Options Trading Glossary

Description: Options Glossary, Adjustments, All Ordinaries Index,All-or-none order (AON),American Stock Exchange (AMEX)

Adjustments

Certain events such as a stock split or a stock dividend (e.g., a 3-for-2 stock split). An adjusted option may cover more than the usual one hundred shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a corresponding factor. Example: buying 1 call (covering 150 shares) at 4 would cost $600.

All Ordinaries Index

The major index of Australian stocks. This index represents 280 of the most active listed companies or the majority of the equity capitalization (excluding foreign companies) listed on the Australia Stock Exchange (ASX).

All-or-none order (AON)

A type of option order which requires that the order be executed completely or not at all. An AON order may be either a day order or a GTC (good til cancel) order.

American Stock Exchange (AMEX)

A private, not-for-profit corporation, located in New York City, that handles approximately one-fifth of all securities trades within the United States.

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.

AMEX/ASE

American Stock Exchange.

Amortization

The paying off of debt in regular instalments over a period of time.

Analyst

Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

Annual Earnings Change Percent

The historical earnings change between the most recently reported fiscal year earnings and the preceding.

Annual Net Profit Margin Percent

The percentage that the company earned from gross sales for the most recently reported fiscal year.

Annual Percentage Rate (APR)

The cost of credit that the consumer pays, expressed as a simple annual percentage.

Annual Report

A report issued by a company to its shareholders at the end of the fiscal year containing a description of the firm's operations and financial statements.

Annual Return

The simple rate of return earned by an investment for each year.

Annuity

A series of constant payments at uniform time intervals (for example, periodic interest payments on a bond).

Appreciation

The increase in value of an asset.

Arbitrage

The simultaneous purchase and sale of two different, but related, securities with the intent of profiting by the price discrepancy.

Arbitrageur

An individual or company that takes advantage of momentary disparities in prices between markets which enables them to lock in profits because the selling price is higher than the buying price.

Ask Price

The price at which a seller is offering to sell an option or stock.

Assign

To transfer to another to whom the property is assigned.

Assigned (an exercise)

Received notification of an assignment by The Options Clearing Corporation.

Assignment

The receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price. Assignment is a notification by The Options Clearing Corporation to a clearing member that an owner of an option has exercised his or her rights there under. For equity and index options, assignments are made on a random basis by The Options Clearing Corporation.

At-The-Money

An option with an exercise price that is equal to the current market price of the underlying stock.

At-The-Opening Order

An order which specifies execution at the opening of the market or else it is cancelled.

Auction Market

A market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. Most stock and bond markets, including those on the NYSE, function this way.

Autocorrelation

The correlation between the values of a time series and previous values of the same series.

Automatic Exercise

A protection procedure whereby the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder.

Average

An mathematical representation of the behaviour of a specific sector or index of the market (for example, the Dow Jones Industrial Average).

Average Down

To buy more of a security at a lower price, thereby reducing the holder's average cost. (Average Up: to buy more at a higher price.)

Averaging Down

Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

Back Months

The futures or options on futures months being traded that are furthest from expiration.

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