Options 

Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. 

    Call options allow the holder to buy the asset at a stated price within a specific timeframe. 

    Put options allow the holder to sell the asset at a stated price within a specific timeframe. 

Each option contract will have a specific expiration date by which the holder must exercise their option. The stated price on an option is known as the strike price. 

Derivative 

A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets. 

Expiration Date 

An expiration date is the last day that an option contract is valid.  

Strike Price 

A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. 

Time decay 

Time decay is a measure of the rate of decline in the value of an options contract due to the passage of time. Time decay accelerates as an option's time to expiration draws closer since there's less time to realize a profit from the trade. 

At The Money (ATM) 

An at the money (ATM) option is an option with a strike price that is closest to the current market price of the underlying security. 

In the Money (ITM) 

An in the money (ITM) option is an option with a strike price that is BELOW the current stock price. ITM options have "intrinsic value" (defined below). 

Intrinsic Value 

Intrinsic value is a measure of the difference between the strike price of the option and the current price of the underlying asset.

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