Definition of Elasticity - See Lambda

Elasticity - See Lambda

Elasticity of an option

Percentage change in the value of an option given a 1% change in the value of the
option's underlying stock.

Lambda

The ratio of a change in the option price to a small change in the option volatility. It is the partial
derivative of the option price with respect to the option volatility.

Option elasticity

The percentage increase in an option's value given a 1% change in the value of the
underlying security.

Lambda

The percentage change in the price of an option relative to a 1%
change in the price of the underlying security. Also known as elasticity.

Intrinsic value of an option

The amount by which an option is in-the-money. An option which is not in-themoney
has no intrinsic value. Related: in-the-money.

Time value of an option

The portion of an option's premium that is based on the amount of time remaining
until the expiration date of the option contract, and that the underlying components that determine the value of
the option may change during that time. Time value is generally equal to the difference between the premium
and the intrinsic value. Related: in-the-money.

Exercise

To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of
a put) the underlying security.

Kappa

The ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility.

Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.

Time premium

Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.

Type

The classification of an option contract as either a put or a call.

Underlying security

options: the security subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying security to IBM options. Depository receipts: The class,
series and number of the foreign shares represented by the depository receipt.

Writer

The seller of an option, usually an individual, bank, or company, that issues the option and
consequently has the obligation to sell the asset ( if a call) or to buy the asset (if a put) on which the option is
written if the option buyer exercises the option.

Theta

The rate of change in the price of a derivative security relative to time.
Theta is usually very small or negative since the value of an option tends to
drop as it approaches maturity.

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