Definition
Underlying stock
The stock on which an option is written, giving the option holder the right to buy or sell.
RELATED TERMS ...
Underlying Stock - The underlying stock is the stock for which you are purchasing the option.
Long underlying stock/future
Short OTM call option
Long OTM put option
Risk / Reward ...
If the underlying stock increases in price and the put expires with no value, the profit is limited to the premium received from the put's initial sale.
A stock option is a contract that conveys the right to buy or sell a stock, usually referred to as the 'underlying stock', at a specified price, referred to as the 'strike price', for a specified period of time.
Also, choose your underlying stock wisely. A rip-roaring momentum name like priceline.com (Nasdaq: PCLN ) , or a consistently performing growth engine like Chipotle (NYSE: CMG ) are not good candidate for diagonalization.
The price of the underlying stock: as the stock goes up, the price of a call option increases and that of a put option decreases. The reverse is true when the stock goes down. The RATE of this change is measured by a Greek symbol called DELTA.
Gamma A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock.
Class of options: All call options-or all put options-on the same underlying stock or futures contract.
married put The purchase of a put option on a stock, and protects against a decline in the price of the underlying stock. Martinique Franc The currency of Martinique.
Series of Options Calls and puts based on the same underlying stock with the same strike and expiration. Settled Funds After a trade has cleared, proceeds are considered settled funds. Stock trades settle in T +3 business days.
Combination strategyA strategy in which a put and a call on the same underlying stock with the same strike price and expiration are either both bought or both sold.
[Harvey] An option whose exercise price is equal to the market price of the underlying stock, index or other security. [TMAC] An option whose exercise, or strike, price is closest to the futures price.
The LEPO owner receives no dividends, but has nearly the same exposure to a move in the underlying stock price as if he owned a share. I.e., the LEPO's delta is nearly unity. (Source: Australian Stock Exchange.) Back to Top
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A call option allows the buyer to purchase the underlying stock at any time up to the expiration date of the contract. A put option allows the buyer to sell the underlying stock at any time up to the expiration date of the contract.
(NYSE: PFE) - Options strategists initiated diverse transactions on the global pharmaceutical company today with shares of the underlying stock slipping 0.75% lower to arrive at $14.12 in afternoon trading.
It is important to understand that the price of the underlying stock directly affects the price of the option, therefore moving it up or down.
Strike Price The stated price per share for which underlying stock may be traded at when the option is exercised.
Strip A strategy created by being long in one call and two put options with the exact same strike price.
You own the underlying stock but are willing to forgo price increases in excess of the option strike price in return for the premium.
Illiquidity Illiquid markets are typified by low levels of trading, with little underlying stock readily available. Buying and selling can cause exaggerated price fluctuations.
UNCOVERED CALL A short call option position in which the writer does not own shares of underlying stock represented by his option contracts.
Covered straddle: An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock.
A convertible's value is drawn both from its conversion privilege (thus, on the price of the underlying stock), and from the value it commands simply because it's a bond or a preferred stock. While its price rises with its conversion value (i.e.
If the underlying stock is at 100, a long butterfly could be made by buying puts (or calls) at 95 and 105 and selling twice as many puts (or calls) at 100.
Derivatives are defined as any sort of financial instrument that depends on the value of its underlying stock. One example: a stock option is a derivative.
An approximation of the change in the delta of an Option relative to a change in the price of the underlying stock when all other factors are held constant.
Above mentioned new financial instruments have their own quotes, which are only based on the underlying stock exchange quotes.
A call option with an exercise price substantially below the underlying stock's market price (deep in the money) or substantially above the market price (deep out of the money).
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.
Buying a put gives the holder the right to sell the underlying stock at the strike price purchased, regardless what happens to the underlying stock.
Alternatively, you could purchase a call option for a fraction of what the underlying stock might cost. As the owner of a call option you would have the right to buy the underlying stock at a pre-defined "strike" price.
The stock price S will disappear if we subtract one equation from the other, thus enabling one to exploit a violation of put/call parity without the need to invest in the underlying stock.
Dividend Arbitrage - In the riskless sense, an arbitrage in which a put is purchased and so is the underlying stock. The put is purchased when it has time value premium less than the impending dividend payment by the underlying stock.
Buy and sell signals can also be generated by looking for positive and negative divergences between the RSI and the underlying stock. For example, consider a falling stock whose RSI rises from a low point of (for example) 15 back up to say, 55.
An option that gives the purchaser the right, but not the obligation, to purchase the underlying stock, commodity, or other financial instrument at a set time and price from the writer of the call option.
As a result of the risk involved, only experienced investors who strongly believe that the price of the underlying stock will fall or remain flat should undertake this advanced strategy.
Bull spreads are good for people who think that the prices of the underlying stock are going to go up. In this case, the important thing is which stock you're planning on picking.
The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money.
Intrinsic Value - The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money.
The underlying stock security held. The stock investor will make a profit based upon the underlying stock security losing value at a rapid rate. This will instinctively cause the stock security investor to profit as a result.
This INTC chart shows how Momentum acts (or causes the underlying stock to act depending on your perspective) during a solid uptrend. As INTC rallied, Momentum moved up thus confirming the move.
The closer the underlying stock or security price is to the option’s strike price, the more premium the option will have. You will pay a higher premium for an IBM call with a 125 strike than you will for an IBM call with a 140 strike.
For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price.
Writing a call against a long position in the underlying stock. By receiving a premium, ...
Covered Write: Writing a call against a long position in the underlying stock.
Typically, you'll pay a premium for the exchange, but if the underlying stock is on fire, conversion is worthwhile. On the downside, bonds offer a guaranteed dividend yield, even if the underlying stock slides.
Investors should also consider examining Technical Event® occurrences for the underlying stock when researching warrants, convertible preferred shares or convertible debentures.
A call Option is in-the-money when the price of the underlying stock is greater than the call's strike price. Conversely, a put Option is in-the-money when the price of the underlying stock is lower than the put's strike price.
When someone writes a call for which they do not own the underlying stock, they are said to be writing a naked call.
Probably the best indicator for predicting a reversal in the underlying stock's price, the Williams %R indicator usually peaks and turns down a few days before the stock's price follows suit, ...
A receipt issued by a bank as evidence of ownership of one or more shares of the underlying stock of a foreign corporation that the bank holds in trust.
The bonds benefit in a rising stock market, but still pay interest if the underlying stock doesn't rise.
Proponents of Convertible Bonds ...
Stock market index futures are futures contracts used to replicate the performance of an underlying stock market index. They can be used for hedging against an existing equity position, or speculating on future movements of the index.
Covered: A written option is "covered" if the writer also has an opposing market position in an underlying stock/security on a share-for-share basis.
An option owner is considered covered if they actually own the underlying stock on which the option is written. When the seller or holder of a put option does not own the underlying stock, they are taking what is called a "naked position." ...
A call option is out-of-the-money if the market price of the underlying stock is less than the strike price of the call. A put option is out-of-the-money if the market price of the underlying stock is higher than the strike price of the put.
An option to buy is known as a call; calls are bought when investors think the value of the underlying stock is going to rise.
It is possible to short sell the underlying stock.
There are no riskless arbitrage opportunities.
Trading in the stock is continuous.
There are no transaction costs.
All securities are perfect divisible (e.g.
Conversion parity is the underlying stock price at which a convertible security can become exchangeable for shares of equal value. It is equal to conversion ratio multiplied by share price.
Conversion Price ...
The stated price per share for which underlying stock may be purchased (in the case of a call option ) or sold (in the case of a put option ) by the option holder upon exercise of the option contract. (see Excercise Price)
Swapping ...
 See also: Stock, Underlying, Option, Market, Trading
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