Options Lingo

Premium - The premium is the amount that you pay up front for the option. This amount is once-off and non-refundable.

Strike Price - The strike price is the amount that you agree to pay for the stock at a later date.

Underlying Stock - The underlying stock is the stock for which you are purchasing the option.

Exercising Options - No, we are not talking about choosing to jump up and down in front of an exercise video featuring Anna. By exercising an option, you are using your right to buy, and actually purchasing the underlying stock.

Expiration Date - The expiration date is the last day for you to exercise your option. If you don't exercise it by then, your option will expire worthless. In the United States, the expiration date is the 3rd Friday of the month. So if you have a June option, that option will expire on the 3rd Friday of June.

American Options - American options are options (not limited by any geographic boundaries) that allow you to exercise the options at any time until the expiration date.

European Options - European options are options (not limited by any geographic boundaries) that allow you to exercise the options at only the expiration date. Do check with your local Options Exchange which form of options are used in your country.

Contract - Option trading is carried out in numbers of contracts. One contract equates to 100 underlying shares. If you buy one call option contract, you are buying the right to buy 100 shares of the underlying stock.

In-The-Money - An option is said to be in-the-money if it is worth something if you choose to exercise it now.

Out-Of-The-Money - An option is said to be out-of-the-money if it is worthless if you choose to exercise it now.