Page 125 - PRIAA Glossary

OPTION PREMIUM
The amount collected by an option seller from the buyer in return for assuming the obligation. The option premium depends on the striking price, volatility of the underlying and the time remaining to expiration.
OPTION SELLER
The person who originates an option contract by promising to perform a certain obligation in return for receipt of the premium of the option from the option buyer. Also known as “option writer” or “option grantor”.
OPTION SPREAD
A combination of long and short positions on the same underlying but with different strike prices or expiration dates to hedge risk or reduce transaction costs.
OPTION STYLE
Refers to the exercise parameters of the option. There are three main styles: European (exercise available on the expiration date only), American (exercise available on any business day throughout the life of the transaction) and Bermudan (exercise available on specific dates throughout the life of the transaction).
OPTION TYPE
Either a call (the right to buy the underlying asset) or a put (the right to sell the underlying asset).
OPTION WRITER
The person who originates an option contract by promising to perform a certain obligation in return for receipt of the premium of the option from the option buyer. Also known as “option grantor” or “option seller”.
OPTIONS CLEARING CORPORATION (OCC)
A clearinghouse for equity derivatives and central counterparties (CCPs) operating under the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
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