All Or None orders are routed to the primary exchange where they are manually held and executed when eligible. For a call writer, delivery occurs when the stock is transferred to the call holder at the strike price specified in the contract. Carrying Cost The interest expense incurred when borrowed money is used to finance a stock or option position. Fungibility The ability to trade the same instrument interchangeably across exchanges or other marketplaces. Exchange for Physical A transaction generally used by two hedgers who want to exchange futures for cash positions. Uptick When the most recent trade for a particular instrument occurs at a higher price than the trade immediately preceding it. SEP IRA Simplified Employee Pension Plan IRA. Trailing buy stop orders will move downward a defined distance as long as the security moves downward. Trading Level Your trading level has been determined based on your trading experience, income level, age and overall knowledge of options.
Option A contract that grants the holder the right, but not the obligation, to buy or sell a particular security at a predetermined price for a set period of time. Bid The price point where a buyer is willing to purchase a given stock or option contract. An original issue discount bond is a bond issued at a price below par value. These include: Delta, Gamma, Theta, Vega and Rho. Bull Spread A position consisting of multiple options that benefits from an increase in the stock price. Synthetic Positions Also known as an equivalent position.
The statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss of money, the commission charges and the net profit or loss of money on the transaction. Also referred to as the Spot Month. YTM takes into account interest rate, length of time to maturity, price paid and assumes all interest received over the life of the security can be reinvested at the original purchase yield. Also may be called deferred sales charge. Dow represents the price movements of the 30 companies that, in the opinion of the editors of The Wall Street Journal, most represent the American economy. Trigger The price at which a trailing stop will activate. Cycle The expiration months associated with a particular series of options.
Contango A condition characterized by the futures price is above the expected future spot price. Market Order A customer order that is to be executed as quickly as possible at the prevailing market price. Bond A security that represents the debt of a corporation, municipality or any other entity. Revenue Bond A municipal bond issued to finance a specific public works project and is supported by the revenues of that project. The way in which the theoretical value of an option decreases as time passes. Circuit Breaker A system of coordinated trading halts on equities and equity derivative markets designed to provide a cooling off period during large intraday price movements. Backspread A spread method in which the net position has more long options than short ones. Option Writer The person who sells an option in an opening transaction thereby creating the obligation to meet the terms of the contract in the event of assignment. This happens four times a year: The 3rd Friday of March, June, September and December.
Losses The profit or loss of money that results from closing a position. Sell To Close An order entered to close a long position. Delivery Month See Contract Month. For a put writer, delivery occurs when the option writer pays the agreed upon price for the stock and then receives the shares. Carrying Charge The cost of storing a physical commodity, such as grain or metals, over a period of time. Generally, AON is not recommended on orders of less than 20 contracts since order execution may be affected.
Debit A decrease in the cash balance of an account resulting from a purchase or withdrawal. Secondary market A market that provides liquidity for previously listed securities. Leverage A characteristic of options that makes it possible for option holders to realize a greater percentage of profit and loss of money than they would with a long or short position in the same underlying stock. CTA is generally required to be registered with the CFTC. Contract A contract which requires a seller to agree to deliver a specified cash commodity to a buyer sometime in the future. See Also Nearby Delivery Month. This contrasts with equity options in which stock is exchanged at expiration rather than cash.
Cash Settlement Typically associated with index options, this is the process through which option holders receive the intrinsic value of the options in cash at expiration. This information is primarily only helpful to professional traders who manage large positions. Primary Market In cases where the same contract is traded on multiple exchanges, the exchange that handles the most volume is considered the primary market. The ask price is also known as the offer. Transaction Costs The fees related to initiating and maintaining a position. If the stock price rises and the options are assigned, this person will have to turn over 200 shares at the strike price. Also referred to as original margin. Rolling A method in which the trader closes one position and immediately opens another position at a different strike or expiration.
Write To sell an option in an opening transaction. Time Decay The way in which an option naturally loses value as time passes. Contributions are subject to taxes. Margining A procedure for margining related securities, options, and futures contracts jointly when different clearing houses clear each side of the position. Funds Available to Withdraw Estimated based on cash available and for margin accounts, it is based on the leverage from your current marginable securities. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market. Synthetic short stock A long put option and a short call option with the same strike and expiration.
This does not include your mutual funds balances. The oldest and largest stock exchange in the United States. The major difference between a Unit investment Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all. All terms of the contract are customized, in contrast to futures contracts whose terms are standardized. CUSIP A CUSIP is a unique identifier assigned to a bond at the time it is issued. Breakpoints are established by the mutual fund company.
Stock Buying Power Your purchasing power for stock; margin accounts show twice the stock purchasing power of cash accounts for stocks that trade over 5 dollars. The opposite of Contango. This means that the spread holder will be responsible for the dividend. Aggregation The policy under which all futures positions owned or controlled by one trader or a group of traders are combined to determine reportable positions and speculative limits. Covered Call A short call option position against a long position in an underlying stock or futures. Nearby Delivery Month The futures contract month closest to expiration. The price, specified by the option contract, at which the holder can buy or sell the underlying stock. An individual or organization which operates or solicits funds for a commodity pool. The specifics of this limit differ by exchange and option type.
Fast Market A market in which the bids and offers change so quickly that the difference between what is quoted and where a trade actually takes place may be significant. Index An index of 500 of the biggest publicly traded companies in the United States. Actuals The physical or cash commodity, as distinguished from commodity futures contracts. The firm responsible for issuing and standardizing all exchange traded options. Strangle An option spread method involving a long put and a long call or a short put and a short call with different strikes but the same expiration. Deferred Delivery Month The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month. Backed Securities A number of mortgages bundled together into a single security to be sold.
The federal agency charged with protecting investors and maintaining the integrity of the securities markets. The ISE is a completely electronic exchange. Covered Combination See covered strangle. Bull Put Spread This method involves selling a put with a higher strike and buying a put with a lower strike. Net profit margin Net income as a percentage of sales. Back to top r Range The difference between the highest and lowest prices recorded during a given trading session, week, month, or year. Contributions are taxed, but earnings used toward qualifying education expenses are tax exempt.
However, since the person only has 100 shares, the potential loss of money on the position is unlimited because one of the calls is uncovered. Back to top e Early exercise The right provided by American options that allows the holder to buy or sell shares at the strike price before the expiration date. The statement shows the price and the number of contracts bought or sold. NBBO See National Best Bid or Offer. Book Value per Share The book value of a company divided by the number of shares outstanding. Break A rapid and sharp price decline. This spread consists of buying and selling options with different expirations but the same strike price. Combination Spread A broad term used to describe positions consisting of an equal number of long calls and short puts or long puts and short calls.
Abandon The act of an option holder in electing not to exercise or offset an option. Back to top x Xspread Direct Quotes These spread quotes are retrieved directly from exchange liquidity providers and represent quotes with a potential for discount beyond a combination of single leg quotes on spreads. Type of Options There are two option types: puts and calls. The account may be transferred to another family member. Resistance A price level at the top of a trading range that a stock has reached on several occasions but has not penetrated due to increased selling pressure at that price. Municipal Bond A bond that is issued by a state or local government. Unlike a day order, which expires at the end of a trading day, a GTC order will remain in effect until it is filled or cancelled. Synthetic short put A short call and a long position in the underlying stock. Limit Order Like a stop order, this order will be triggered by a move up or down to a particular price level.
For the short put to be covered as well, there would have to be enough cash in the account to cover the purchase of the stock at the put strike price in the event of an assignment. None, GTC, split fill. Market The process of valuing an account at the end of the day based on the settlement prices of the securities. Speculators assume market price risk and add liquidity and capital to the futures markets. The difference in value between two options, where the value of the short position exceeds the value of the long position. Redemption Fee Fee levied for selling shares of your index fund.
Sometimes combined with a Purchase and Sale Statement. Back to top d Dated Date It is the first day that interest begins accruing on newly issued bonds. Intermarket Spread A spread between commodities that are traded on more than one market. The number of contracts must meet or exceed a predetermined threshold level, and these orders must be executed during pit trading sessions. Back to top w Warehouse Receipt A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions. Closing Transaction The purchase or sale of an option that offsets an existing open position.
Cash Price The price of the actual underlying commodity that a futures contracts is based upon. However, withdrawals, subject to certain rules, are tax exempt. Any trade executed at the prevailing bid or offer. Retender In specific circumstances, some contract markets permit holders of futures contracts who have received a delivery notice through the clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued another long; others permit transfer of notices to another buyer. Cost of Carry See Carrying Charge. SIPC See Securities Investor Protection Corporation. When the price reaches that level specified in the stop order, the stop order becomes a market order and is executed at the best possible price. Time Spread Also known as a horizontal or calendar spread.
Each futures exchange has specific procedures for delivery of a cash commodity. Bear call spreads and bull put spreads are examples of credit spreads. Use primarily to protect an existing stock position. Exercise Price Also known as Strike Price. Downtick When the most recent trade for a particular instrument occurs at a lower price than the trade immediately preceding it. Cash accounts can purchase additional positions using unsettled funds but cannot close out the position until trades settle. Covered Strangle A short call and a short put with the same expiration but different strike prices combined with a long stock position. The concept is similar to a mutual fund in the securities industry. This position offers limited risk and unlimited profit potential.
Chicago Produce Exchange in 1874. All Could The term used to refer to an order that has been only partially executed. Strike Price Also known as Exercise Price. NBBO combination trade quote. Compound Interest Interest earned on both an original investment and interest already accrued. Implied Volatility The amount of movement expected in the stock given the current price of the options. Spot Price The price quoted for the actual commodity same; same as cash commodity price. Pool See Commodity Pool. Taken together, these two sides equal one round turn.
The date before which investors must own shares to be eligible to receive whatever dividend has been declared. Back to top i ISE International Stock Exchange. Funds A fund that does not issue new shares or accept new money after the initial public offering. Base Currency In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. The amount by which the current price of an option exceeds its intrinsic value. The settlement price is based on the opening prices of all the stocks in a particular Index. JPY quote would be considered a cross rate, whereas in both the United Kingdom or Japan, it would be one of the primary currency pairs traded. This yield is only valid if the security is called prior to maturity.
Money Market sweep movements update daily before the market opens. See also maintenance margin. Bearish The term used to describe the market sentiment of people who expect a general market decline. In contrast, a regular stop order will be executed at the market price rather than at a specified price. Day Trade Any position initiated and closed on the same day. An optionsXpress qualifier used when multiple stock or option orders are entered and the execution of one order submits a second or alternate order. Arbitrage A technique used almost exclusively by floor traders and other professionals to capitalize on small price discrepancies. Net profit The bottom line.
Commodity A general futures market, without reference to any particular delivery month. Acat An account transfer that is done manually because the delivering firm is not a member of the ACAT system, or you are requesting a partial transfer, which requires a manual process. Joint Tenants in Common Account ownership by two or more people in which, upon death of an owner, a proportional percentage of the account typically passes to his or her estate. Adjusted Strike Price The change in the strike price of an option contract that results from a corresponding change in the underlying. Convertible Bond A debt security feature that allows the holder to convert to another issue. The final day in which trading may occur for a particular delivery month. Treasury Bill at maturity.
Credit An increase in the cash balance of an account resulting from a sale or deposit. The carrying cost can also be viewed as the opportunity cost of an investment relative to what the same cash would have earned at current interest rates. Limit Order Used by the trader who wishes to give the floor broker a limit as to how far through the specified stop the order may be filled. Contingent Time The hours that a contingent order will be in effect. Market Maker System A competitive trading environment where floor traders create efficiency and liquidity by competing with each other to provide the best bids and offers. The first day on which notice of intent to deliver a commodity in fulfillment of an expiring futures contract can be given to the clearinghouse by a seller and assigned by the clearinghouse to a buyer. Exercise by Exception Also known as Automatic Exercise.
Varies from contract to contract. Physical Settlement The process of settling a futures contract at the expiration date by delivering the underlying instrument. FX See Foreign Exchange. The yield of a bond or note if you were to buy and hold the security until the call date. Futures Commission Merchant to a customer when a futures or options position has been liquidated or offset. In this capacity, market makers provide liquidity in the market.
Synthetic short call A short put and a short position in the underlying stock. Also called an advisory fee. Expense Ratio The percentage of total assets used to pay for fund expenses. Forex See Foreign Exchange. Equity option A contract that allows the holder to buy or sell shares of a publicly traded stock at a predetermined price. Individual Account Account ownership by a single individual in their legal name only which, upon death of the owner, the account typically passes to the control of his or her estate. Closing Range A range of closely related prices in which transactions take place at the closing of the market; buying and selling orders at the closing might have been filled at any point within such a range.
Spread Stop Order A contingency order to buy or sell an option spread when the market reaches a particular level. In this case, 4 options at 4 strike prices are used. Confirmation Statement A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been initiated. Load A sales charge paid when mutual fund shares are sold. Floor Broker A trader on the exchange floor who executes customer orders. This typically occurs when one closes out a position prior to funds being settled. The PHLX trades stocks, equity options, index options and currencies. Back to top j Joint Tenants with Rights of Survivorship Account ownership by two or more people in which, upon death of an owner, the surviving account owners automatically retain ownership of the account. Once a trade is executed, it is reported by a Confirmation.
Margin Equity Percentage Calculates the value of your securities in relation to the money you have borrowed. Exercise To invoke the right associated with a particular option contract. This may or may not be the same as the settlement price used by the OCC to determine end of the day account values. Futures Contract A firm commitment to make or accept delivery of a specified quantity and quality of a commodity during a specific month in the future at a price agreed upon at the time the commitment was made. Opening Transaction A trade that creates a new position or adds to an existing one. Futures Cash Total required segregated funds after a futures position is initiated. Again, the maximum profit is achieved at or above the higher strike price. Usually the rate is about a percentage point higher than the Federal Funds Rate. The yield of a bond or note if you were to buy and hold the security until maturity.
Mutual Fund Exchange Switching on mutual fund investment from one fund to a different fund within the same mutual fund family. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. Fund Assets Amount of assets currently in the fund. For example, a typical intermarket spread might be made between Chicago wheat and Kansas City wheat. Married Put method The practice of simultaneously buying stock and buying puts to limit downside risk. Versus Cash See Exchange for Physicals. Founded in 1872 as a market for cheese, butter, eggs, its principle commodities today include heating oil and petroleum products. Internal Revenue Code sections in which they appear.
Series of Options Calls and puts based on the same underlying stock with the same strike and expiration. Also, a stop with limit order will be placed as a straight limit order if, when received by the exchange, the stop price already has been violated. Customer Segregated Funds See Segregated Account. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts. Cash Defined as the net sum of your balances held in cash, margin, and money market funds. The table below outlines the various trades permitted at each trading level. Any option method in which the number of contracts purchased is greater or less than the number sold. Dividend Rate The fixed or adjustable rate paid on common stock or preferred stock.
Strike Price Interval The standard price difference between consecutive options. The fund is structured as a unit investment trust. The OCC, which serves as an intermediary between buyers and sellers, guarantees that all option contracts are honored and executed according to their terms. The new position can consist of either short or long options or stock. Current Yield Coupon rate divided by the market price of the bond. Best Bid The highest quoted bid of all competing market makers to buy a particular security at any given time. Option Chain A way of quoting options prices through a list of all of the options for a given security, including the various strike prices, expiration dates, and whether they are calls or puts. Stop Order A contingency order to buy or sell a stock when the market reaches a particular level. It can also refer to net profit margin, which is a percentage telling you how many cents on each dollar is pure profit.
Underlying Security The stock, commodity, or other financial instrument on which an option contract is based. Execution The process of completing an order to buy or sell securities. Basis Point Refers to yield on bonds. Close A period of time at the end of the trading session when all orders are filled within the closing range. Unsettled Funds Funds that are not available to withdraw until specified settlement. Uncovered Option Also known as a naked option. Ask or Ask Price The current lowest displayed price at which a seller would be willing to sell a given stock or option contract.
Contingent Trigger On entry of the order the customer can choose bid, ask or last. BOX The Boston Options Exchange. In this case, option sellers are responsible for cash payment. These include commissions, margin fees, and exchange fees. Once that level is reached, the order becomes a limit order, which must be executed at a specific price. Put Option In the case of an equity option, a contract that gives the holder the right, but not the obligation, to sell a stock at a set price for limited period of time. Buy To Open An order entered to establish a new long position. Bull call spreads and bear put spreads are examples of debit spreads.
Custodial IRA Account An account created for the benefit of a minor that is managed by an adult as the custodian and restricted by the rules associated with corresponding IRA account. Support In a period of falling prices, the support level is a price below which the stock tends not to trade because of the reemergence of buyers. Historically, the interest paid on these bonds has been exempt from federal, state and local taxes in the state of issuance. Versus Purchase Notes This note is used to specify the original shares of stock or a fund sold for tax recording purposes. See also Traditional IRA and Roth IRA. Diagonal Spread A position in which the trader buys and sells options with different strike prices and expirations. Bear Spread A position consisting of multiple options that benefits from a decline in the stock price. Requests to withdraw funds may be effected by the pricing of positions and the settlement of transactions. This trade restriction does not prevent an account from trading, but does prevent an account from utilizing unsettled funds to initiate a trade.
Side A side considers the buy and sell actions of a trade as separate events. Maturity ranges from 2 to 270 days. Option Period The time from the creation of an option to its expiration. Keep in mind, a negative margin balance does not necessarily indicate borrowed funds. Funds must remain segregated until the position is closed. Initial Margin The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Traders who buy on margin borrow a percentage of the purchase price from their brokerage firm.
Delta Neutral The process by which professional traders offset option positions with stock to create a position that has 0 deltas. It was given its present name in 1919. Convergence The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month. The price of each share of a mutual fund. Option Buying Power Calculated based upon account equity less any requirements and pending purchases. The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract.
Free Riding Violation An account that engages in free riding is considered to be in violation, and the account runs the risk of being put on trade restriction. Also referred to as Actuals. Vertical Spread A position in which the options bought and sold have the same expiration but different strike prices. These funds do not charge any other sales fee. Selling Hedge Selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future. An exchange member who buys and sells contracts in the trading pit of an exchange. Order An order issued by a customer allowing the floor broker to use his or her best judgment regarding the price and timing of the trade. Fill Or Kill An order that must be filled immediately or canceled.
Please review our margin guidelines for more information. Breakpoints Reduced sales loads on mutual funds for larger investments. Roth, or Rollover IRA. Some futures contracts, such as stock index contracts, are cash settled. Bull Call Spread This method involves buying a call with a lower strike and selling a call with a higher strike. The maximum profit is achieved when the stock trades at or below the lower strike. Mutual Fund Family A group of mutual funds managed by a single company. Cash Market A place where people buy and sell the instrument underlying a futures contract, such as a securities exchange. Custodial Account An account created for the benefit of a minor which is managed by an adult as the custodian.
Margin The amount of collateral or equity required to borrow money for investing purposes. The following summarizes the most common synthetic positions. Forward contracts are not traded on exchanges. Index As it relates to stocks, an index is created by combining multiple stocks and monitoring their performance as a group. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. Partial Fill A partial fill is when part of a limit order has been filled. Listed Option An exchange traded put or call contract issued by the OCC with standardized strike prices and expiration dates. The larger the investment, the lower the fees will be. This spread is established by buying and selling options with different expirations but the same strike price.
In the futures market, one lot refers to one futures or options contract. LEAPS trade like normal options but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stock. Triple witching It occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Withdrawal is subject to approval and may be delayed or refused due to the processing of trades, other withdrawals or position risk. Refunding The retiring of a bond by issuing a new bond. Time Value Also known as extrinsic value. Synthetic long put A long call and a short position in the underlying stock. Subordinated Debenture A debenture whose claim to interest and principal of the corporation comes after those of the regular debt securities.
Bear Call Spread This method involves selling a call with a lower strike and buying a call with a higher strike. Buffered limit Desired limit price will be applied as an offset to the triggered quote, at the time the order is sent to the exchange. This is the cash market for foreign currencies. Most brokerages will charge you slightly above this amount when you borrow on margin. Orders that are working based on a preset condition. Settlement Price The price established by the Options Clearing Corporation at the end of the trading day as a standard to value the securities in individual trading accounts or in the morning in the case of some European Options. GTC order may be carried over to the next market day until it is cancelled or filled in its entirety.
American Style Option A contract that can be exercised at any point before expiration. Leg Part of a larger position consisting of multiple options. SEP is an not difficult method for a small employer to establish a retirement plan for employees without the complex administration and expense found in qualified retirement plans. Any withdrawals after this date will be subject to income taxes and a penalty. Settled Funds After a trade has cleared, proceeds are considered settled funds. End Fund A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell.
Net investment Gross, or total, investment minus depreciation. The price specified by the option contract at which the holder can buy or sell the underlying stock. Upon notification, the option seller is obligated to deliver or receive shares according to the terms of the contract. It also trades a wide variety of equity and index options. See also Inverted Market. By legging into a spread, a trader does part of the spread at one price and hopes the market will move so the rest of the spread can be completed at a better price. Treasury Auction Where new issues of Treasury bills, notes and bonds can be sold to the investing public. Under these conditions, large orders can be executed without significantly impacting the market price. Net income Gross income minus total expenses gives you net income.
Writer A person who has sold an option in an opening transaction and is now short a contract that may or may not be offset by stock or other options. Spot Delivery Month The nearest delivery month among all those traded at any point in time. Corporate Bonds Debt obligations that are issued by corporations. Usually a fixed percentage of the total value of your fund. Free Riding The practice of buying shares or other securities without actually having the funds to cover the trade. Conversely, the seller of the option has an obligation to fulfill the terms of the contract in the event of exercise by the option buyer.
For example, with OCO you can place two orders linked to each other, allowing you to place a stop loss of money order on the same option. Since not all contracts are exercised, the OCC processes assignments on a random basis. Decay Also known as time decay. In this case, the purchase is also a closing transaction. Automatic exercise Also known as Exercise by Exception. Position The net of all open long and short contracts in a specific trading account.
Back to top g Gamma The Greek letter used to represent the rate of change of an option delta as the underlying price changes. Pyramiding The practice of using accrued paper profits to margin additional trades. The risk results from short option holders not knowing if they will be assigned. European Option A contract that can be exercised only on the date of expiration, not before. Coupon Rate The percentage rate of interest in fixed income securities. Calendar Spread Also known as a time or horizontal spread. The actual contract month represented by the spot delivery month is constantly changing throughout the calendar year as each contract month reaches its last trading day. To create a call backspread you might sell one lower strike call and buy two higher strike calls. Ask Size The number of futures or options contracts offered at a certain price.
An individual who solicits orders, customers or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor or a Commodity Pool Operator and who is registered with the Commodity Futures Trading Commission. Chain See option chain. Back to top t Technical Analysis An approach to analysis of futures markets which examines patterns of price change, rates of change, and changes in volume of trading, open interest and other statistical indicators. For example, if your first trade is to buy an option, that contract is considered open and is factored into the open interest until you sell it. You get this by dividing net income by sales. After the last trading day, any remaining commitment must be settled for delivery. Portfolio All the securities held by an individual, institution, or mutual fund. Back to top n Naked Option Options that are sold on securities when the seller does not actually own shares of the underlying securities or options.
Floor Trader A person on the exchange floor who buys and sells contracts for his or her own account. NBBO Spread Quote An NBBO Spread Quote reflects the best quotes printed from participating exchanges on each leg of the spread or other combination combined. Mutual Fund Category A number of mutual funds specialized to a certain type of investment objective, carrying similar levels of risks and returns. December Gold or March Sugar. This can change day to day. Extrinsic Value Also known as time value. Sometimes combined with a Confirmation Statement.
Historical Volatility A measurement of the actual movement of stock price over a specific period of time. Speculator A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Commodity Pool An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. Open Interest The number of contracts, either long or short, traded on a particular option that have not been offset by a closing transaction. Round Turn A round turn counts both the buy and the sell of a trade as one event. An order to execute a trade that remains open until the trade is completed or the customer cancels the order. The predetermined price is known as the strike price. To create an iron butterfly, if you sell the straddle, you buy the strangle and vice versa. In this capacity, the person acts as a market maker.
Fee A mutual fund expense such as advertising, public relations and distribution costs that are paid by shareholders. The position may include stock as well as options. Ratio Calendar Spread A method in which more options are bought or sold at one expiration than another. Back to top y Yield The percentage return on an investment. Obligations issued by the department of the Treasury maturing in 13, 26 or 52 weeks. Volatility The mathematical measure of stock price fluctuation over a period of time. Tick The smallest increment an option, stock, or commodity price can change.
For example, to buy a butterfly, you might buy one call at a lower strike, sell two calls at the middle strike, and buy one call at the higher strike. Buy To Close An order entered to close a short position. If last is chosen, it will only be used if it is in between the consolidated bid and ask. Back to top p Pacific Exchange PCX Located in San Francisco, an exchange that trades equities and options. In either case, the trader is said to have retendered the delivery notice. Backwardation A futures market in which the relationship between two delivery months of the same commodity is abnormal.
The SIPC maintains a special reserve fund authorized by Congress to help investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. SEC requirement that brokers make their best effort to offer customers the best available ask price when they buy securities and the best available bid price when they sell securities. Back to top c CBOE Chicago Board Options Exchange. CFTC The Commodity Futures Trading Commission. Buying Hedge A hedge initiated by taking a long position in the futures market equal to the amount of the cash commodity which eventually needed. Securities Assets such as shares of stock, bonds, or any kind of financial asset that can be traded. The NAV is the amount of money that an investor would receive for each share if the mutual fund sold all of its assets, paid off all of its outstanding debts, and distributed the proceeds to shareholders.
Expressed as a yearly interest rate. None order allows a trader to buy or sell a specified number of contracts at a single price. Call ratio A ratio of the trading volume of put options to call options. Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date. Also referred to as a Pool. From adjusted strike price to yield to maturity and everything in between, our comprehensive glossary of investing terms and definitions is great as a primer on industry lingo or just a quick reference tool. Therefore, the position theoretically has limited risk. Horizontal Spread Also known as a time or calendar spread. Market makers may trade for their own accounts or they may represent a proprietary trading firm.
Expiration Date Generally the last date on which an option may be exercised. For obvious reasons, naked option writing is a risky method. Most equity options fall into this category. Lot A unit of trading. Pair Trading Commonly refers to buying one stock and selling another related stock against it. When the stop is elected, the order will be filled if it is possible to do so without exceeding the limit price. Also referred to as Cost of Carry.
Carrying Broker A member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades. Reversal A change of direction in market price. When the transfer is done manually the request is physically forwarded to the delivering firm and upon their receipt they have up to 30 business days to act on it. In this case, the maximum profit is achieved at or below the lower strike price. This is a key concept of technical analysis. This is how much money the company made in profits. Cost of a loan which includes interest, fees and other charges.
Consequently, the price will decline to the spot price before the delivery date. Static Return The return that an investor would make on a particular position if the underlying were unchanged in price at the expiration of the options in the position. Holder The person who currently owns calls, puts or stock. Likewise, if you sold the contract as your opening trade, you would have an open, short position until you bought the contract in a closing transaction. Synthetic long stock A short put option and a long call option with the same strike and expiration. In contrast, a 40 call trading at 10. Day Order An order to execute a trade that will automatically be cancelled at the end of the trading day if it has not been filled.
Option Requirements The balance you must maintain based upon the risk of the options positions in your account. Intermediary Bank The intermediary bank is the bank that your financial institution uses to accept wires. Eligible withdrawals will be taxed at the current tax rate. Foreign Exchange The foreign exchange market. For example, a diagonal spread could be created by buying one July 75 call and selling one June 70 call. Back Months Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month. The maximum profit is achieved when the stock trades at or above the higher strike. CPO is generally required to be registered with the CFTC. These figures are then used to find the settlement price.
Basis Point difference over or under a designated future at which a cash commodity of a certain description is sold or quoted. Bonds can also vary in terms of a settlement date. It is used to gauge investor sentiment. In the case of a put, the holder of the option sells the stock to the option seller at the strike price. Best Ask or Best Offer The lowest quoted offer of all competing market makers to sell a particular security at any given time. Similar to a market order in that no price is specified during order entry. Debenture Bond A debt issue by a corporation and backed by the good name of the company. The Greeks A term that refers to the analytical tools used by traders to manage risk. NASDAQ Small Cap Market securities can be restricted under UPC 11830.
Oftentimes, this term applies to a limit order which was unable to be totally filled due to a lack of other parties in the trading pit willing to buy or sell at that price. Class of Options Calls or puts relating to the same underlying instrument. Federal funds rate The interest rate that is charged by banks on overnight loans to other banks. Cover A term used to describe the act of purchasing options to close an existing short position. Bear Put Spread This method involves buying a put with a higher strike price and selling a put with a lower strike price. This is very important when you are in a spread position. Trendline In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement.
Synthetic long call A long put and a long position in the underlying stock. In either case, the value of the position remains unchanged. Bullish The term used to describe the market sentiment of people who expect the general market to rise. The seller or writer of the option is obligated to buy the stock at the strike price in the event that the option is assigned. Opening Range Range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range. Inverted Market See Backwardation. In fact, an employer may establish a SEP only if that employer has no qualified retirement plan in effect. Trend The general direction, either upward or downward, in which prices have been moving.
The act of meeting the obligations of a contract upon assignment. Retracement A reversal within a major price trend. Trailing sell stop orders will move upward a defined distance as long as the security moves upward. DIAMONDs Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. Annual rate of return on an investment that takes into account compounding. Liquidity A measure of how quickly a security can be sold at a fair price and converted to cash.
Premium The extent to which an option price exceeds its intrinsic value. Bid Size The number of futures or options contracts bid at a certain price. MIT order are used by traders who definitely want to be filled if the market touches the specified order price. Closing Price The price of the last transaction for a particular option contract at the end of the trading day. Sell To Open An order entered to establish a new short position. Cash Commodity The actual physical commodity as distinguished from the futures contract based on the physical commodity.
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