Options Glossary

Cboe C2 Options Exchange

Calendar spread

An option strategy that generally involves the purchase of a longer-termed option(s) (call or put) and the writing of an equal number of nearer-termed option(s) of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Horizontal spread.

Call option

An option contract that gives the owner the right but not the obligation to buy the underlying security at a specified price (its strike price) for a certain, fixed period (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying product if the option is assigned.

Carry / Carrying cost

The interest expense on money borrowed to finance a securities position.

Cash settlement amount

The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised. See also Exercise settlement amount

Cboe

Cboe Board Options Exchange

Charm

Charm, otherwise known as delta decay, is the rate of change of an option’s Delta with respect to the passage of time. Charm is a second-order option Greek. See also Delta

Class of options

A term referring to all options of the same type (either calls or puts) covering the same underlying stock.

Close / Closing transaction

A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. A selling transaction closes an existing long option position. A purchase transaction closes an existing short option position. This transaction reduces the open interest for the specific option involved.

Closing price

The final price of a security at which a transaction was made. See also Settlement price.

Collar

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options typically have different strike prices (put strike lower than call strike). Expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, the investor could establish a collar involving the purchase of a May 60 put and the writing of a May 65 call to protect some of the unrealized profit in the XYZ Corporation stock position. The investor may also use the reverse (a long call combined with a written put) if he has previously established a short stock position in XYZ Corporation. See also Fence.
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Collateral

Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.

Combination

An arrangement of options involving two long, two short, or one long and one short positions. The positions can have different strikes or expiration months. The term combination varies by investor. Example: a long combination might be buying 1 XYZ May 60 call and selling 1 XYZ May 60 put.

Condor spread

A strategy involving four strike prices with both limited risk and limited profit potential. Establish a long call condor spread by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a flat-top butterfly.

Contingency order

An order to execute a transaction in one security that depends on the price of another security. An example might be to sell the XYZ May 60 call at $2.00, contingent upon XYZ stock being at or below $59.

Contract size

The amount of the underlying asset covered by the option contract. This is 100 shares for 1 equity option unless adjusted for a special event. See also Adjustments.

Conversion

An investment strategy in which a long put and a short call with the same strike price and expiration combine with long stock to lock in a nearly riskless profit. For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called conversion arbitrage. See also Reversal / Reverse conversion.

Cover

To close out an open position. This term most often describes the purchase of an option or stock to close out an existing short position for either a profit or loss.

Covered call / Covered call writing

An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite.

Covered combination

A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and writing 1 XYZ May 55 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully covered strategy because assignment on the short put requires purchase of additional stock.

Covered option

An open short option position completely offset by a corresponding stock or option position. A covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also Uncovered call option writing and Uncovered put option writing.

Covered put / Covered cash-secured put

The cash-secured put is an option strategy in which a put option is written against a sufficient amount of cash (or Treasury bills) to pay for the stock purchase if the short option is assigned.

Covered straddle

An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully covered strategy because assignment on the short put requires purchase of additional stock.

Credit

Money received in an account either from a deposit or from a transaction that results in increasing the account's cash balance.

Credit spread

A spread strategy that increases the account's cash balance when established. A bull spread with puts and a bear spread with calls are examples of credit spreads.

Curvature

A measure of the rate of change in an option's Delta for a one-unit change in the price of the underlying stock. See also Delta.

Cycle

The expiration dates applicable to the different series of options. Traditionally, there were three cycles:

Cycle	Available Expiration Months
January	January, April, July, October
February	February, May, August, November
March	March, June, September, December

Today, most equity options expire on a hybrid cycle, which involves four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April and July. After the January expiration, the months outstanding will be February, March, April and July.