pre-determined price on the expiry date.
Asian option An option that has an exercise price that is based on the average price of the underlying security over a period.
Exotic options Types of option more complex than the simple and common European, American and Asian varieties.
Binary options Options that either pay a fixed amount or nothing.
Barrier options A type of exotic option whose value depends on the underlying passing (or not) a particular price point.
Call option An option that gives the holder the right to buy a security.
Put option An option that gives its holder the right to sell the underlying security at a pre-determined price.
Contract for difference (CFD) An abbreviation of contract for difference. An agreement to pay an amount based on the change in some underlying number, not necessarily a security.
Covered warrants Derivatives very similar to options, giving the holder the right to buy or sell underlying securities at a fixed price; not the same as company issued share warrants.
Embedded option An option that is part of another security. It does not trade by itself, but it does affect the value of the security of which forms a part.
Exercise price The price at which a derivative gives the right (or obligation) to buy or sell the underlying security. Also known as the strike price.
Option writer A person who creates an option by selling an option to a buyer.
Black-Scholes The most widely used method of option valuation. More complex models are sometimes necessary as it uses a number of simplifying assumptions.
Put-call parity A relationship between the price of European call and put options on the same underlying, the underlying security, and the risk free rate.
Option value The difference between the intrinsic value of an option and its actual value is called the option value.
Intrinsic value The amount of money an option would make by exercising it immediately; the price difference between the strike price and the price of the underlying.
Short position An investor who has sold a security without owning it has a short position in it.
Greeks Measures of the rate of change (mathematically the derivative) of the price of a derivative security or portfolio with another quantity.
Copyright Graeme Pietersz © 2005-2019
