OptionStation Pro
American-Style option contracts can be exercised at any time up to the option's expiration. Most US listed stock options are American-style.
The Ask Price, also called offer or simply ask, is a price a seller is willing to accept for stock, option, or any other trading instrument. Also, see Bid Price.
An option is At-The-Money when the strike price is the same as the underlying asset price. Also, see In-The-Money and Out-Of-The-Money.
Beta is a ratio measuring the movement of an underlying asset compared to the market as whole – typically the S&P 500. If the beta equals 1, then the asset moves very closely to the market. If the beta is greater than 1, then the asset moves more aggressively than the market. If beta is -1, then the asset moves exactly opposite of the market.
The Bid Price or simply Bid is the highest price that a buyer is willing to pay for a stock, option or other trading instrument. Also, see Ask Price.
Buy To Close is closing a short position by buying the option back. Since an option can be bought to open or bought to close, BTC makes it clear the intent is to close the position. Also, see Buy To Open, Sell To Close, and Sell To Open.
Buy To Open is opening a long position by buying the option. Since an option can be bought to open or bought to close, BTO makes it clear the intent is to open a position. Also see Buy To Open, Sell To Close, and Sell To Open.
A Call option, or simply “Call”, is a contract that gives the owner the right to buy the underlying asset at the option’s strike price. If the owner exercises the right to buy, a seller of the same Call option has the obligation to provide the underlying asset to the owner.
Cash settled options deliver the cash value of the underlying security when the option is exercised. Index options are typically cash settled. Also, see Physically Settled.
In the United States, the federal funds rate is the interest rate at which banks charge each other for loans.
As an underlying asset moves up and down in price, the rate that an option price changes (the Delta) moves up and down as well. The Gamma represents how fast or slow the Delta will change with each $1.00 move in the underlying asset.
The value of Gamma is the same across calls and puts of the same strike price. Also, see Delta.
Historical Volatility is a percentage calculated by the actual price changes of an underlying asset over a specific period of time. Sometimes this value is called Statistical Volatility.
In-The-Money is the term used, in the case of a call option, when the underlying asset price is higher than the strike price. For a put, an option is ITM when the underlying asset price is lower than the strike price of the option. Also, see At-The-Money and )Out-Of-The-Money.
Intrinsic Value refers to the ITM (In-the-Money) portion of the option premium and is the difference between the underlying asset price and the strike price, i.e.:
Calls: AssetPrice – StrikePrice = Intrinsic Value
Puts: StrikePrice – AssetPrice = Intrinsic Value
If the calculation results in a negative number, the zero is used as Intrinsic value.
The remaining premium that is not Intrinsic consists of Extrinsic value.
The Mid price is the average of the Bid and Ask prices, i.e.:
(Bid + Ask) / 2 = Mid Price. Also, see Natural Price.
The Natural price is what is typically used when sending a market order. In the case of buying an option, the natural price would be the Ask. When selling an option, the natural price would be the Bid. Also, see Mid Price.
An Option is a derivative financial instrument based on the price of an underlying asset like a stock, index, or futures. Options are bought and sold by contracts representing 100 shares of stock per contract, and expire over time.
For over 3 decades, the symbols used to represent options were cryptic and difficult to determine what underlying asset they belonged to – much less what option type was or when it expired. The Option Symbology Initiative (OSI) has changed that as of February of 2010.
Here is an example of how TradeStation displays an option symbol using the new OSI style.
AAPL 110701C340
Using this symbol, you can see the:
- Underlying Asset (AAPL)
- Expiration Date (110701 or July 1, 2011)
- Option Type (C for call or P for put)
- Strike Price (in this case 340 strike)
An underlying asset can have options that last different amounts of time. This is the Term of the option. Option terms can include Weekly, Monthly, Quarterly, or EOM (End of Month). Each have their own expiration specification that is consistent with their term, for instance, Monthly expires the Saturday after the third Friday when Quarterly expires the last business day of the quarter.
Option Type refers to the two kinds of options – Calls and Puts. Also, see Call Options and Put Options.
Out-Of-The-Money is the term used, in the case of a call option, when an option’s strike price is higher than its underlying asset price. For a put, an option is OTM when its price is lower than the underlying asset price. Also, see At-The-Money and In-The-Money.
Physically settled options deliver the actual underlying security, i.e., shares of stock, when the option is exercised. Also, see Cash Settled.
PM Settled options are settled after market based on the closing price of the underlying asset. Most US listed equity options are PM Settled. Also, see AM Settled.
The Premium is the total price of the option.
Options calculate their price by using what is called a Pricing Model. There are several different pricing models used for different purposes. The most well-known is the Black-Scholes model which is used in OptionStation Pro. Other popular models are Bjerksund-Stensland model (1993 and 2002), the Binomial model, and the Black model (used for futures options).
A Put option or simply “Put” is a contract that gives the owner the right to sell the underlying asset at the option’s strike price. If the owner exercises the right to sell, a seller of the same Put option has the obligation to buy the underlying asset from the owner for the option’s strike price.
The Put/Call Ratio is derived by dividing the Put Volume by the Call Volume. A number higher than 1 says there are more puts being traded than calls. Likewise, if the ratio is less than 1, then more calls are being traded than puts.
Rho is considered to be one of the Greeks. Rho measures the amount an option price will change for each percent change in interest rates.
Calls have a positive Rho whereas Puts have a negative Rho. Selling options reverse this.
Sell To Close is closing a long position by selling the option. Since an option can be sold to open or sold to close, STC makes it clear the intent is to close a position. Also, see Buy To Open, Buy To Close, and Sell To Open.
Sell To Open is opening a short position by selling the option. Since an option can be sold to open or sold to close, STO makes it clear the intent is to open a position. Also, see Buy To Open, Buy To Close, and Sell To Close.
An option contract represents the control of a number of shares of the underlying asset. The number of shares is typically 100, however this can change due to a stock split.
A Spread is simply a combination of different options into one trade. The options can differ in type (call or put), direction (long or short), strike, and/or month.
Strike Prices are price points of the underlying asset – usually incremented by 1, 2.5, 5, or 10 dollars. Each option has a strike price associated with it.
The call option owner has the right to buy the underlying asset at the strike price. The put option owner has the obligation to sell the underlying asset at the strike price.
Theta is considered to be one of the Greeks. Theta measures the amount of change in the option price for each day closer to expiration. In other words, Theta measures the rate of decay in the option price.
The Underlying Asset is the security that an option is derived from. It can be a stock, index, or futures.
Vega is considered to be one of the Greeks. Vega represents the amount that the option price will change with each percent change in volatility. The value of Vega is the same across calls and puts of the same strike price.
Volume measures the number of trading transactions that have occurred in a day.