SIDEBAR: The basics by Technical Analysis, Inc.
There is a special vocabulary of options trading that must be mastered in order to understand the uses
of options and communicate with brokers and other option traders.
An option is a legal contract that gives the holder the right to buy or sell a specified amount of the
underlying asset at a fixed or determinable price (called the exercise or strike price) upon exercise of the
option. Options that can be exercised at any time before they expire are sometimes called American
options. They are to be distinguished from European options, which can be exercised only during a
specified period immediately before expiration. Almost all listed options that trade in the United States
are of the American type.