Understanding Equity Options - The Options Clearing Corporation

GlossaryAmerican-style option: An option contract thatmay be exercised at any time between the date of purchaseand the expiration date.Assignment: The allocation of an exercise noticeto an option writer (seller) that obligates him to sell(in the case of a call) or purchase (in the case of a put)the underlying security at the specified strike price.At-the-money: An option is at-the-money if thestrike price of the option is equal to the market priceof the underlying security.Call: An option contract that gives the holder theright to buy the underlying security at a specifiedprice for a certain, fixed period of time.Class of options: Option contracts of the same type(call or put) and style (American or European) thatcover the same underlying security.Closing purchase: A transaction in which thepurchaser’s intention is to reduce or eliminate a shortposition in a given series of options.Closing sale: A transaction in which the seller’sintention is to reduce or eliminate a long position in agiven series of options.Covered call option writing: A strategy in whichone sells call options while simultaneously owning anequivalent position in the underlying security.Covered put option writing: A strategy in whichone sells put options and simultaneously is short anequivalent position in the underlying security.Derivative security: A financial security whosevalue is determined in part from the value and characteristicsof another security, the underlying security.Equity options: Options on shares of an individualequity interest.34