AT-THE-MONEY: An option whose strike price is equal to the
current market price of the underlying stock.

ASSIGN: To designate an option writer (seller) for fulfillment
of his obligation to sell stock (call option writer) or buy
stock (put option writer). The writer receives an assignment
notice from the Options Clearing Corporation (OCC).

CALL: An option which gives the owner the right, but not the
obligation, to buy the underlying security at a specified price
for a certain fixed period of time.

CLOSING TRANSACTION: A trade which reduces or decreases the net
position of an investor.

CONTRA-HOUSE/CONTRA-SIDE: The other person in a transaction
(i.e., the seller to your purchase or the purchaser of your
sale).

DELTA: The first derivative of the stock. Delta has a three
pronged definition. The first is percentage change. The delta
number is given as a percentage, meaning how much in percentage
terms the option price will change with a movement in the stock.
A 50 delta option will move 50% the amount the stock moves. If
the stock moves $1.00, than the option moves $.50. A 30 delta
option moves $.30 on a $1.00 movement in the stock, and so on.
Delta can also be defined as percentage chance. This is used to
describe the percentage chance that the option will end up
in-the-money. A 90 delta option has a 90% chance of finishing
in-the-money. Finally, delta can also be defined as hedge ratio.
The hedge ratio is the amount of equivalent stock needed to
properly hedge a position.

DERIVATIVE: A product which derives (gets) its price based on
the price of something else. In the case of options, an options
price is derived from the underlying instrument on which the
option is based (i.e. stock or other security).

EXERCISE: The action taken by an option holder that requires the
writer to perform the terms of the contract. Call holders
exercise to buy the underlying security, while put holders
exercise to sell the underlying security.

EXPIRATION DATE: The day on which an option contract expires.
The expiration date for stock options is the Saturday following
the third Friday of the expiration month.

EXTRINSIC VALUE: The price of an option less its intrinsic
value. In the case of out-of-the-money options, the options
entire price consists only of extrinsic value. Extrinsic value
is made up of several components, with the largest being
volatility. Also known as Time Value.

HOLDER: The buyer of an option. Also known as the owner.

IN-THE-MONEY: An option is considered to be in-the-money when,
in the case of a call, the calls strike price is lower than the
price of the stock. In the case of a put, a put is considered to
be in-the-money when the puts strike price is higher than the
price of the stock.

INTRINSIC VALUE: The value of the option in relation to the
price of the underlying security. For call options it is the
difference between the stock price and striking price, if that
difference is a positive number, or zero otherwise. For put
options it is the difference between the striking price and the
stock price, if that difference is positive, or zero otherwise.
Only in-the-money options have intrinsic value.

LONG: Generally refers to ownership. The number of contracts or
shares in a particular series, class or underlying stock an
account possesses. Any position (stock, option, or combination
of) whereby the holder of the position profits from an increase
in the price of the stock.

NAKED: The term naked signifies any position that is not hedged.
For example, naked stock position would indicate that the
investor has a stock position with no form of hedge (calls,
puts) against it.

OPTION: A derivative product that gives the owner the right, but
not the obligation to by a specified security, at a specified
price, by a specified date. The seller, on the other hand, is
obligated to buy or sell a specified security, at a specified
price, by a specified date.

OPTION SERIES: All option contracts on the same underlying stock
having the same price, expiration date and unit of trading.

OPTION CLASS: A term used to refer to all put and call contracts
on the same underlying security.

OPENING TRANSACTION: A trade which creates or increases the net
position of an investor.

OPTION BUYER: The individual who obtains the right but not the
obligation to exercise an option.

OPTION SELLER: (Writer) The individual who is obligated, if and
when he is assigned an exercise, to perform according to the
terms of the option.

OUT-OF-THE-MONEY: A call option whose strike price is above the
market price of the stock, or a put option whose strike price is
below the market price of the stock.

PARITY: A condition which exists when the premium for an option
consists strictly of intrinsic value. The amount by which an
option is in the money.

PUT: An option granting the owner the right, but not the
obligation, to sell the underlying security at a certain price
for a specified period of time.

SHORT: Generally refers to the selling of an option contract
that is not previously owned. This term is used to designate the
position the option seller has after he has written an option.
Any position (stock, option, or combination of) whereby the
holder of the position profits from a decrease in the stock
price.

STRIKE PRICE: The price at which the owner of the option may buy
or sell the underlying security. Similarly, it is the price at
which the seller of the option must buy or sell the underlying
security and is also known as the Exercise Price.

TIME VALUE: The part of an option premium that is in excess of
the intrinsic value.

PREMIUM: The total amount paid for an option.

TIME DECAY: The rate by which an options extrinsic value
decreases over time.

UNDERLYING: The stock, commodity, currency, cash index or other
security to be delivered in the event that an option is
exercised.

WRITER: The seller of an option.