Options Glossary

American-Style Options

American-Style option contracts can be exercised at any time up to the option's expiration. Most U.S. listed stock options are American-style. Also, see European-Style Options.

Ask/Ask Price

The Ask Price, or inside ask, is the current price a seller is willing to accept for security. Also, see Bid/Bid Price.

At-The-Money (ATM)

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

Beta is a ratio measuring the movement of an underlying asset compared to the market as a 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 the beta is -1, then the asset moves exactly opposite of the market.

Beta Weighting

  • Beta Weighting allows you to view your portfolio as if it was the equivalent of that symbol, by modifying the value in the Delta column of each position to approximate the number of shares of that symbol. For example, if you beta weight your portfolio against the SPY and your deltas total 500, your portfolio approximates the equivalent to that of 500 shares of the SPY. This enables you to see your long/short delta exposure based on a single symbol, and may be useful to determine position adjustments and hedging.

    • Bid/Bid Price

    The Bid Price, or inside bid, is the current highest price that a buyer is willing to pay for a security. Also, see Ask/Ask Price.

    Buy To Close (BTC)

    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 (BTO)

    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 Close, Sell To Close, and Sell To Open.

    Call Option

    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

    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.

    Delta

    The amount that the option price will change for a one point change in the underlying asset.

    European-Style Options

    European-Style option contracts can only be exercised near the option's expiration, typically the last trading day before expiration. Also, see American-Style Options.

    Expected Value

    If a spread is traded a very large number of times, this is the amount that the trader can expect to win or lose on average for each trade. Positive values indicate that the spread has a profitable Expected Value. This column is available in the Search panel.

    The Expected Value is evaluated over an underlying price range of +/-3 standard deviations. Throughout this range, the spread value at each underlying price is multiplied by the probability of the underlying moving to that price. Finally, all of the resulting products are added together to arrive at the Expected Value. The Expected Value may also be described as the Mathematical Expectation1.

    1 The book The Mathematics of Options Trading by C.B. Reehl (ISBN 0-07-144528-5) was used as a reference for calculating the probability related columns. A specific trading example can be found on pages 123 – 129.

    Federal Funds Rate

    In the United States, the federal funds rate is the interest rate at which banks charge each other for loans.

    Gamma

    Gamma measures the expected change in an option's Delta for a 1-point change in the price of the underlying asset. This is used to estimate the Delta values as the asset price moves.

    Historical Volatility

    Historical Volatility (also called Hist 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 (ITM)

    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

    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, zero is used as the Intrinsic Value.

    The remaining premium that is not Intrinsic consists of Extrinsic Value.

    Mid Price

    The mid price is the average of the bid and ask prices, i.e.:

    (Bid + Ask) / 2 = Mid Price.

    Natural Price (also Natural)

    The price that is typically used when sending a market order. When buying an option, the natural price would be the ask. When selling an option, the natural price would be the bid.

    Option

    The right to buy or sell a specific security, within a specific time period, at a predetermined price.

    Option Symbology Initiative (OSI)

    TradeStation displays option symbols using the Option Symbology Initiative (OSI) style, for example:

    AAPL 180501C340

    Using this symbol, you can see the:

    • Underlying Asset (AAPL)
    • Expiration Date (180501 or June 1, 2018)
    • Option Type (C for call or P for put)
    • Strike Price (in this case, 340)

    Option Term

    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 has their own expiration specification that is consistent with their term, for instance, Weekly expires on the third Friday, while Quarterly expires the last business day of the quarter.

    Option Type

    Option Type refers to the two kinds of options – calls and puts. Also, see Call Option and Put Option.

    Out-Of-The-Money (OTM)

    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 strike price is lower than the underlying asset price. Also, see At-The-Money and In-The-Money.

    Physically Settled

    Physically settled options deliver the actual underlying; i.e., shares of stock, when the option is exercised. Also, see Cash Settled.

    PM Settled

    PM Settled options are settled after market hours based on the closing price of the underlying asset. Most US listed equity options are PM Settled.

    Pos Delta

    The total Deltas of a position (single spread Delta * # of spreads in position * # shares per contract).

    Premium

    The Premium is the total price of the option.

    Pricing Model

    There are several different pricing models used for calculating options prices. The Bjerksund-Stensland model (1993 and 2002) and the Black-Scholes model can be used in OptionStation Pro. Other popular models are the Binomial model, and the Black model (used for futures options).

    Put Option

    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.

    Put/Call Ratio

    The Put/Call Ratio is derived by dividing the put volume by the call volume. A number higher than 1 means 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

    The amount the option price will change for a one percentage point change in the risk-free interest rate.

    Sell To Close (STC)

    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 (STO)

    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.

    Shares per Contract (SPC)

    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 corporate action or event.

    Side

    In the Positions and Simulations panel, this column allows you to edit the Side field by selecting buy or sell. Doing so will reverse the number of contracts from positive to negative, or negative to positive, depending on the original disposition of the legs. In addition, it will reverse the remaining legs in the spread to retain the integrity of the original spread type. If the spread type is set to custom, however, the changes made are isolated to the selected spread leg.

    Spread

    A spread is when you have more than one option in an order or a position.

    Strike Price (also Strike)

    Strike prices are price points of the underlying asset that are usually incremented by 0.5, 1, 2.5, 5, or 10 points. 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 right to sell the underlying asset at the strike price.

    Symbol

    Shows the full Option Symbology Initiative (OSI) symbol for each leg. You can copy your symbol to the clipboard. The symbol is usually fixed and cannot be changed, except for changes in the expiration term, strike, or option type columns. A number after the option root between 1 – 6 (for example, SPY1) is an option that has undergone one or more corporate action(s), and a 7 indicates a mini option. An 8 or 9 indicates a mini option that has undergone one or more corporate actions.

    Theta

    Theta measures the amount of change in the option price for a one day change in the time to expiration. In other words, Theta measures the rate of decay in the option price.

    Underlying Asset

    The underlying asset, also called the underlying or underlier, is the security that an option is derived from. It can be a stock, index, or futures contract.

    Vega

    Vega represents the amount that the option price will change with a one percent change in volatility. The value of Vega is the same across calls and puts of the same strike price.

    Volume

    Volume measures the number of shares traded so far in the current day.