Options Glossary

An Alligator Spread refers to the initiation of a unique mix of call options and put options, which in aggregate generates such a high commission for the broker that it strips most of the profit potential of the trade by way of commissions.  Your broker is basically an alligator eating up your potential profits. 

Alligator spreads will result in the investor losing money or breaking even on the trade even if the market moves considerably in their favor.  Be careful of which broker you use and be sure to check their options commission schedule.

Definition of Underlying Security

The underlying security, or underlier, is a specific security, commodity, or other financial instrument that is represented by an options or derivative contract.

What is Intrinsic Value?

Intrinsic value is the portion of the option premium that is in the money.

What are LEAPS?

A long term equity anticipation security, aka. LEAPS, is a fancy term for a long dated option with expiration of at least 9 months in the future.  LEAPS are currently offered on about 450 equities (including equity indexes such as the Dow Jones - DJX and the S&P500 - SPY) and can be traded with calls and puts just as normal equity options. 

How to Use LEAPS?

What is a Strike Price?

The strike price of an option is simply a contractual price per share at which an option holder can exercise their right to buy or sell the underlying security that the option contract is based upon.  For this reason, strike price is also referred to as the "exe