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Numerical Terms
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C
At The Money - The Strike nearest the current price of the Underlying.
Calendar Spread -
An option strategy in which a short-term option is sold and a longer-term option is bought, both having the same striking price. Either puts or calls may be used.
Calendar Straddle or Combination -
See Calendar Spread.
Call -
An Option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. See also Put.
Capitalization-Weighted Index -
A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index. See also Float, Divisor.
Capped-Style Option -
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price.
Carrying Cost -
The interest expense on a debit balance created by establishing a position.
Cash-Based -
Referring to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered.
Cash Settlement -
The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.
CBOE -
The Chicago Board Options Exchange; the first national exchange to trade listed stock options.
Class -
A term used to refer to all put and call contracts on the same underlying security.
Class of Options -
Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security.
Closing Purchase -
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a given series of options.
Closing Sale -
A transaction in which the seller's intention is to reduce or eliminate a long position in a given series of options
Closing Transaction -
A trade that reduced an investor's position. Closing buy transactions reduce short positions and closing sell transactions reduce long positions. See also Opening Transaction.
Collateral -
The loan value of marginable securities; generally used to finance the writing of uncovered options.
Combination -
Any position involving both put and call options that is not a straddle.
Commodities -
See Futures Contract.
Contingent Order -
An order which can be executed only if another event occurs; i.e. "sell Oct 45 call 7.25 with stock 52 or lower".
Conversion Arbitrage -
A riskless transaction in which the arbitrageur buys the underlying security, buys a put, and sells a call. The options have the same terms. See also Reversal Arbitrage.
Conversion Ratio -
See Convertible Security.
Converted Put -
See Synthetic Put.
Convertible Security -
A security that is convertible into another security. Generally, a convertible bond or convertible preferred stock is convertible into the underlying stock of the same corporation. The rate at which the shares of the bond or preferred stock are convertible into the common is called the conversion ratio.
Cover -
To buy back as a closing transaction an option that was initially written.
Covered -
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.
Covered Call -
An option strategy in which a call option is written against long stock on a share-for-share basis.
Covered Call Option Writing -
A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security or strategy in which one sells put options and simultaneously is short an equivalent position in the underlying security.
Covered Put Write -
A strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security.
Covered Straddle -
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actuality, this is not a "covered" strategy because asignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.
Covered Straddle Write -
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.
Credit -
Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account. See also Debit.
Cycle -
The expiration dates applicable to various classes of options. There are three cycles: January/April/July/October, February/May/August/November, and March/June/September/ December.
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