Glossary 2018-08-02T09:53:51+00:00

Glossary

Call Option

An option contract that gives the holder the right, but not the obligation, to purchase the underlying security at a specified price—the strike price—either on or before a specified expiration date.

Covered Call

An option strategy in which a call option is written against long stock on a share-for-share basis.

Cap

Price at which a stock’s upside is limited by the strike price of covered call option written against it plus the premium received on the transaction.

Covered Call Option Writing

A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security or strategy, and in which one sells put options and simultaneously is short an equivalent position in the underlying security.

Equity Collar

A hedging strategy used for managing equity risk that consists of the purchase of a put option and sale of a call option providing a minimum and maximum value for that position over the life of the options.

Hedging

A conservative strategy used to limit investment loss by effecting a transaction which offsets an existing position.

In The Money

Amount by which the underlying equity of an option contract is above or below the strike price.

Monetization

Generating liquidity from an underlying security.

Option Premium

The price of an option contract, determined in the competitive marketplace, which the buyer of the option pays to the option write for the rights conveyed by the option contract.

Protective Put

A strategy involving the purchase of a put option contract for an existing long stock position to protect against a drop in the share prices of the underlying security.

Put Option

An option contract that gives the holder the right to sell the underlying security at a specified price for a certain fixed period of time.

Roll Up

A term typically utilized by option traders to explain the process of purchasing back an in-the-money option to avoid a sale of the underlying security and then reselling an option at a higher price in an attempt to keep up with the upside performance of the stock.

Static Return

The return that an investor would make on a particular position if the underlying stock were unchanged in price at the expiration of the options in the position.

Strike Price

The stated price per share for which the underlying security 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.

Upside Potential

The potential price gain that may be expected in a security stated in either collar value or a percentage gain.

Volatility

A measure of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualized standard deviation of returns.

Yield

Return on investment. In this dynamic strategy it refers to additional returns generated independent of share price appreciation through the sale of options.

Equity Risk Management