Options Glossary: L
Lambda
A measure of leverage. The expected percent change in the value of an option for a one percent change in the value of the underlying product.
Last trading day
The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, other than weekly or quarterly expirations, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.
LEAPS® (Long-term Equity AnticiPation Securities) / Long-dated options
Calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration.
Leg
A term describing one side of a position with two or more sides. When a trader legs into a spread, he or she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position.
Leverage
A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.
Limit order
A trading order placed with a broker to buy or sell stock or options at a specific price.
Liquidity / liquid market
A trading environment characterized by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.
Listed option
A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.
Long option position
The position of an option purchaser (Owner) which represents the right to either buy stock (In the case of a call) or to sell stock (In the case of a put) at a specified price (The strike price) at or before some date in the future (The expiration date). It results from an opening purchase transaction - e.g., long call or long put.
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