Option

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The Jolly Contrarian’s Glossary

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1. A derivative contract — or a feature embedded into a derivative contract — whereby one party grants to the other right to require it to perform a financial obligation at some point in the future. There are American options — where the option may be exercised at any time in its period — and European options where it may be exercised only at maturity.

2. More generally, a discretion, as opposed to an obligation.

3. What most risk controllers are short. You don’t get any credit for saying, “yeah, that should be fine”, however fine things turn out to be. You can get fired for it, though, if things turn out not to be.