Category: Business – This Explainer

A stock dividend gives eligible shareholders additional shares in proportion to their holdings. This explainer covers declaration, capitalization of equity, ownership percentages, price adjustment, small versus large distributions, fractional shares, tax treatment, options, and differences from a split.

A Rule 10b5-1 trading plan sets securities transactions in advance and can support an affirmative defense to insider-trading liability when conditions are met. This explainer covers good faith, material nonpublic information, cooling-off periods, certifications, overlapping plans, single-trade limits, modifications, disclosures, and enforcement risk.

An employee stock purchase plan, or ESPP, lets eligible workers accumulate payroll deductions to buy employer stock under stated terms. This explainer covers offering and purchase periods, discounts, lookbacks, qualified plans, holding periods, Form 3922, contribution limits, blackouts, sale risk, and diversification.

A call option grants the buyer a time-limited right to buy an underlying asset at a fixed strike price. This explainer covers buyers and writers, premiums, exercise, assignment, expiration, breakeven, leverage, capped buyer losses, and potentially large writer risk.

A put option gives its buyer a time-limited right to sell an underlying asset at a fixed strike price. This explainer covers buyers and writers, premiums, exercise, assignment, protective use, breakeven, limited buyer loss, and short-put obligations.

An option premium is the market price paid by the buyer and received by the seller of an option. This explainer covers per-share quotes, contract multipliers, intrinsic and time value, volatility, time to expiration, rates, dividends, spreads, and why premium is not profit.

The strike price is the price at which an option holder may buy or sell the underlying under the contract. This explainer covers calls and puts, standardized strike listings, moneyness, premiums, exercise, breakeven, corporate-action adjustments, and selection tradeoffs.

Option expiration is the point when an option contract’s rights end and final exercise or settlement rules apply. This explainer covers expiration dates, last trading times, broker cutoffs, automatic exercise, assignment, cash versus physical settlement, and near-strike risk.

Option moneyness describes how an option’s strike relates to the underlying asset’s current price. This explainer covers in-, at-, and out-of-the-money calls and puts, intrinsic value, premium, probability shortcuts, exercise, and why moneyness changes continuously.

An option premium can be viewed as intrinsic value plus time value. This explainer covers immediate exercise value for calls and puts, extrinsic value, volatility, time decay, dividends, rates, early exercise, and why the components can change at different speeds.

Implied volatility is the volatility input that makes an option-pricing model consistent with the market premium. This explainer covers expected movement, annualization, volatility surfaces, earnings effects, skew, term structure, realized volatility, and why it does not predict direction.

The options Greeks are sensitivity measures used to describe how an option’s theoretical value may react to changes in key inputs. This explainer covers delta, gamma, theta, vega, rho, sign conventions, portfolio aggregation, changing exposures, and model limitations.