Options Glossary

Lambda: Least-squares AMBiguity Decorrelation Adjustment.
Last trading day: The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.
LEAPS® (Long-term Equity AnticiPation Securities)/Long-dated options: In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2008, LEAPS are available with expirations of January 2010 and January 2011.
Leg: A term describing one side of a position with two or more sides. When a trader legs into a spread, he/she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position.
Leverage: A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.
Limit order: A trading order placed with a broker to buy or sell stock or options at a specific price.
Liquidity / liquid market: A trading environment characterized by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.
Listed option: A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.
Long option position: The position of an option purchaser (owner) which represents the right to either buy stock (in the case of a call) or to sell stock (in the case of a put) at a specified price (the strike price) at or before some date in the future (the expiration date). It results from an opening purchase transaction -- e.g., long call or long put.
Long stock position: A position in which an investor has purchased and owns stock.

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