| American option | An American option can be exercised before and up to its expiration date. Compare with a European option, which can be exercised only on the expiration date.
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| at the money | When the exercise price and asset price of an option are equal.
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| call option | The right to buy an asset at a specified exercise price on or before a specified expiration date.
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| collar | An options strategy that brackets the value of a portfolio between two bounds.
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| covered call | A combination of selling a call on a stock together with buying the stock.
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| European option | A European option can be exercised only on the expiration date. Compare with an American option, which can be exercised before, up to, and on its expiration date.
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| exercise or strike price | Price set for calling (buying) an asset or putting (selling) an asset.
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| in the money | In the money describes an option whose exercise would produce profits. Out of the money describes an option where exercise would not be profitable.
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| out of the money | Out of the money describes an option where exercise would not be profitable. In the money describes an option where exercise would produce profits.
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| premium | The purchase price of an option.
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| protective put | Purchase of stock combined with a put option that guarantees minimum proceeds equal to the put's exercise price.
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| put option | The right to sell an asset at a specified exercise price on or before a specified expiration date.
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| put-call parity theorem | An equation representing the proper relationship between put and call prices. Violation of parity allows arbitrage opportunities.
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| spread | (1) futures: Taking a long position in a futures contract of one maturity and a short position in a contract of different maturity, both on the same commodity. (2) options: A combination of two or more call options or put options on the same stock with differing exercise prices or times to expiration. A money spread refers to a spread with different exercise price; a time spread refers to differing expiration date.
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| straddle | A combination of buying both a call and a put on the same asset, each with the same exercise price and expiration date. The purpose is to profit from expected volatility.
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| warrant | An option issued by the firm to purchase shares of the firm's stock.
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