Statistical Volatility

This is the difference between the current bid price and the current asking, or offering price. For example, if you see a quote that looks like this: 2.05 x 3.10 – what this means is that the bid is 2.05 and the ask is 3.10. Therefore the bid-ask thread is 1.05 i.e the difference between…

This is basically the amount of intrinsic value that an options contract has. In other words, it is the relationship between the strike price of the option and the price of the underlying asset. See at-the-money and Deep in-the-money.

This is when you buy a Put and sell another Put with a lower strike price. You would only use this spread if you are expecting the underlying stock to move up moderately because it will help you to benefit from the time decay. For example, let’s say you are anticipating a moderate rise in…

There are some options settle for cash rather than shares. Indexes like the S&P 500 Index (.SPX) and the S&P 100 Index (.OEX) are examples of cash settled options.

This is when you sell an options contract and simultaneously buy one with a later expiration date and a higher or lower strike price. For example, if your sell to open the AAPL NOV 145.00 Call and then buy to open the AAPL DEC 150.00 Call , you have created a diagonal spread. See also:…

In the case of a physical delivery option, the exercise price (which is sometimes called the “strike price”) is the price at which the option holder has the right either to purchase or to sell the underlying interest. EXAMPLE: A physical delivery XYZ 40 call option gives the option holder the right to purchase 100…