Option trading glossary S – Z

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Settlement price

In a derivatives market, the settlement price is the average sales price of a contract during a specific period of the trading session.

The Chicago Mercantile Exchange does for instance list the settlement price for the period 15:14:30 – 15:15:00 CDT (Central Daylight Time). They use a volume weighted average of trading activity in the pit to calculate the price.

Why is it important to know the settlement price? Because the settlement price is used to determine profit or loss for the day. The settlement price is also a key factor in determining margin requirements.

Short position

You have a short position open if you have borrowed an asset and sold it, and not yet returned the borrowed asset to its owner. The practise of selling borrowed assets is a way of profiting from price falls.

In the context of options, the writing (creation) of a call option places the writer in a short position unless the writer owns the underlying asset or instrument.

Short hedge

A short hedge is a type of risk management. The investor use a shorted security to hedge against potential losses incurred by a certain long investment. The shorted security is usually a derivatives contract.

Short hedging is commonly utilized by agricultural producers who wish to mitigate the risk of low sales prices for their product.

Spot market

At a spot market, assets are paid for and delivered right away. Exactly what “right away” means varies. There are many commodity markets where spot market deliveries can take place up to a month after entering into the sales contract.

Spot price

The current price of an asset on the spot market is known as the spot price.

Spread (Calendar)

This involves the simultaneous writing and purchase of two options with different expiry dates but same type, underlying and strike price. Typically, the purchase is for a farther-term option and the writing is for the nearer-term option.

Spread (Debit)

The investor purchases an option with a higher market price while simultaneously selling an option with a lower market price. Both options are for the same underlying.

Stock Index Future

A stock index future is a futures contract on a stock index.


If you (the investor) is in a long position in a put and in a call at the same time, and the strike price and expiration are the same for the put and the call, it is known as a straddle.


One long put and one long call are combined to create a strangle. In a strangle, the strike price of the long put is always lower than the strike price of the long call.


Two call options and one put option is combined to create a strap. Both call options and the put option are long and have the same strike price and expiration.

Strike price

The strike price in an options contract is the price for which the underlying asset or instrument may be purchased under a call contract or sold under a put contract. Also known as the exercise price.


In finance, two long puts and one long call is combined to create a strip. Both puts and the call have the same exercise price and expiration.

Synthetic futures

A long call and a short put is combined to form a synthetic future. A synthetic future replicates the behaviour of a long futures contract.


Theta is the eight letter in the Greek alphabet. In finance, theta is used as a symbol for the lost-value rate of an option over time (i.e. time value decay).


In an organized market, the minimum permissible price fluctuation is known as a tick.

Traded options

The term “traded options” is used for exchange-traded options. Options bought and sold over-the-counter are of course also traded, but they are normally not referred to as “traded options”.

Uncovered call

A writer that is creating a call option without owning the underlying asset or instrument is doing an uncovered call. This is considered more risky for the writer compared to a covered call.


The asset or instrument on which an option is written.

The assets or instruments on which futures are written are also called underlyings.


In finance, a call warrant is a security that gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. It is thus similar to a call option.

A put warrant is a security that gives the holder the right but not the obligation to sell an underlying security at a certain price, quantity and future time. It is thus similar to a put option.

Companies often include warrants as a part of their new-issue offering.