All calls and puts on a given underlying security or index represent an "option class. All options of a given type calls or puts with the same strike price and expiration date are classified as an "option series. An American-style option contract is one that may be exercised at any time prior to its expiration date.

Currently, all equity options traded on U. A European-style option can be exercised only during a specified period of time just prior to its expiration. Many index options are European-style. When the price of the underlying security or index is equal to the strike price, a call or put option is at-the-money. An opening purchase transaction is one that creates or increases a long position in a given option series.

An opening sale transaction is one that creates or increases a short position in a given option series. Such a sale is also referred to as "writing" an option contract. A closing purchase transaction is one that eliminates or reduces a short position in a given option series.

Option Terminology

Such a purchase is commonly referred to as "covering" a short option position. A closing sale transaction is one that eliminates or decreases a long position in a given option series. Exercise settlement value is the level of an underlying equity index used to calculate the cash settlement amount for a cash-settled index call or put.

Cash settlement amount is the difference between the exercise price of a cash-settled index call or put and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

A physical delivery option gives its owner the right to receive physical delivery if it is a call , or to make physical delivery if it is a put , of underlying shares when the option is exercised. Currently, all equity options are physical delivery contracts.

The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money, as opposed to delivering or receiving the underlying instrument. Index options are generally cash-settled. A settlement style for certain index options in which the index's exercise settlement value is based on the reported level of the index derived from the opening prices of the component securities on the day of exercise. A settlement style for certain index options in which the index's exercise settlement value is based on the reported level of the index derived from the last reported prices of the component securities of the index at the close of market hours on the day of exercise.

The strike or exercise price of an equity option is the specified price per share at which underlying stock will change hands after a call or put is exercised by its owner. For a cash-settled index option, the strike price is the base for the determination of the amount of cash, if any, that the option holder is entitled to receive upon exercise see Cash Settlement Amount and Exercise Settlement Amount.

The contract size of an option refers to the amount of the underlying asset covered by the options contract. For each unadjusted equity call or put option, shares of stock will change hands when one contract is exercised by its owner. These shares of underlying stock are also referred to as the contract's "unit of trade.

The contract size of a cash-settled index option is determined by its multiplier. The multiplier determines the aggregate value of each point of the difference between the exercise price of the option and the exercise settlement value of the underlying interest.

Stock Options - Nasdaq

Open interest refers to the number of outstanding option contracts in the exchange market, or in a particular class or series. Open interest reflects only the total number of option contracts for a given option series that have been opened but not yet closed out. Increased open interest might suggest to some an increased liquidity for an option series, not a bullish or bearish sentiment on the underlying stock.

Liquidity is a trading environment characterized by high trading volume. Liquid markets commonly have narrow spreads between bid and ask prices, and the ability to accept larger orders without significant price changes. TradeStation Voted Best for Options Traders 2 Years in a Row by Barron's. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options ODD.

Copies of the ODD are available from your broker or from The Options Clearing Corporation, One North Wacker Drive, Suite , Chicago, Illinois The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current.

Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information.

No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice.

CBOE | Chicago Board Options Exchange

The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions. My Account Account Settings Sign Out. Options Quick Facts - Terminology.

Option Type The two types of option contracts are calls and puts. Option Class All calls and puts on a given underlying security or index represent an "option class. Option Series All options of a given type calls or puts with the same strike price and expiration date are classified as an "option series.

What is an at-the-money option? An out-of-the money option? A call option is in-the-money if the strike price is less than the current price of the underlying security or index, and out-of-the-money if the strike price is greater than the price of the underlying security or index. A put option is in-the-money if the strike price is greater than the current price of the underlying security or index, and out-of-the money if the strike price is less than the price of the underlying security or index.

Opening Purchase Transaction An opening purchase transaction is one that creates or increases a long position in a given option series. Opening Sale Transaction An opening sale transaction is one that creates or increases a short position in a given option series.

Closing Purchase Transaction A closing purchase transaction is one that eliminates or reduces a short position in a given option series. Closing Sale Transaction A closing sale transaction is one that eliminates or decreases a long position in a given option series.

Exercise Settlement Value Exercise settlement value is the level of an underlying equity index used to calculate the cash settlement amount for a cash-settled index call or put. Cash Settlement Amount Cash settlement amount is the difference between the exercise price of a cash-settled index call or put and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

Physical Delivery Options A physical delivery option gives its owner the right to receive physical delivery if it is a call , or to make physical delivery if it is a put , of underlying shares when the option is exercised.

Cash-Settled Options The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money, as opposed to delivering or receiving the underlying instrument. Settlement A settlement style for certain index options in which the index's exercise settlement value is based on the reported level of the index derived from the opening prices of the component securities on the day of exercise.

Settlement A settlement style for certain index options in which the index's exercise settlement value is based on the reported level of the index derived from the last reported prices of the component securities of the index at the close of market hours on the day of exercise.

What is a strike price? What is the contract size of an equity option? What is open interest?

Is increased open interest bullish? CBOE Links Government Relations Investor Relations CBOE Livevol Data Shop Livevol CBOE Media Hub System Status Chinese Language Site Risk Management Conference Careers Advertise with CBOE CBOE. Other CBOE Sites CBOE Futures Exchange C2 Exchange Trading Permit Holders. CBOE Options involve risk and are not suitable for all investors.