Option terminology

Term Description
Assign The act of delivering shares of an underlying stock to a client when the option contract is exercised.
At-the-money The option’s strike price is identical to the current trading price of the underlying stock.
Call Gives the owner the right to buy a specified number of shares of the underlying stock at the strike price up to the set expiration date.
Expiration The date at which an option contract expires. This means that the option cannot be exercised after that date.
Extrinsic value The difference between an option’s market price and its intrinsic value.
In-the-money The option contract has a positive value if exercised.

  • Call options: the stock price is above the strike price.
  • Put options: the stock price is below the strike price.
Intrinsic value The difference between the current market value of the underlying stock and the strike price of an option. In-the-money is a term used when the intrinsic value is positive.
Long A term that refers to ownership of securities. For example, if you are long 100 shares of XYZ, this means that you own 100 shares of XYZ company.
Option premium The amount per share the buyer pays to the seller to purchase an option contract derived of 100 shares in a standard contract, or 10 shares in a mini options contract.
Out-of-the-money The option contract has no intrinsic value.

  • Call options: the stock price is below the strike price.
  • Put options: the stock price is above the strike price.
Put
Gives the owner the right to sell a specified number of shares of the underlying stock at the strike price up to the set expiration date.
Short When you sell a stock or option that you don’t own. This is a speculative practice done when the seller believes a stock's price is going to fall and the seller will be able to cover the sale by buying the security back at a lower price. The profit is the difference between the initial selling price and the subsequent purchase price.
Strike The price the owner of an option can purchase or sell the underlying security.
Time value The difference between an option's premium and its intrinsic value.
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