Strike Price
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
Underlying Security(1) For options, the security subject to being purchased or sold upon exercise of an option contract. For example, IBM stock is the underlying security to IBM options.
(2) For depository receipts, the class, series and number of the foreign shares represented by the depository receipt.
Call(1) An option pursuant to which the seller (writer) of the option is obligated to sell, and the holder of the option has the right but not the obligation to purchase, the underlying security at a specified price at any time until the option expires.
(2) An option that gives the right to buy the underlying futures contract.
PutAn option granting the right to sell the underlying futures contract. Opposite of a call.
Options ContractA contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).
Options ContractA contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).
Options Contract
A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).
Put optionA security that gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.
Derivative Instrument
(1) A contract, such as an option or futures contract, whose price is derived from the price of the underlying financial asset.
(2) A financial obligation that derives its precise value from the value of one or more other instruments (or assets) at that same point in time
CBOE
Chicago Board Options Exchange. A Chicago-based securities exchange that revolutionized options trading by creating standardized, listed options in 1973. Before 1973, options were individually tailored and traded "over-the-counter" by a few put/call dealers. CBOE established a secondary market where options could be traded.
The growth in the use of options propelled CBOE to become the world's largest options exchange, and the second largest securities exchange in the US. Today, CBOE captures the largest share of the US options market by trading more than 700,000 option contracts daily.
For more information, see the CBOE web site
Futures Contract
A standardized agreement to purchase or sell a defined amount of a particular security or commodity at a fixed price on a set future date. The buyer (or long) agrees to take delivery at expiration, while the seller (or short) agrees to deliver when the contract expires. The contract is subject to the terms and conditions established by a federally designated contract market upon which trading is conducted. Since futures contracts are transferable, they are themselves are often traded on the futures market.
A futures contract differs from an option in that an option is a right to buy or sell, whereas a future is a promise to actually make a transaction.
A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.
Underlying
The item of value that the parties agree to exchange in a derivative contract.
Option
(1) An agreement that conveys the right, but not the obligation, to buy (receive) or sell (deliver) a specific property at a stipulated price and within a stated period of time.
(2) An agreement that gives the buyer the right, but not the obligation, to buy or sell a security at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option.
An option is part of a class of securities called derivatives, so named because these securities derive their value from the worth of an underlying investment. A call is an option contract to buy (from the writer of the call) shares of stock at a stated price, expiring on the stated date. A put is an option contract to sell shares of stock at a stated price, expiring on a stated date.
Options may be traded on the Chicago Board Options Exchange (CBOE), thereby providing standardization of securities option contracts and trading practices.
ADR
American Depositary Receipt. American certificates of deposit issued by a US depositary bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share, or a bundle of shares in a foreign corporation.
ADRs facilitate the financing of foreign companies in the US. As foreign shares are deposited abroad, the equivalent ADRs are issued to buyers in the US. When transactions are made, the ADRs change hands, not the foreign stock certificates. This eliminates the actual shipment of stock certificates between the US and foreign countries and expedites arbitrage transactions in securities traded on foreign exchanges.
If the ADRs are sponsored, the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADRs. Un sponsored ADRs do not receive such assistance.
ADRs carry the same currency, political and economic risks as the underlying foreign shares. The prices of the two are kept essentially identical by arbitrage.
American depositary shares (ADSs) are a similar form of certification.
Futures Contract
A standardized agreement to purchase or sell a defined amount of a particular security or commodity at a fixed price on a set future date. The buyer (or long) agrees to take delivery at expiration, while the seller (or short) agrees to deliver when the contract expires. The contract is subject to the terms and conditions established by a federally designated contract market upon which trading is conducted. Since futures contracts are transferable, they are themselves are often traded on the futures market.
A futures contract differs from an option in that an option is a right to buy or sell, whereas a future is a promise to actually make a transaction.
A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.
Strike Price
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
