Real option


 

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Real option

An option or option-like feature embedded in a real investment opportunity.



Real option

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Incentive stock option

Incentive stock option

A stock option, which specifies a set number of shares at a specified option price extending over a given period, which is free of tax when granted and when exercised. If the share is subsequently sold two years or more after the grant date or one year or more after the transfer to an employee, a reduced capital gains tax liability on profits will apply.


Equity options

Equity options

Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.


Path dependent option

Path dependent option

An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.


Option cycle

Option cycle

The cycle of option expiration months. The most common cycles are: January, April, July, and October (JAJO); February, May, August, and November (FMAN); and March, June, September, and December (MJSD).


Covered option

Covered option

Option position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option.


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