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Three baseball umpires were asked how they call balls and strikes. The first says, "I call them as they are". The second says, "I call them as I see them". Then, the third says, "They ain't nothin till I call them." In many ways, language does shape our reality and this is true in any field, including finance. In addition, options traders are a really unusual bunch and have their own set of terms that can be somewhat interesting and often unique.

American-style: A type of options contract that can be exercised at any time prior to the options expiration. Options on stocks and exchange-traded funds settle American-style.

AMEX: Not the green credit card in your wallet, the American Stock Exchange, or AMEX, is one of the oldest exchanges to list puts and calls.

Ask: The asking price is the current market quote at which you can buy an option contract.

Assignment: When a holder of a short call position is asked to fulfill the terms of the contract and sell the stock (have called), they have been assigned. Assignment of a put option happens when a put seller is asked to buy the stock per the terms of the put options contract.

At-the-Money: An option contract is ATM when the strike price equals the underlying stock price.

Backspread: Sounds like a swimming style, but in the options world, it refers to a spread in which the investor is selling call options and buying a greater number of higher strike calls. Or, a put backspread can be created by selling puts and buying a higher number of lower strike puts.

Bid: The current market price at which you can sell your option contract.

Bid-whacking: Heavy selling and falling prices.

Call: A type of contract that gives an investor the right to buy, or call, the stock at a given price for a fixed period of time. Call sellers are under the obligation to deliver the underlying stock at the specific price until that option expires.

CBOE: Called the C-BOW by old timers, the Chicago Board Options Exchange was the first to list puts and calls. It is one of nine options exchanges today and still one of the largest. Commissions: The fees imposed by the brokerage firm for executing trades. Many brokerage firms charge a flat fee plus a per contract charge.

Diagonal Spread: Buying a longer-term option and selling a shorter-term contract with a different strike price.

European-style: A type of options contract that can only be exercised at expiration. Many index products settle European-style.

Exercise: You don't need to visit the gym to get exercise in options trading. In options parlance, exercise refers to the process of executing your right to call or put a stock to another party. When you exercise you're right, the other side of the contract has been assigned. Exercise instructions are delivered to the broker. Options that are ITM at expiration are subject to auto-exercise.

Expiration: Each options contract has a fixed life and ceases to exist after it expires. For most options, expiration is on the Saturday following the third Friday of the expiration month.

Fill: When the options order is executed by the brokerage firm, it has been filled. Hedger: An investor that uses puts and calls to protect a long or short positions in an underlying stock or ETF. Hedgers seek to use options to mitigate risk.

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In-the-Money: A call option is ITM if the strike price is below the current market price. A put is in-the-money if the strike price is above the current market price.

ISE: Launched in 1999 as the first all-electronic options exchange, the International Securities Exchange has become of the largest of nine options exchanges today.

Legging: Not many traders wear leggings while trading options, but some do leg into options spreads. In the options world, legging refers to entering an option spread one side of the trade at a time, rather than as one position. For example, you can leg into a straddle by buying a call, waiting for the stock to go up, and then buying a put once the stock has moved higher.

Moneyness: An options contract can be in-the-money, at-the-money, or out-of-the-money. It's all about moneyness.

Offset: To close an open options contract. An investor can sell-to-close or buy-to-close and offset an existing open position.

Open: Entering a new options position. Investors can buy-to-open or sell-to-open both puts and calls.

Open Interest: The number of positions opened in a contract and not yet been closed out. Open interest is updated once daily and changes when positions are opened, closed, or exercised. Open interest in a contract falls to zero when the contract expires. OEX: S&P 100 Index, or OEX, options were the first listed index options contracts. The index is not as actively traded today, as other products like the S&P 500 Index (.SPX) and NASDAQ 100 (.NDX), have gained more popularity.

Out-of-the-money: An OTM call options has a strike price above the current market price. A put option is out-of-the-money if the strike price is below the current market price.

PHLX: Sometimes called the Felix, the Philadelphia Stock Exchange is one of the oldest and largest exchanges to list put and call options.

Pinning: The unusual term, which probably doesn't exist outside the world of options trading, refers to the idea that, the price of an underlying stock will sometimes sit near the strike price of an options contract heading into the expiration. This pin risk can create headaches for options players because they don't know for sure whether the contract will be ITM,ATM, or OTM at the expiration.

Put: An option contract that gives investors the right to sell, or put, the stock to another party for a fixed period of time and a specific price. Put sellers have an obligation to buy the stock at the strike price through the expiration.

Put/Call Ratio: A sentiment indicator computed as put volume divided by call volume. It can be applied to a stock, a sector or a market as a whole. High P/C ratios are signs of bearishness. Low put-to-call ratios suggest bullishness.

Risk-reversal: A bullish risk-reversal involves buying calls and selling puts on the same stock. A bearish risk-reversal is the opposite.

Speculator: An investor that uses puts and calls as a leveraged way to bet on moves in the underlying stock price.

Spread: An options play in which the investor is buying calls (or puts) and selling calls (or puts) at a different strike and or expiration month. A spread also refers to the difference between the current bid and ask price of an options contract. Market makers live off this spread.

Strangle: You strangle a stock when you buy both puts and calls with the same expiration month, but different strike prices.

Straddle: If you buy puts and calls with the same expiration months and strike prices, you initiated a straddle.

Strategist: Any investor that initiates options strategies that go beyond put and call buying. Strike Price: An options contract stipulates that an underlying asset can be bought and sold at a specific price. That price is known as the strike price of the option.

Time Spread: Sometimes called a calendar spread, it involves buying a longer-term contract and selling a short-term contract with the same strike price.

Triple Witch: A Quarterly expiration (March, June, September, and December) when stock, futures, and futures options expire simultaneously. Volume and volatility are sometimes elevated at the Triple Witch. Some people now call this quarterly options expiration the Quadruple Witch because single stock futures also expire.

Underlying: An options contract is a derivative because the price of the put or call is derived from another investment. The other investment is the underlying security or underlying instrument. It can be a stock, ETF, index, or futures contract. There are many different types of underlying securities.

VIX: The CBOE Volatility Index, or VIX, tracks the expected volatility priced into S&P 500 Index options. It's sometimes called the market's "Fear Gauge" because it moves higher during times of fear and panic on Wall Street.The NASDAQ 100 Volatility Index (.VXN) is sometimes called Vixen.

Vols: Implied volatility IV is computed using an options pricing model. Each options contract has a unique level of IV and it is always changing. If a trader says, vols are rich, it means implied volatility is high. Cheap options have low vols.

Writer: An option seller writes options.

At the time of publication, Fred Ruffy held no positions in the stocks or issues mentioned.

Frederic Ruffy is an experienced trader and provides daily commentary and analysis of the options market. He is co-founder of the web site, His work has also appeared in Futures Magazine, Technical Analysis of Stocks & Commodities, Stock Futures and Options, and Sentiment.

In addition to writing market commentary and trading-related books and articles, Fred has also worked as an instructor, educating investors on advanced topics like measuring volatility, the benefits of sector rotation and the risks and potential profits from trading around earnings. An active trader himself, with over 15 years securities industry experience, his market observations and analysis of the options market are featured regularly in the financial press including Barron's, Reuters, The Wall Street Journal, and Bloomberg.

OptionsProfits For actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

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