American options | An option contract that may be exercised anytime up to the expiration date. A European option may be exercised only on the expiration date.
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call option | The right—but not the obligation—to buy a fixed number of shares of stock at a stated price within a specified time.
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cumulative probability | The probability that a drawing from the standardized normal distribution will be below a particular value.
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European options | An option contract that may be exercised only on the expiration date. An American option may be exercised any time up to the expiration date.
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exercising the option | The act of buying or selling the underlying asset via the option contract.
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expiration date | Maturity date of an option.
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option | A right—but not an obligation—to buy or sell underlying assets at a fixed price during a specified time period.
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put-call parity | The value of a call equals the value of buying the stock plus buying the put plus borrowing at the risk-free rate.
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put option | The right to sell a specified number of shares of stock at a stated price on or before a specified time.
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standardized normal distribution | A normal distribution with an expected value of 0 and a standard deviation of 1.
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striking or exercise price | Price at which the put option or call option can be exercised.
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