Call A call option is the right to buy the underlying asset at a specified
price for a specified time period. The call buyer has the right, but not the
obligation, to buy the underlying. The call seller has the obligation to sell
the underlying at the call buyer’s discretion.
Call spread A long call spread is a long call plus a short call at a higher
strike. A short call spread is the opposite.
Christmas tree See Ladder.
Combo A long out-of-the-money call plus a short out-of-the-money put,
or vice versa. This is also known as the cylinder. The short call, long put
version is also known as the fence. Occasionally this term applies to the
Condor A long call condor is a long call spread plus a short call spread
at higher strikes. All strikes are equidistant. A long put condor is a long
put spread plus a short put spread at lower strikes. Again, all strikes are
Conversion A long underlying plus a short synthetic.
Covered write A long underlying plus a short out-of-the-money call. This
is also know as the buy-write.
Cylinder See Combo.
Delta The rate of change of an option with respect to a change in the
Delta neutral Any combination of options and an underlying position
whose delta sum is practically zero.
Delta/price ratio The percent that an option’s value changes with respect
to a change in the underlying.
Diagonal spread A long diagonal is a long option plus a short option that
is closer to expiration and further out-of-the-money.
European style A European-style option can only be exercised at expiration.
Extrinsic value See Time premium.
Fence See Combo.
Future A contract to buy or sell a physical asset at a specified price at a
specified future date. This asset can be a commodity, bond or stock. In the
case of a stock index, the contract is for a cash value of all the stocks that
comprise the index.