Bear:
A noun describing an individual with the opinion that a security, or the market in general, will decline in price – someone having a negative or pessimistic outlook.

Bear Market:
A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.

Bear Spread (Put):
Any spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. Consists buying options with the higher strike and selling option with the lower strike.

Bear Spread:
A spread composed by the simultaneous purchase of a put option with a higher strike price and the sale of another put option with a lower strike price.

Bear Spread (Call):
A spread composed by the simultaneous sale of a call option with a lower strike price and the purchase of another call option with a higher strike price.

Bid / Bid Price:
The highest price a dealer is willing to pay for a security at a particular time. 

Black-Scholes Formula:
A widely used model for option pricing developed by Fischer Black and Myron Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the options' strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options. 

Box Spread:
A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. E.g.: Buying 1 LMN Jan 50 call, and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put, and writing 1 Jan 50 put. 

Break-even Point(s):
The stock price(s) at which an option strategy results in neither a profit nor a loss. An option strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option-pricing model can be used to determine the strategy's break-even point(s) for other dates as well. 

Broker Loan Rate:
Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. Call loan rate is sometimes used because the loans can be called on a 24-hour notice. 

Broker-Dealer:
In the broadest sense, an agent who facilitates trades between a buyer and a seller and receives a commission for his services. Brokers acting in a dealer capacity may buy and sell for their own account and keep their own inventory of securities on which they can profit or incur losses. Some stock brokerage firms act as brokers and dealers. Brokers are also classed as Full Service or Discount; the former using a commission-based sales force and the latter using salaried brokers only. 

Bull (or bullish) Spread:
A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists of selling options with the higher strike and buying options with the lower strike 

Bull Spread (call):
A debit spread in which a rise in the price of the underlying security will theoretically increase the value of the spread . For example: The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. E.g.: Buying 1 LMN Jan 50 call, and writing 1 LMN Jan 55 call. 

Bull Spread (put): 
A credit spread in which a rise in the price of the underlying security will theoretically increase the value of the spread. For example: The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. E.g.: Writing 1 LMN Jan 55 put, and buying 1 LMN Jan 50 put. 

Bull: 
A reference to a person who believes that a security, or the market in general, will rise in price -- a positive or optimistic outlook. 

Butterfly Spread:
A strategy involving four options and three strike prices that have both limited risk and limited profit potential. A long call butterfly is established by buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. A long put butterfly is established by buying one put at the highest strike price, writing two puts at the middle strike price, and buying one put at the lowest strike price. E.g.: A long call butterfly might be buying 1 LMN Jan 50 call, writing 2 LMN Jan 55 calls and buying 1 LMN Jan 60 call. 

Buy-write: 
A covered call position in which stock is purchased and an equivalent number of calls are written at the same time. This position may be transacted with both sides (buying stock and writing calls) being executed simultaneously. E.g.: Buying 200 shares LMN stock, and writing 2 LMN Jan 50 calls. See also COVERED CALL WRITING.

Calendar spread
The simultaneous purchase and sale of options of the same class with the same strike prices, but with different expiration dates.

Calendar spread:
See TIME SPREAD. 

Call Option
A contract between a buyer and a seller whereby the buyer acquires the right, but not the obligation, to buy a specified underlying instrument at a fixed price on or before a specified date should the buyer of the call option wish to exercise the option. The seller of the call option assumes the obligation of delivering the instrument should the buyer wish to exercise the option. Investors profit by buying calls before an increase in the price of the underlying stock. For example: The owner (or writer) of a ITI Jun 60 call would have the right purchase 100 shares of ITI at $60 ( strike price) per share, between now and the third Friday in March ( expiration date)

Carry / Carrying Charge:
The interest expense on money borrowed to finance a margined securities position. 

Chicago Board Options Exchange (CBOE): The largest and oldest listed options exchange. 

Class of options: 
A term referring to all options of the same type - either calls or puts -- having the same underlying instrument. 

Clearinghouse: 
A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities. 

Collar:
An option strategy in which an out-of-the-money call is sold and an in-the-money put is purchased. This is normally used as a long stock protective strategy. The opposite of this strategy called a "fence" could be applied as a protective measure in a short stock position. 

Combination: 
An option position involving a call and put (either both long or both short) on the same stock with differing expirations, strike prices, or both. 

Condor spread:
A strategy involving four options and four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike, with the same expirations. 

Contract size:
The number of underlying shares covered by one option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend. 

Conversion:
An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. E.g.: Buying 100 shares of XYZ stock, writing 1 XYZ Jan 50 call, and buying 1 XYZ Jan 50 put at desirable prices. The process of executing these three-sided trades is also called "conversion arbitrage." See also REVERSE CONVERSION . 

Covered Call / Covered Call Writing:
An option strategy in which a call option or options are sold against equivalent amounts of long stock or long calls. E.g.: Writing (selling) 2 XYZ Jan 50 calls while owning 200 shares of XYZ stock, or 2 XYZ Jan 40 calls. 

Covered Option: 
An open short option position that is offset by a corresponding stock or option position on a share for share basis. That is, long stock or a long call could offset a covered call, while a long put or a short stock position could offset a covered put. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also UNCOVERED OPTION.

Credit spread:
Difference in the value of two options, where the value of the one sold exceeds the value of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads. 

Debit Spread:
A spread strategy that decreases the account's cash balance when established. Examples would be a bull call spread and a bear put spread..

Delta:
The sensitivity (rate of change) of an option's theoretical value (assessed value) to changes in price of the underlying instrument. Expressed as a percentage, it represents an equivalent amount of underlying at a given moment in time. Calls have positive deltas; puts have negative deltas.

Diagonal spread:
The combination of vertical and calendar spreads, wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.

Early Exercise:
A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date. 

Equity Option: 
An option on shares of an individual common stock. 

Equivalent Strategy: 
Investment strategy that has a similar risk-reward profile as another investment strategy. E.g.: Long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread. See also SYNTHETIC POSITIONS.

European-style Option:
An option that can be exercised only during a specified time prior to its expiration. Generally European-style options expire the third Friday of every month. Or, options that may be exercised on the expiration date only.

Exercise:
The process by which holder of an option notifies the seller of his intention to take delivery of the underlying in the case of a call , or make delivery in the case of a put, at the specified exercise price.

Exercise Price:
The price at which the underlying will be delivered in the event the option is exercised. For example, a call contract may allow the buyer to purchase 100 shares of ITI stock at any time in the next three months at an exercise or strike price of $70. The exercise price is referred to as The Strike (or Striking) Price. These Prices are usually in numbers divisible by $5 or in some case $2.5. When a stock has split, strike prices can be stated in fractions.

Expiration:
The date an option contract becomes void. All holders of options must indicate their desire to exercise by the business day preceding the expiration date. It is the last day on which an option can be exercised. If not exercised the option may become worthless. Options that close a certain amount in-the-money are automatically exercised.

Expiration Cycle: The cycle of expiration dates used in short-term options trading. For example, contracts may be written for one of three cycles: January, April, July, October; February, May, August, November; March, June, September, December. Since options (with the exception of LEAPS ^®) are traded in three, six, and nine-month contracts, only three of the four months in the set are traded at once. In our example, when the January contract expires, trading begins in the October contract. 

Expiration Date:
The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday, following the third Friday of every month. 

Expiration Month:
The month during which the expiration date occurs. 

Expiration Time: 
The time of day by which all exercise notices must be received on the expiration date. Check with your Account Executive regarding your brokerage firm's deadline for submitting exercise notices on expiration Friday. 

Extrinsic Value:
The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value.

Fences: 
See COLLAR. 

Fill-or-kill Order (FOK): 
A type of order, which requires that the order be executed completely or not at all. A fill-or-kill order is similar to an all-or-none (AON) order. The difference is that if the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be "killed" (i.e., cancelled) immediately. Unlike an AON order, a FOK order cannot be used as part of a GTC order. 

Gamma
The sensitivity (rate of change) of an option's delta at a given moment in time. It is the change in delta with respect to a one point change in the underlying. For example, lets take a call option with a 100 strike price, and has a 50 delta . If the underlying moves from 100 to 101, the option premium ( price) will increase by .50 ( 50%). Now the call is in-the-money by $1, we know that the delta would be more than 50. ( Remember that you can think of delta as the chance the option has for expiring in-the-money, or it now has a greater than 50% chance that it will expire in-the-money). If now with the underlying at 101, the gamma were 10 ( a 10% increase for a one point move in the underlying), then the new delta would be 60. 

Hedge / Hedged Position: 
A position established with the specific intent of protecting an existing position. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline. 

Hedging: 
An investment strategy of lowering risk by buying securities that has offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower return since there is a cost involved in hedging. 

Historic volatility: 
A measure of actual stock price changes over a specific period of time. See also STANDARD DEVIATION.

Horizontal Spread: See Calendar Spread

Implied Volatility:
A measure of the volatility of the underlying security derived by applying current prices rather than historical prices to a pricing model.

In the Money (ITM)
An option that has intrinsic value. A call is in the money if its strike (strike price, or exercise price) is lower than the market price of the underlying. A put is in the money if its strike price is higher than the market price of the underlying. An In the Money option contract is one in which a stock whose current market price is above the striking price of a call option or below the striking price of a put option. A call option on XYZ at a striking price of 100 would be in the money if XYZ were selling for 102, for instance, and a put option with the same striking price would be in the money if XYZ were selling for 98.

Index option: 
An option whose underlying asset is an index. Generally, index options are cash-settled. 

Index:
A compilation of the prices of several common entities into a single number. E.g. The S&P 100 Index. 

Indexing: 
Constructing a portfolio to match the performance of a broad-based index, such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund. 

Interest: 
Charge levied for the privilege of borrowing money. 

Interest Rate Risk:
Risk that a change in the interest rates will negatively affect the value of an investors holdings, generally associated with bonds but applying to all investments. 

Intrinsic Value (Also called parity)
The amount by which an option is In-the-Money (ITM). Out-of- the-Money (OTM) options have no intrinsic value. Intrinsic Value is the difference between the exercise price or strike price of an option and the market value of the underlying security. For example, if the strike price is $55 on a call option to purchase a stock with a market price of $57, the option has an intrinsic value of $2. Or, in the case of a put option, if the strike price was $55 and the market price of the underlying stock was $53, the intrinsic value of the option would also be $2. 

Investment: 
The use of money to create more money through an appreciating or income-producing asset. 

Iron Butterfly:
An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination. An iron butterfly contains four option strike vs. the regular butterfly spread, which contains only three option strikes. For example, a short iron butterfly might be: buying 1 ABC May 90 call and 1 ABC May 90 put, and writing 1 ABC May 95 call and writing 1 ABC May 85 put. 

Last Trading Day: 
The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday. 

LEAPS ^®(Long-term Equity Anticipation Securities ^® also known as long-dated options): 
calls and puts with expiration as long as 2-5 years. Typically, equity LEAPS ^® have two series at any time with January expiration. 

Leg: 
A term describing one side of a spread position. When a trader legs into a spread, he/she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position. A leg can also be defined as a sustained trend in the stock market. 

Listed Option: 
An exchange-approved put or call trading on a national options exchange with standardized terms. In contrast, over-the-counter options usually have non-standard or negotiated terms. 

Long
Position resulting from the purchase contract or instrument.
Long hedge – call option bought in anticipation of a drop in interest rates, so as to lock in the present yield on a fixed-income security.

Long Position: 
Term used to describe the ownership of a security, contract or commodity granting the owner the right to transfer ownership by sale or gift and to receive any income paid. 

Naked Option: See uncovered option.

Neutral Strategy: 
An option strategy (or stock and option position) that is neither bullish nor bearish. 

Neutral: 
An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly. 

Neutral Spread
A position that will perform best if there is little or no net change in the price of the underlying stock. Also known as flat or square.

Offer / Offer Price: 
In the securities business this means the same as ask / ask price, or the price at which a seller is offering to sell an option or a stock. 

Open Interest: 
The total number of outstanding option contracts in a given series. 

Open Outcry: 
The trading method by which competing market makers and floor brokers representing public orders shout their bids and offers on the trading floor. 

Option Chain: 
A list of the options available for the underlying stock symbol you entered. 

Option Cycle: 
The time from when an option contract is created by a writer of that option to the expiration date; sometimes referred to as an option's "lifetime." See also EXPIRATION CYCLE.

Option Pricing Curve: 
A graphical representation of the estimated theoretical value of an option at one point in time, at various prices of the underlying stock. 

Option Pricing Model: Evaluating an option’s value through the use of a pricing model allow one to determine the theoretical value (TV) of the option. (TV: the price you would expect to pay in order to break-even in the long run).

Option Writer: 
The seller of an option contract who is obligated to meet the terms of delivery if the option owner exercises his or her right. This seller has made an opening sale transaction, and has not yet closed that position. 

Option:
A contract that gives the owner the right, if exercised, to buy or sell a security at a specific price within a specific time limit. Options may be traded as securities themselves, with buyers and sellers trying to profit from price changes or used as an investment hedge. They are generally available for 1 to 9 months, with some longer term options (called LEAPS ^®) also available for selected securities. Stock option contracts generally carry the right to buy or sell 100 shares of the underlying stock (100 is the multiplier), although as a result of a merger or acquisition, it can be different. 

Options Clearing Corporation (OCC): 
The issuer and guarantor of all listed options contacts trading on national securities exchanges. The OCC makes possible secondary markets in options, while not guaranteeing the liquidity or availability of those markets. Exchange closures or periods of severe illiquidity could prevent the timely liquidation of an option position. 

Over the Counter (OTC): 
A security that is traded via a telephone and computer network rather than on the floor of an organized exchange. There is a direct link between the buyer and seller of the securities, and there is no secondary market available. 

OTC Option: 
Are negotiated in the over-the-counter market. OTC options are not listed on an options exchange and do not have standardized terms. These are to be distinguished from exchange-listed and traded equity options with NASD stocks as the underlying equity issue, which are standardized. 

Out of the Money (OTM)
An option which has no intrinsic value. A call is out of the money if its strike price is higher than the current market price of the underlying. A put is out of the money if its strike price is lower than the current price of the underlying. Out of the Money is a term used to describe an option whose strike price for a stock is either higher than the current market value, in the case of a call, or lower, in the case of a put. December 60 call option would be out of the money when XYZ stock was selling for $55 a share. Similarly, an XYZ December 60 put option would be out of the money when XYZ stock was selling for $65 a share. 

Parity: 
A term used to describe an in the money option contract's total premium when that premium is the same amount as its intrinsic value. For example, when an option's value is equal to its intrinsic value, it is said to be "worth parity." When an option is trading for only its intrinsic value, it is said to be "trading for parity." Parity may be measured against the stock's last sale, bid, or offer. 

Pin Risk: 
The risk to an investor (option writer) that the stock price will exactly equal the strike price of a written option at expiration; i.e., that option will be exactly at the money. The investor will not know how many of his/her written (short) options he/she will be assigned. The risk is that on the Monday following expiration, the investor might have an unexpected long (in the case of a written put) or short (in the case of a written call) stock position, and thus be subject to the risk of an adverse price move. 

Position: 
The combined total of an investor's open option contracts (calls and/or puts) and long or short stock. It is an investor's stake in a particular security or market. 

Premium: 
Total price of an option: intrinsic value plus time value. Often (erroneously) this word is used to mean the same as time value. 

Put Option: 
A put option gives the owner the right, but not the obligation, to sell the underlying stock at a given price (the strike price) by a given time (the expiration date). The owner is speculating that the option will go up in value and the underlying stock will go down in value. The purpose can be to either speculate with the option (hope it goes up and sell for a profit) or trade the underlying stock at a locked in price if the stock price goes down enough. For example, an ITI MAR 65 put would give the owner the right to sell 100 shares of ITI at $65 (strike price) per share between now and the third Friday in March (expiration date). 

Put-Call Ratio 
The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors. A high volume of puts relative to calls indicates investors are bearish, whereas a high ratio of calls to puts shows bullishness. Often used as a contrary indicator of market sentiment. 

Ratio Spread: 
A term most commonly used to describe the purchase of an option(s), call or put, and the writing of a greater number of the same type of options that are out-of-the-money with respect to those purchased. All options involved have the same expiration date. For example, buying 5 XYZ May 60 calls and writing 6 XYZ May 65 calls. See also RATIO WRITE.

Ratio Write: 
An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis; i.e., more calls written than the equivalent number of shares purchased. For example, buying 500 shares of XYZ stock and writing 6 XYZ May 60 calls. See also RATIO SPREAD.

Reverse Conversion: 
An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. For example, selling short 100 shares of XYZ stock, buying 1 XYZ May 60 call, and writing 1 XYZ May 60 put at favorable prices. The process of executing these three-sided trades is sometimes called "reversal arbitrage." See CONVERSION.

Rho: 
The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite. 

Selling Short:
Opening sale of a security

Series of Options: 
Option contracts on the same class having the same strike price and expiration month. For example, all XYZ May 60 calls constitute a series. 

Settlement Date: 
Date on which an executed order must settled. Buyers pay for securities with cash, and sellers deliver certificates of sold securities. 

Settlement Price: 
The official price at the end of a trading session. This price is established by The Options Clearing Corporation and is used to determine changes in account equity, margin requirements and for other purposes. 

Settlement: 
The transfer of the security (for the seller) or cash (for the buyer) in order to complete a security transaction. 

Short:
A position resulting from the opening sale of a contract or instrument. To sell a contract without, or prior to, buying it. When shorting stock, you are basically borrowing stock at one price and selling it with the hope that when you have to repay the stock loan, you will be able to buy it back at a lower price than you borrowed it for.

Short Option Position: 
The position of an option writer, which represents an obligation on the part of the option's writer to meet the terms of the option if it is exercised by its owner. The writer can terminate this obligation by buying back (cover or close) the position with a closing purchase transaction. 

Short Sales: 
A trade where the investor borrows a security from the broker, sells it at market price, and receives the proceeds of the sale less commission. The short seller then hopes that the security will go down in price so he or she can buy to cover the security back and return it to the broker. However, if the price goes up, the seller will eventually receive a margin call and be expected to either buy at current price and take the loss or add more cash or marginal securities to his account, and be vulnerable to further risk. When you are long in a security, the worst you can do is lose an amount equal to the cost of the security. When you are short, theoretically, your risk is unlimited as a security's price can keep rising forever. 

Short Stock Position: 
A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker-dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and returning it to the lending broker-dealer. 

Spread / Spread Order: 
A position consisting of two parts, each of which alone would profit from opposite directional price moves. As orders, these opposite parts are entered and executed simultaneously in the hope of limiting risk, or benefiting from a change of price relationship between the two parts. See also LEG.

Spread Option 
A position involving the purchase of an option and the simultaneous sale of an option of the same type on the same underlying security at a different exercise price and/or expiration date.

Spreading
The practice of buying and selling option contracts of the same class on the same underlying security in order to profit from moves in the price of that security.

Standard Deviation: 
A statistical measure of price fluctuation. One use of the standard deviation is to measure how stock price movements are distributed about the mean. 

Straddle: 
A trading position involving puts and calls on a one-to-one basis in which the puts and calls have the same strike price, expiration, and underlying stock. A long straddle is when both options are owned and a short straddle is when both options are written. Example: A long straddle might be buying 1 XYZ May 60 call, and buying 1 XYZ May 60 put. 

Strike / Strike Price: 
The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price. 

Strike Price Interval: 
The normal price differential between option strike prices. Equity options generally have $2.50 strike price intervals (if the underlying stock price is below $25), $5.00 intervals (from $25 to $200), and $10 intervals (above $200). LEAPS ^® generally start with one at-the-money, one in-the-money, and one out-of-the-money strike price. The latter two are usually set 20%-25% away from the former. 

Synthetics
Two or more trading vehicles packaged to emulate another, or spread. Since the package involves different components, price is also different, but the risk is the same (there are exceptions, however). 

Synthetic Long Call: 
A long stock position hedged delta neutral with a long put position. 

Synthetic Long Put: 
A short stock position hedged delta neutral with a long call position 

Synthetic Long Stock: 
A long call position hedged delta neutral with a short put position. 

Synthetic Short Call: 
A short stock position hedged delta neutral with a short put position. 

Synthetic Short Put: 
A long stock hedged delta neutral with a short call position 

Synthetic Short Stock: 
A short call position hedged delta neutral with a long put position. 

Theoretical Option Pricing Model: See also BLACK-SCHOLES PRICING FORMULA. 

Theoretical Value: 
The estimated value of an option derived from a mathematical model. SEE ALSO BLACK-SCHOLES PRICING FORMULA

Theta: 
The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options. See also TIME DECAY.

Time Decay: 
A term used to describe how the theoretical value of an option "erodes" or reduces with the passage of time. Time decay is specifically quantified by theta. 

Time Spread: 
An option strategy, which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread. 

Time Value: 
The part of an option's total price that exceeds its intrinsic value. The price of an out-of-the-money option consists entirely of time value. 

Type of Options: 
Type of options can be one of two types, either a Call or a Put.

Uncovered Option: 
A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put position is uncovered if the writer is not short stock or long another put. 

Underlying Security (stock): 
The stock subject to being purchased or sold upon exercise of an option contract. 

Underlying
The instrument (stock, future, or cash index) to be delivered when an option is exercised. The amount of underlying for each option contract depends on the security traded. For example, in stock options each contract typically represents 100 shares of the underlying stock. An underlying security is a security that must be delivered if a put option or call option contract is exercised. 

Vertical Spread: 
The simultaneous purchase and sale of options of the same class at different strike prices, but with the same expiration date. For example: ITI April 150/155 call spread. You purchase the ITI Apr 150 call and sell the ITI Apr 155 call. Similar to the outright purchase of a call, your maximum loss is the amount that you paid for the spread (debit). If the underlying closes below the 150 strike, on expiration, then both calls expire worthless and you only lose the debit. The breakeven in this example is the lower strike plus the debit amount. 

Vega
The sensitivity of an option's theoretical value to a 1% change in implied volatility. See IMPLIED VOLATILITY.

Volatility
The degree to which the price of an underlying tends to fluctuate over time. This variable, which the market implies to the underlying, may result from pricing an option through a model. Volatility is viewed from the historical side, which applies to the underlying and from the implied side which applies to the option at any given moment in time.