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Numerical Terms
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P
At The Money - The Strike nearest the current price of the Underlying.
Parity -
Describing an in-the-money option trading for its intrinsic value; that is, an option trading at parity with the underlying stock. Also used as a point of reference - an option is sometimes said to be trading at a half-point over parity or at a quarter-point under parity. An option trading under parity is a discount option. See also Discount and Intrinsic Value.
Physical Option -
An option whose underlying security is a physical commodity that is not stock or futures. The physical commodity itself (a currency, treasury debt issue, commodity) - underlies that option contract. See also equity option, index option.
Position -
As a noun, specific securities in an account or strategy. (A covered call writing position might be long 1,000 XYZ and short 10 XYZ January 30 calls). As a verb, to facilitate; to buy or sell - generally a block of securities - thereby establishing a position. See also Facilitation and Strategy.
Position Limit -
The maximum number of put or call contracts on the same side of the market that can be held in any one account or group of related accounts. Short puts and long calls are on the same side of the market. Short calls and long puts are on the same side of the market.
Premium -
The price of an option contract, determined in the competitive marketplace, which the buyer of the option pays to the option writer for the rights conveyed by the option contract.
Price-Weighted Index -
A stock index which is computed by adding the prices of each stock in the index, and then dividing by the divisor. See also Capitalization-weighted index, Divisor.
Payoff Diagram -
See Profit Graph.
Profit Graph -
A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.
Profit Range -
The range within which a particular position makes a profit. Generally used in reference to strategies that have two break-even points - an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range. See also Break-Even Point.
Profit Table -
A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph. See also Profit Graph.
Protected Strategy -
A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). See also Combination and Straddle.
Public Book (of orders) -
The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist's book is closed (only he knows at what price and in what quantity the nearest public orders are). See also Order Book Official, Market-Maker, and Specialist.
Put -
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. See also Call.
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