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Definition of Option price
Also called the option premium, the price paid by the buyer of the options contract for the right
Gives the lessee the option to purchase the asset at a price below fair market
A nonqualified stock option that uses a sliding scale for
The rate of change of delta for a derivative security relative to the
The expected volatility in a stock's return derived from its option price, maturity date,
For an option, the variance that makes a call option price
The ratio of a change in the option price to a small change in the option volatility. It is the partial
A stock option not given any favorable tax treatment
The option price.
A contract that, in exchange for the option price, gives the option buyer the right, but not
A nonqualified stock option whose option price is set substantially
Also called time decay, the ratio of the change in an option price to the decrease in time to expiration.
Also called time value, the amount by which the option price exceeds its intrinsic value. The
The option of terminating an investment earlier than originally planned.
An option that may be exercised at any time up to and including the expiration date.
An option that can be exercised any time until its
An option contract that can be exercised at any time between the date of purchase and
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Arm's length price
The price at which a willing buyer and a willing unrelated seller would freely agree to
option based on the average price of the asset during the life of the option.
A dealer's price to sell a security; also called the offer price.
Contracts with trigger points that, when crossed, automatically generate buying or selling of
price expressed in terms of yield to maturity or annual rate of return.
Packages that involve the exchange of more than two currencies against a base currency at
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
cafeteria plan a “menu” of fringe benefit options that include
cash or nontaxable benefits
Call an option
To exercise a call option.
An option contract that gives its holder the right (but not the obligation) to purchase a specified
A contract that gives the holder the right to buy an asset for a
Right to buy an asset at a specified exercise price on or before the exercise date.
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
Bond price excluding accrued interest.
option on an option.
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a
Consumer Price Index (CPI)
An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation.
Conversion parity price
Related:Market conversion price
The contractually specified price per share at which a convertible security can be
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
An option to buy or sell a foreign currency.
Over-the-counter options, such as those offered by government and mortgage-backed
The options available to the seller of an interest rate futures contract, including the quality
The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
Devaluation A decrease in the spot price of the currency
Bond price including accrued interest, i.e., the price paid by the bond buyer.
Dollar price of a bond
Percentage of face value at which a bond is quoted.
A sinking fund provision that may allow repurchase of twice the required number of bonds
Barrier option that comes into existence if asset price hits a barrier.
Barrier option that expires if asset price hits a barrier.
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the
An option that is part of the structure of a bond that provides either the bondholder or
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
option that may be exercised only at the expiration date. Related: american option.
An option that can be exercised only on its expiration date.
An option contract that can only be exercised on the expiration date.
The price at which the underlying future or options contract may be bought or sold.
The price set for buying an asset (call) or selling an asset (put).
Exercising the option
The act buying or selling the underlying asset via the option contract.
A variety of options available to an investor to recover their invested capital and the return on their investment.
Fair market price
Amount at which an asset would change hands between two parties, both having
The equilibrium price for futures contracts. Also called the theoretical futures price, which equals
Fair price provision
Fixed price basis
An offering of securities at a fixed price.
Fixed-price tender offer
A one-time offer to purchase a stated number of shares at a stated fixed price,
Flat price (also clean price)
The quoted newspaper price of a bond that does not include accrued interest.
Flat price risk
Taking a position either long or short that does not involve spreading.
Foreign currency option
An option that conveys the right to buy or sell a specified amount of foreign
Also called dirty price, the price of a bond including accrued interest. Related: flat price.
An option on a futures contract. Related: options on physicals.
The price at which the parties to a futures contract agree to transact on the settlement date.
Garmen-Kohlhagen option pricing model
A widely used model for pricing foreign currency options.
option that allows the underwriter for a new issue to buy and resell additional shares.
Heavenly Parachute Stock Option
A nonqualified stock option that allows a deceased option holder’s estate up to three years in which to exercise his or her
The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
Incentive Stock Option
An option to purchase company stock that is not taxable
Index and Option Market (IOM)
A division of the CME established in 1982 for trading stock index
A call or put option based on a stock market index.
One of several investment accounts in which your premiums may be invested within your life insurance policy.
Intrinsic value of an option
The amount by which an option is in-the-money. An option which is not in-themoney
The price that the buyer of a futures contract must pay the seller when a Treasury Bond is delivered.
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
Law of one price
An economic rule stating that a given security must have the same price regardless of the
law of one price
Theory that prices of goods in all countries should be equal when translated to a common currency.
Maximum price fluctuation
Maximum price fluctuation
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.
An option that allows the buyer to choose as the option strike price any price of the
This is the day's lowest price of a security that has changed hands between a buyer and a seller.
Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to
Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to
Market conversion price
Also called conversion parity price, the price that an investor effectively pays for
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
The amount of money that a willing buyer pays to acquire something from a willing seller,
Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace
material price variance
total actual cost of material purchased
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