automatic exercise
The practice that options which are in the money at expiry are automatically exercised by the clearing house or the counterparty without specific instructions (cf. cabinet trade). The assumption is ...
back spread
The strategy of selling an option near to or at the money (see at-the-money option) and using the premium to buy a number of the same types of option out of the money (see intrinsic value). If this ...
deep in-the-money option
Options having strike prices either well below or well above the value of the underlying. The option delta gives a measure of the degree to which the option has value.An ...
gamma
One of a group of measures related to the pricing of options that are known as greeks. Expressed in formal terms, the gamma is the second partial derivative of the option price with respect to the ...
gamma risk
The risk arising from a delta/gamma hedge from the requirement to rebalance the portfolio over time or as a result of changes in the price of the underlying thus leading ...
in the money
Describing an option that would generate a gain if currently exercised. An option that would generate a loss is described as being out of the money, whereas one that would generate neither a gain nor ...
moneyness
The current status of a trading option. In terms of its being in the money, at the money, or out of the money.
near the money
A situation where the underlying price or rate is close to the strike price. See also at the money; delta; gamma; in the money; out of the money.
neutral hedge ratio
The option price sensitivity to a small change in price of the underlying. It is the first partial derivative of the option price in respect to the underlying and is ...
out of the money
(OTM).1 A position standing at a loss due to adverse market, price or rate movements (cf. book loss).2 An option without intrinsic value. A call option is out ...
ratio backspread
The sale of an at-the-money or in-the-money option and the purchase of a larger number of out-of-the-money options. The alternative strategy is known as a ratio forward spread. See ratio call spread; ...
ratio forward spread
The purchase of an at-the-money or in-the-money option and the sale of a larger number of out-of-the-money options. The alternative strategy is known as a ratio back-spread. See ratio call spread; ...
ratio spread
(Options markets).Any strategy that involves holding an unequal number of short options and long options, or long positions in the underlying (cf. participating cap, participating forward; ...
sandwich spread
An option strategy in which gains are made if the volatility or movement in the value of the underlying is relatively small.
split cylinder
A time or horizontal spread which involves a purchased option near to or at the money with a written or sold option further out of the money (cf. cylinder; risk ...
theta
A measure of the sensitivity of an option value to time. As the time to expiry of an option declines, its time value will also decline, since there is less likelihood of a significant improvement in ...
vega
A measure of the relation between the value of an option and the variance of the price of the underlying. See greeks.
volatility smile
The pattern typically created on a graph when the implied volatility of the underlying of an option (as derived from an option-pricing model) is plotted against the term of the option. The implied ...
yield-to-operative date
(YTOD) (USA).A measure intended to indicate the yield of the shortest possible life of a bond. It is taken as the higher of the yield-to-put or yield-to-maturity (or yield-to-call ...
