Option price

Similar financial terms

Up-and-Out Option
An option that ceases to exist when the price of the underlying asset increases to a set level.

Up-and-In Option
An option that comes into existence when the price of the underlying asset increases to a set level.

Synthetic Option
A synthetic is an option created by trading the underlying asset.

Swing Option
A swing option are found in the energy market. Its value depends on the consumption of energy, which must be between a minimum and maximum level. There is usually a limit on the number of times the option holder can change the rate at which the energy is consumed.

Static options replication
A static options replication is a procedure for hedging a portfolio that involves finding another portfolio of approximately equal value on some boundrary.

Spread option
AN option where the payoff depends on the difference between two market variables.

Exotic option
A non-standardized option

Real option
An option involving real (as opposed to financial) assets where. Real assets include land. plant, and machinery.

Option class
All options of the same type (call or put) on a particular stock.

Abandonment option
The option of terminating an investment earlier than originally planned.

Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Wild card option
The right of the seller of a Treasury Bond futures contract to give notice of intent to deliver at or before 8:00 p.m. Chicago time after the closing of the exchange (3:15 p.m. Chicago time) when the futures settlement price has been fixed.

American option
An option that may be exercised at any time up to and including the expiration date.

American-style option
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

Virtual currency option
An option contract introduced by the PHLX in 1994 that is settled in US$ rather than in the underlying currency. These options are also called 3-Ds (dollar denominated delivery).

Two-state option pricing model
An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

Timing option
For a Treasury Bond or note futures contract, the seller's choice of when in the delivery month to deliver.

Time value of an option
The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.

Tax-timing option
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and defer the capital gains tax.

Tax deferral option
The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is payable only when the gain is realized by selling the asset.

Stock option
An option in which the underlying is the common stock of a corporation.

Stock index option
An option in which the underlying is a common stock index.

Split-fee option
An option on an option. The buyer generally executes the split fee with first an initial fee, with a window period at the end of which upon payment of a second fee the original terms of the option may be extended to a later predetermined final notification date.

Quality option
Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury note futures contract.

Put option
This security gives investors the right to sell (or put) 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.

Put an option
To exercise a put option.

Postponement option
The option of postponing a project without eliminating the possibility of undertaking it.

Path dependent option
An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.

Out-of-the-money option
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

Options on physicals
Interest rate options written on fixed-income securities, as opposed to those written on interest rate futures contracts.

Options contract multiple
A constant, set at $100, which when multiplied by the cash index value gives the dollar value of the stock index underlying an option. That is, dollar value of the underlying stock index = cash index value x $100 (the options contract multiple).

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).

Option-adjusted spread (OAS)
(a) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (b) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.

Option writer
An option writer is the option seller.

Option seller
Also called the option writer , the party who grants a right to trade a security at a given price in the future.

Option premium
The option price.

Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale.

Option elasticity
The percentage increase in an option's value given a 1% change in the value of the underlying security.

Option
Gives the buyer the right, but not the obligation, to buy or sell an asset 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 beca ...

Naked option strategies
An unhedged strategy making exclusive use of one of the following: Long call strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying put options ), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security.

Multi-option financing facility
A syndicated confirmed credit line with attached options.

Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.

Lookback option
An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.

Knock-in option
An option that begins to function as a normal option ("knocks in") once a certain price level is reached before expiration. Might not knock in at all.

Knock-out option
An option with a built in mechanism to expire worthless should a specified price level be exceeded.

Bargain-purchase-price option
Gives the lessee the option to purchase the asset at a price below fair market value when the lease expires.

Barrier options
Contracts with trigger points that, when crossed, automatically generate buying or selling of other options. These are very exotic options.

Basket options
Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of exchange. A basket option is generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an option on a basket of currencies than to buy ...

Binomial option pricing model
An option pricing model in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Call an option
To exercise a call option.

Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Chicago Board Options Exchange (CBOE)
A securities exchange created in the early 1970s for the public trading of standardized option contracts.

Compound option
Option on an option.

Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying.

Currency option
An option to buy or sell a foreign currency.

Dealer options
Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.

Ho-Lee Option Model
An arbitrage free model which uses an estimated spot curve to evaluate embedded options in credit or fixed income securities.

London Option
A generic term sometimes used to describe options on physical commodities or on futures contracts traded abroad (typified by options on London commodity markets). These options, which often had nothing whatsoever to do with legitimate foreign markets, gained notoriety--prior to their ban in the United States in 1978--because of the sales practices and fraud allegations associated with the American dealers who sold them.

Seller's Option
The right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.

Transferable Option
A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.

Exercise price
Price at which the holder of an option can buy (call option) or sell (put option) the underlying stock. Also referred to as strike price.

Ask price
The price at which a market maker is prepared to sell a security. Also known as offer price.

Offer price
The price at which a market maker is prepared to sell a security. Also known as ask price.

Bid price
The price at which a market maker is prepared to buy a security.

Settlement price
The average of the prices that a futures contract trades for immediately before the bell signaling the close trading for a day. It is used in mark-to-market calculations.

Variable price security
A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.

Transfer price
The price at which one unit of a firm sells goods or services to another unit of the same firm.

Theoretical futures price
Also called the fair price, the equilibrium futures price.

Subscription price
Price that the existing shareholders are allowed to pay for a share of stock in a rights issue.

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.

Stated conversion price
At the time of issuance of a convertible security, the price the issuer effectively grants the security holder to purchase the common stock, equal to the par value of the convertible security divided by the conversion ratio.

Spot price
The current marketprice of the actual physical commodity. Also called cash price.

Reverse price risk
A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an investor at rates prevailing at application but sets the note rates when the borrowers close. The lender is thus exposed to the risk of falling rates.

Put price
The price at which the asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option.

Price-volume relationship
A relationship espoused by some technical analysts that signals continuing rises and falls in security prices based on accompanying changes in volume traded.

Price-specie-flow mechanism
Adjustment mechanism under the classical gold standard whereby disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments back in balance.

Prices
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.

Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in the price of the bond if the required yield changes by one basis point.

Priced out
The market has already incorporated information, such as a low dividend, into the price of a stock.

Price takers
Individuals who respond to rates and prices by acting as though they have no influence on them.

Price risk
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell his originated loans at a discount.

Price elasticity
The percentage change in the quantity divided by the percentage change in the price.

Price discovery process
The process of determining the prices of the assets in the marketplace through the interactions of buyers and sellers.

Price compression
The limitation of the price appreciation potential for a callable bond in a declining interest rate environment, based on the expectation that the bond will be redeemed at the call price.

Price/sales ratio
Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.

Price/earnings ratio
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.

Opening price
The range of prices at which the first bids and offers were made or first transactions were completed.

Nominal price
Price quotations on futures for a period in which no actual trading took place.

Minimum price fluctuation
Smallest increment of price movement possible in trading a given contract. Also called point or tick. The zero-beta portfolio with the least risk.

Maximum price fluctuation
The maximum amount the contract price can change, up or down, during one trading session, as fixed by exchange rules in the contract specification.

Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.

Market conversion price
Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios consisting of stocks with a high price-earnings ratio.

Low price
This is the day's lowest price of a security that has changed hands between a buyer and a seller.

Limit price
Maximum price fluctuation

Law of one price
An economic rule stating that a given security must have the same price regardless of the means by which one goes about creating that security. This implies that if the payoff of a security can be synthetically created by a package of other securities, the price of the package and the price of the security whose payoff it replicates must be equal.

Basis price
Price expressed in terms of yield to maturity or annual rate of return.

Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Clean price
Bond price excluding accrued interest.

Consumer Price Index
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S. Department of Labor publishes the CPI very month.

Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.

Daily price limit
The level within many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.

Equilibrium price
The price when the supply of goods matches demand.

Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the expected return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the additional expected return needed to compensate for a unit change in risk. The equation of the CML is defined by the Capital Asset Pricing Model (CAPM).

Known price item
When a good whose price is widely known by members of the public is priced to attract customers.

Variable Price Limit
A price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.

Commodity Price Index
Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities (for example, grains or livestock).

Price discrimination
Price discrimination occurs whenever a firm charges differential prices across customers that are not related to differences in production and distribution costs. Thus, discriminating firms seek to exploit the perceived consumer surplus and maximize producer surplus.