Stock option

Similar financial terms

Dual-class stock
Two (or more) classes of common stock with equal rights to cash flows but with unequal voting rights

Stock index
A stock index tracks changes in the value of a hypothetical portfolio of stocks. The major stock indices in the world are the NASDAQ Composite, S&P 500 and Dow Jones Index.

Nikkei 225 Stock Average
The Nikkei 225 Stock Average (NIKKEI 225) is based on a portfolio of 225 of the largest stocks trading on the Tokyo Stock Exchange. Stocks are weighted according to their prices.

High-tech stock
Stocks of corporations and companies operating in the high-technology market segments.

Oslo Stock Exchange
In the early 1800s, Norway was a country of farmers and fishermen. Christiania, as the capital city was then called, had just 10,000 citizens. The Norwegian economy was weak, and money was scarce. This had a crushing effect on business and industry, and it was decided that the country needed a commercial exchange to encourage greater commercial activity.

The merchant Nicolay Andresen is generally recognised as the "father" of the Oslo stock exchange. He made the first proposal for a com ...

Capital stock
The value of an outstanding share of stock at the time it was issued

Common stock ratio
A ratio showing the portion of total capitalization represented by common stock and retained earnings. To calculate, add the dollar value of common stock plus retained earnings and divide by total capitalization; the result is expressed as a percentage

Convertible preferred stock
Stock that can be converted to common stock if the investor wishes, at a set price per share or by a specified deadline.

Acquisition of stock
:A merger or consolidation in which an acquirer purchases the acquiree's stock.

Adjustable rate preferred stock (ARPS)
Publicly traded issues that may be collateralized by mortgages and MBSs.

American Stock Exchange (AMEX)
The second-largest stock exchange in the United States. It trades mostly in small-to medium-sized companies.

Treasury stock
Common stock that has been repurchased by the company and held in the company's treasury.

Stockout
Running out of inventory.

Stockholder's equity
The residual claims that stockholders have against a firm's assets, calculated by subtracting total liabilities from total assets.

Stockholder's books
Set of books kept by firm management for its annual report that follows Financial Accounting Standards Board rules. The tax books follow IRS tax rules.

Stockholder
Holder of equity shares in a firm.

Stock ticker
This is a lettered symbol assigned to securities and mutual funds that trade on U.S.financial exchanges.

Stock split
Occurs when a firm issues new shares of stock but in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices. For example, if Cisco trades at $100 before a 2-for-1 split, after the split it will trade at $50 and holders of the stock will have twice as many shares than they had before the split.

Stock replacement strategy
A strategy for enhancing a portfolio's return, employed when the futures contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills portfolio and a stock portfolio.

Stock market
Also called the equity market, the market for trading equities.

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

Stockholder equity
Balance sheet item that includes the book value of ownership in the corporation. It includes capital stock, paid in surplus, and retained earnings.

Stock selection
An active portfolio management technique that focuses on advantageous selection of particular stocks rather than on broad asset-allocation choices.

Stock repurchase
A firm's repurchase of outstanding shares of its common stock.

Stock exchanges
In the US, a stock exchange is a formal organization, approved and regulated by the Securities and Exchange Commission (SEC). The SEC are made up of members that use the facilities to exchange certain common stocks. The two major US stock exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati. The Arizona stock exchange is an after hours electronic marketpla ...

Stock dividend
Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.

Stock
Ownership of a corporation which is represented by shares which represent a piece of the corporation's assets and earnings.

Reverse stock split
A proportionate decrease in the number of shares, but not the value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. After the reverse split, the firm's stock price is, in this example, worth three times the pre-reverse split price. A firm generally institutes a reverse split to boost its stock's market price and ...

Repurchase of stock
Device to pay cash to firm's shareholders that provides more preferable tax treatment for shareholders than dividends. Treasury stock is the name given to previously issued stock that has been repurchased by the firm. A repurchase is achieved through either a dutch auction, open market, or tender offer.

Preferred stock agreement
A contract for preferred stock.

Preferred stock
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares characteristics of both common stock and debt.

Preference stock
A security that ranks junior to preferred stock but senior to common stock in the right to receive payments from the firm; essentially junior preferred stock.

Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a stated date. A limit is placed on the value of the shares the investor receives.

Philadelphia Stock Exchange (PHLX)
A securities exchange where American and European foreign currency options on spot exchange rates are traded.

Non-cumulative preferred stock
Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment.

New York Stock Exchange (NYSE)
Also known as the Big Board or The Exhange. More than 2,000 common and preferred stocks are traded. The exchange is the older in the United States, founded in 1792, and the largest. It is lcoated on Wall Street in New York City

Margin account (Stocks)
A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Listed stocks
Stocks that are traded on an exchange.

Letter stock
Privately placed common stock, so-called because the SEC requires a letter from the purchaser stating that the stock is not intended for resale.

Vancouver Stock Exchange (VSE)
The Vancouver Stock exchange (VSE) was one of Canada's junior company stock exchanges. On March 15, 1999, the VSE and the ASE (Alberta Stock Exchange) agreed to merge and form the CDNX - the Canadian Venture Exchange - which will also take on some junior Toronto and Montreal Exchange companies. The VSE got a bad reputation in the 80's due to many unscrupulous scam artists manipulating VSE listed companies. New regulatory controls and surveillance systems which had been implemented on the VSE wer ...

Junior Stock Exchange
A stock exchange which lists mainly small, emerging companies with low market capitalizations (e.g. under $100million or even under $10 million).

Kuala Lumpur Stock Exchange (KLSE)
Incorporated in 1965 as Kuala Lumpur's stock exchange (although share-trading activity dated from the 1930s).

Common stock
These are securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security.

Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.

Common stock equivalent
A convertible security that is traded like an equity issue because the optioned common stock is trading high.

Common stock market
The market for trading equities, not including preferred stock.

Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.

Conflict between bondholders and stockholders
These two groups may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants work to resolve these conflicts.

Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.

Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments.

Blank Check Preferred Stock
This is stock over which the board of directors has broad authority to determine voting, dividend, conversion, and other rights. While it can be used to enable a company to meet changing financial needs, its most important use is to implement poison pills or to prevent takeovers by placement of this stock with friendly investors.

Bo Derek stock
High quality stock.

Madrid Stock Exchange (Bolsa de Madrid)
The largest of Spain's four stock exchange.

Joint stock bank
A joint stock bank is one operated by a joint stock or limited company. It is therefore a bank with limited liability. This is in contrast to a private bank which may be owned by a family or individual. All commercial banks in the United Kingdom are joint stock banks.

Preferred Stock
An (equity) security which has a priority relative to ordinary common shares for dividends and return of par amount in the event of a corporate dissolution. Often, preferred shares are nonvoting equity interests. However, a default in the payment of that issue's preferred dividend or other covenant breach may temporarily give the preferred holders voting powers. Preferred shares can have convertible, cumulative, participating, voting, or other special features.

Montreal Stock Exchange (MSE)
One of the four major stock exchanges in Canada.

Commercial Grain Stocks
Domestic grain in store in public and private elevators at important markets and grain afloat in vessels or barges in lake and seaboard ports.

Certificated or Certified Stocks
Stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by a commodity exchange. In grain, called "stocks in deliverable position".

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.

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 price
Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified 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.