Glossary 969 
Equity Option: an option that has common stock as its underlying security. See also 
Non-Equity Option. 
Equity Requirement: a requirement that a minimum amount of equity must be 
present in a margin account. Normally, this requirement is $2,000, but some bro­
kerage firms may impose higher equity requirements for uncovered option writing. 
Equivalent Positions: positiohs that have similar profit potential, when measured 
in dollars, but are constructed with differing securities. Equivalent positions have 
the same profit graph. A covered call write is equivalent to an uncovered put write, 
for example. See also Profit Graph. 
Escrow Receipt: a receipt issued by a bank in order to verify that a customer ( who has 
written a call) in fact owns the stock and therefore the call is considered covered. 
European Exercise: a feature of an option that stipulates that the option may be 
exercised only at its expiration. Therefore, there can be no early assignment with 
this type of option. 
Exchange-Traded Fund (ETF): an index fund that is listed on a stock exchange. 
Options are listed on some ETFs. See also Index Fund. 
Ex-Dividend: the process whereby a stock's price is reduced when a dividend is 
paid. The ex-dividend date (ex-date) is the date on which the price reduction takes 
place. Investors who own stock on the ex-date will receive the dividend, and those 
who are short stock must pay out the dividend. 
Exercise: to invoke the right granted under the terms of a listed options contract. 
The holder is the one who exercises. Call holders exercise to buy the underlying 
security, while put holders exercise to sell the underlying security. 
Exercise Limit: the limit on the number of contracts a holder can exercise in a fixed 
period of time. Set by the appropriate option exchange, it is designed to prevent 
an investor or group of investors from "cornering" the market in a stock. 
Exercise Price: the price at which the option holder may buy or sell the underlying 
security, as defined in the terms of his option contract. It is the price at which the 
call holder may exercise to buy the underlying security or the put holder may exer­
cise to sell the underlying security. For listed options, the exercise price is the 
same as the striking price. See also Exercise. 
Expected Return: a rather complex mathematical analysis involving statistical dis­
tribution of stock prices, it is the return an investor might expect to make on an 
investment if he were to make exactly the same investment many times through­
out history.