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A- Abandon
- The act of an option holder in electing not to exercise or offset an option.
- ACAT
- For transfers of securities from a non-equity trading account to your equity trading account with your broker
- Account Value
- The marked-to-market liquidation value of your account which
includes the credit from any cash or money market funds, less any
liabilities including short positions and debit balances.
- Accrual Swap
- An interest rate swap where interest on one side accrues only when a condition is met.
- Accrued Interest
- The interest earned on a bond since the last coupon payment date.
- Actuals
- The physical or cash commodity, as distinguished from commodity futures contracts.
- Adaptive Mesh Model>
- A model developed by Figlewski and Gao that grafts a
high-resolution tree on to a low-resolution tree so that there is more
detailed modeling of the asset price in critical regions.
- Adjusted Strike Price
- The change in the strike price of an option contract that results
from a corresponding change in the underlying. In the case of a stock
option, when a stock does a 2-for-1 split, the option strike prices
will change to reflect the revised stock price. The resulting strike
prices, in this case, will not fall in the standard $5 increments. For
example, if you own 100 shares of a $100 stock and it does a 2-for-1
split, you will then own 200 shares of the same stock now valued at $50
per share. Likewise, if you owned one 55 call before the stock split,
you would own two 22 1/2 calls afterwards. In either case, the value of
the position remains unchanged. The table below shows some of the
adjusted strike prices after a stock split.
- 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.
- All Could
- The term used to refer to an order that has been only partially
executed. 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.
- All-or-None Order (AON)
- An All-or-None order allows a trader to buy or sell a specified
number of contracts at a single price. The number of contracts must
meet or exceed a predetermined threshold level, and these orders must
be executed during pit trading sessions. All Or None orders are routed
to the primary exchange where they are manually held and executed when
eligible. Furthermore, these orders are not reflected in the bid / ask
quotes. Generally, AON is not recommended on orders of less than 20
contracts since order execution may be affected.
- American Stock Exchange (or Amex or AMEX)
- Founded in 1842 in New York City, the American Stock Exchange is
one of the three major stock exchanges in the U.S. along with the New
York Stock Exchange and the Nasdaq. It also trades a wide variety of
equity and index options.
- American Style Option
- A contract that can be exercised at any point before expiration. Most equity options fall into this category.
- American Option
- An option that can be exercised at any time during its life.
- Amortizing Swap
- A swap where the notional principal decreases in a predetermined time passes.
- Analytic Result
- Result where answer is in the form of an equation.
- Annual Percentage Rate (APR)
- Cost of a loan which includes interest, fees and other charges. Expressed as a yearly interest rate.
- Annual Percentage Yield (APY)
- Annual rate of return on an investment that takes into account compounding.
- Arbitrage
- A technique used almost exclusively by floor traders and other professionals to capitalize on small price discrepancies.
- Arbitrageur
- An individual engaging in arbitrage.
- Asian Option
- An option with a payoff dependent on the average price of the underlying asset during a specified period.
- Ask or Ask Price
- The current lowest displayed price at which a seller would be
willing to sell a given stock or option contract. The ask price is also
known as the offer.
- Ask Size
- The number of futures or options contracts offered at a certain price.
- Asset-or-Nothing Call Option
- An option that provides a payoff equal to the asset price if the asset price is above the strike price and zero otherwise.
- Asset-or-Nothing Put Option
- An option that provides a payoff equal to the asset price if the asset price is below the strike price and zero otherwise.
- Asset Swap
- Exchanges the coupon on a bond for LIBOR plus a spread.
- Assignment
- The process through which an option seller is notified by the
Option Clearing Corporation (OCC) that the person who bought an option
contract has decided to exercise the right to buy or sell shares at the
strike price. Upon notification, the option seller is obligated to
deliver or receive shares according to the terms of the contract. Since
not all contracts are exercised, the OCC processes assignments on a
random basis.
- As-You-Like-It Option
- See Chooser Option.
- At-the-market
- Any trade executed at the prevailing bid or offer. For example, if
the bid-ask spread on an option is 5.30 - 5.50, a customer who places a
market order to sell the option will receive the current bid of 5.30.
Likewise, a customer looking to buy the option will pay 5.50.
- At-the-money
- An option is said to be at-the-money when the strike price is the
same as the current market price of the stock or underlying instrument.
For example, a 75 call and a 75 put would both be at-the-money with the
stock trading at $75.
- At-The Money Option
- An option in which the strike price equals the price of the underlying asset.
- Auto-Liquidation
- When an optionsXpress customer allows his account’s liquidating
value to reach such a critically low level that optionsXpress is
fearful the account will become an unsecured debit balance, some or all
of the positions may be offset without notification. This process is
referred to as an auto-liquidation, because the optionsXpress system
automatically generates the offsetting orders when it discovers a
dangerously undermargined account.
- Automatic exercise
- also known as Exercise by Exception. The procedure implemented by
the Options Clearing Corporation (OCC) to protect customers from losing
the intrinsic value of options they forget to exercise. The OCC
automatically exercises all stock option that have at least $0.05 of
intrinsic value or an index option with any intrinsic value.
- Average Price Call Option
- An option giving a payoff equal to the greater of zero and the
amount by which the average price of the asset exceeds the strike price.
- Average Price Put Option
- An option giving a payoff equal to the greater of zero and the
amount by which the strike price exceeds the average price of the asset.
- Average Strike Option
- An option that provides a payoff dependent on the difference between the final asset price and the average asset price.
- Back to top
B- Back-end Load
- A sales charge paid when mutual fund shares are sold. Also may be called deferred sales charge.
- 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.
- Back spread
- A spread strategy in which the net position has more long options
than short ones. To create a call back spread you might sell one lower
strike call and buy two higher strike calls. This position offers
limited risk and unlimited profit potential. It's also worth noting
that back spreads are often initiated as delta neutral positions.
- Back Testing
- Testing a value-at-risk or other model using historical data.
- Backwards Induction
- A procedure for working from the end of a tree to its beginning in order to value an option.
- Backwardation
- A futures market in which the relationship between two delivery
months of the same commodity is abnormal. The opposite of Contango. See
also Inverted Market.
- Barrier Option
- An option whose payoff depends on whether the path of the
under¬lying asset has reached a barrier (i.e., a certain predetermined
level).
- Base Currency
- In general terms, the base currency is the currency in which an
investor or issuer maintains its book of accounts. In the FX market,
the U.S. Dollar is normally considered the “base” currency for quotes,
meaning that quotes are expressed as a unit of $1 USD per the other
currency quoted in the pair (ex., USD/JPY). The primary exceptions to
this rule are the British Pound, the Euro, and the Australian Dollar
(ex., EUR/USD).
- Basel II
- New international regulations for calculating bank capital expected to come into effect in about 2007.
- Basis
- The difference between the spot price and the futures price of a commodity.
- Basis Point
- Refers to yield on bonds. It is one hundredth of a percentage point
(0.01%). Example: If rates change by 25 basis points it means the rate
has changed by 0.25%.
- Basis Risk
- The risk to a hedger arising from uncertainty about the basis at a future time.
- Basis Swap
- A swap where cash flows determined by one floating reference rate
are exchanged for cash flows determined by another floating reference
rate.
- Basket Credit Default Swap
- Credit default swap where there are several reference entities.
- Basket Option
- An option that provides a payoff dependent on the value of a portfolio of assets.
- Bear Spread
- A short position in a put option with strike price K1 combined with
a long position in a put option with strike price K2 where K2 > K1.
(A bear spread can also be created with call options.)
- Bear Call Spread
- This strategy involves selling a call with a lower strike and
buying a call with a higher strike. The maximum profit is achieved when
the stock trades at or below the lower strike.
- Bear Put Spread
- This strategy involves buying a put with a higher strike price and
selling a put with a lower strike price. In this case, the maximum
profit is achieved at or below the lower strike price.
- Bearish
- The term used to describe the market sentiment of people who expect a general market decline.
- Bermudan Option
- An option that can be exercised on specified dates during its life.
- Beta
- A measure of the systematic risk of an asset.
- Best Ask or Best Offer
- The lowest quoted offer of all competing market makers to sell a particular security at any given time.
- Best Bid
- The highest quoted bid of all competing market makers to buy a particular security at any given time.
- Bid
- The price point where a buyer is willing to purchase a given stock or option contract.
- Bid-Ask Spread
- The amount by which the ask price exceeds the bid price.
- BId-Offer Spread
- See Bid-Ask Spread.
- Bid Price
- The price that a dealer is prepared to pay for an asset.
- Bid Size
- The number of futures or options contracts bid at a certain price.
- Binary Credit Default Swap
- Instrument where there is a fixed dollar payoff in the event of a default by a particular company.
- Binary Option
- Option with a discontinuous payoff, e.g., a cash-or-nothing option or an asset-or-nothing option.
- Binomial Model
- A model where the price of an asset is monitored over successive
short periods of time. In each short period it is assumed that only two
price movements are possible.
- Binomial Tree
- A tree that represents how an asset price can evolve under the binomial model.
- Bivariate Normal Distribution
- A distribution for two correlated variables, each of which is normal.
- Black's Approximation
- An approximate procedure developed by Fischer Black for valuing a call option on a dividend-paying stock.
- Black-Scholes Model
- A model for pricing European options on stocks, developed by
Fischer Black, Myron Scholes, and Robert Merton. A mathematical formula
provides theoretical values for options given the various factors that
impact an option's price (i.e., the strike price, the price of the
underlying, the current interest rate, the amount of time remaining
until expiration, dividends, and volatility).
- Black's Model
- An extension of the Black-Scholes model for valuing European
options on futures contracts, it is used extensively in practice to
value European options when the distribution of the asset price at
maturity is assumed to be lognormal.
- Board Broker
- The individual who handles limit orders in some exchanges. The
board broker makes information on outstanding limit orders available to
other traders.
- Bootstrap Method
- A procedure for calculating the zero-coupon yield curve from market data.
- Boston Option
- See Deferred Payment Option.
- Box Spread
- A combination of a bull spread created from calls and a bear spread created from puts.
- Bond
- A security that represents the debt of a corporation, municipality or any other entity.
- Bond Option
- An option where a bond is the underlying asset.
- Bond Yield
- Discount rate which, when applied to all the cash flows of a bond,
causes the present value of the cash flows to equal the bond's market
price.
- Book Value per Share
- The book value of a company divided by the number of shares outstanding.
- Break
- A rapid and sharp price decline.
- Break Forward
- See Deferred Payment Option.
- Break-even
- The stock price (or prices) at which an option position will neither make nor lose money.
- Breakpoints
- Reduced sales loads on mutual funds for larger investments. The
larger the investment, the lower the fees will be. Breakpoints are
established by the mutual fund company.
- Broker Call Rate
- The broker call rate is the interest rate that banks charge
brokerages to cover the security positions of the brokerage's
customers. Most brokerages will charge you slightly above this amount
when you borrow on margin.
- Brownian Motion
- See Wiener Process.>/dd>
- 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.
- Bull Spread
- A long position in a call with strike price K1 combined with a
short position in a call with strike price K2, where K2 > K1. (A
bull spread can also be created with put options.)
- Bull Call Spread
- This strategy 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 above the higher strike.
- Bull Put Spread
- This strategy involves selling a put with a higher strike and
buying a put with a lower strike. Again, the maximum profit is achieved
at or above the higher strike price.
- Bullish
- The term used to describe the market sentiment of people who expect the general market to rise.
- Butterfly Spread
- A limited risk, limited reward strategy that involves 4 options
(all calls or all puts) at 3 different strike prices. 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. In
this case, the highest and lowest strikes are "wings" while the middle
strike makes up the "body" of the butterfly.
- Buy To Close
- An order entered to close a short position. Generally used in
futures/options investing to distinguish between establishing versus
closing a position.
- Buy To Open
- An order entered to establish a new long position. Generally used
in futures/options investing to distinguish between establishing versus
closing a position.
- Buy-write
- see Covered Call.
- 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.
-
- Back to top
C- Calendar Spread
- A position that is created by taking a long position in a call
option that matures at one time and a short position in a similar call
option that matures at a different time. (A calendar spread can also be
created using put options).
Also known as a time or horizontal spread. This spread consists of
buying and selling options with different expirations but the same
strike price.
- Call Option
- In the case of an equity option, a contract that gives the buyer
the right, but not the obligation, to purchase a set amount of stock
(usually 100 shares) at a predetermined price anytime before the
contract expires (American Style option) or at expiration only
(European Style Option). The predetermined price is known as the strike
price. An option to buy an asset at a certain price by a certain date.
- Calibration
- Method for implying a model's parameters from the prices of actively traded options.
- Callable Bond
- A bond containing provisions that allow the issuer to buy it back at a predetermined price at certain times during its life.
- Cancelable Swap
- Swap that can be canceled by one side on prespecified dates.
- Cap
- See Interest Rate Cap.
- Cap Rate
- The rate determining payoffs in an interest rate cap.
- Capital Asset Pricing Model
- A model relating the expected return on an asset to its beta.
- Caplet
- One component of an interest rate cap.
- Carrying Broker
- A member of a futures exchange, usually a clearing house member,
through which another firm, broker or customer chooses to clear all or
some trades.
- Carrying Charge
- The cost of storing a physical commodity, such as grain or metals,
over a period of time. The carrying charge includes insurance, storage
and interest on the invested funds as well as other incidental costs.
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. Also referred to as Cost of Carry.
- Carrying Cost
- The interest expense incurred when borrowed money is used to
finance a stock or option position. 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.
- Cash Commodity
- The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as
Actuals.
- Cash Market
- A place where people buy and sell the instrument underlying a
futures contract, such as a securities exchange. The terms "spot" and
"spot price" usually refer to the cash market price for the underlying
instrument that is available for immediate delivery.
- Cash Price
- The price of the actual underlying commodity that a futures contract is based upon.
- 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. In this case, option sellers are responsible for
cash payment. This contrasts with equity options in which stock is
exchanged at expiration rather than cash.
- Cash Flow Mapping
- A procedure for representing an instrument as a portfolio of zero-coupon bonds for the purpose of calculating value at risk
- Cash-or-Nothing Call Option
-
- An option that provides a fixed predetermined payoff if the final asset price is above the strike price and zero otherwise.
- Cash-or-Nothing Put Option
- An option that provides a fixed predetermined payoff if the final asset price is below the strike price and zero otherwise.
- Cash Settlement
- Procedure for settling a futures contract in cash rather than by delivering the underlying asset.
- CAT Bond
- Bond where the interest and, possibly, the principal paid are
reduced if a particular category of "catastrophic" insurance claims
exceed a certain amount.
- CBOE
- Chicago Board Options Exchange.
- CDO
- See Collateralized Debt Obligation.
- CDO Squared
- An instrument in which the default risks in a portfolio of CDO tranches are allocated to new securities.
- Certificate Of Deposit (CD)
- A time deposit held in a bank which pays a certain amount of interest to the depositor.
- CFTC
- The Commodity Futures Trading Commission.
- Chain
- See option chain.
- Cholesky Decomposition
- A method of sampling from a multivariate normal dis¬tribution.
- Chooser Option
- An option where the holder has the right to choose whether it is a call or a put at some point during its life.
- Chicago Board Of Trade (CBOT)
- The world's largest futures exchange, it was founded in 1848.
- Chicago Mercantile Exchange (CME)
- The world's largest livestock exchange, it traces its origins to a
group of agricultural dealers who formed the Chicago Produce Exchange
in 1874. It was given its present name in 1919.
- 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. The halts are triggered by a specified
decline in a broad-based stock index such as the Dow Jones Industrial
Average or the S&P 500.
- Class of Options
- Calls or puts relating to the same underlying instrument.
- Class of Options
- See Option Class.
- Clear
- The process by which a clearinghouse maintains records of all
trades and settles margin flow on a daily mark-to-market basis for its
clearing members.
- Clean Price of Bond
- The quoted price of a bond. The cash price paid for the bond (or
dirty price) is calculated by adding the accrued interest to the clean
price.
- Clearinghouse
- A firm that guarantees the performance of the parties in an
exchange-traded derivatives transaction (also referred to as a clearing
corporation).
- Clearing Margin
- A margin posted by a member of a clearinghouse.
- Close
- A period of time at the end of the trading session when all orders are filled within the closing range.
- Closed-end Funds
- A fund that does not issue new shares or accept new money after the
initial public offering. Closed-end securities can be purchased in the
open market, just like a stock.
- Closing Price
- The price of the last transaction for a particular option contract
at the end of the trading day. This may or may not be the same as the
settlement price used by the OCC to determine end of the day account
values.
- 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.
- Closing Transaction
- The purchase or sale of an option that offsets an existing open
position. 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. 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.
- CMO
- Collateralized Mortgage Obligation.
- Collar
- This strategy involves the purchase of stock and the sale of a call
against that stock (covered call), while purchasing a put option on the
same stock (protective put). Also known as a "fence" or "cylinder". Use
primarily to protect an existing stock position.
- Collar
- See Interest Rate Collar.
- Collateral
- Any marginable securities (e.g., stock, cash) used a basis for
borrowing money. If the value of the securities (against which the loan
was made) dips significantly, the investor may be forced to provide
additional collateral or liquidate part of the position to repay the
loan.
- Collateralization
- A system for posting collateral by one or both parties in a derivatives transaction.
- Collateralized Debt Obligation
- A way of packaging credit risk. Several classes of securities
(known as tranches) are created from a portfolio of bonds and there are
rules for determining how the cost of defaults are allocated to classes.
- Collateralized Mortgage Obligation (CMO)
- A mortgage-backed security where in¬vestors are divided into
classes and there are rules for determining how principal repayments
are channeled to the classes.
- Combination
- A position involving both calls and puts on the same underlying asset.
- 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.
Combinations often have different strike prices and/or expirations.
- Commission Brokers
- Individuals who execute trades for other people and charge a commission for doing so.
- Commodity
- A general futures market, without reference to any particular
delivery month. For example, Corn, the Canadian Dollar, and the S&P
500 are referred to as commodities. A delivery month used in
conjunction with a commodity indicates a specific contract, such as
December Gold or March Sugar.
- Commodity Pool
- An enterprise in which funds contributed by a number of persons are
combined for the purpose of trading futures or options contracts. The
concept is similar to a mutual fund in the securities industry. Also
referred to as a Pool.
- Compound Interest
- Interest earned on both an original investment and interest already accrued.
- Commercial Paper
- Is an unsecured debt issued by corporations to finance its short-term needs. Maturity ranges from 2 to 270 days.
- Commodity Futures Trading Commission
- A body that regulates trading in futures contracts in the United States.
- Commodity Swap
- A swap where cash flows depend on the price of a commodity.
- Compound Option
- An option on an option.
- Compounding Frequency
- This defines how an interest rate is measured.
- Compounding Swap
- Swap where interest compounds instead of being paid.
- Condor
- A limited risk, limited reward strategy with profit/loss
characteristics similar to a butterfly. In this case, 4 options at 4
strike prices are used. Like the butterfly, the outer strike prices
make the "wings." Unlike the butterfly "body" which consists of two
options at the middle strike, the condor "body" consists of one option
at each of two middle strikes.
- Conditional Value at Risk (C-VaR)
- Expected loss during N days conditional on being in the (100 – X) %
tail of the distribution of profits/losses. The variable N is the time
horizon and X% is the confidence level.
- Confirmation
- Contract confirming verbal agreement between two parties to a trade in the over-the-counter market.
- Confirmation Statement
- A statement sent by a Futures Commission Merchant to a customer
when a futures or options position has been initiated. The statement
shows the price and the number of contracts bought or sold. Sometimes
combined with a Purchase and Sale Statement.
- Constant Elasticity of Variance (CEV) Model
- Model where the variance of the change in a variable in a short period of time is proportional to the value of the variable.
- Constant Maturity Swap
- A swap where a swap rate is exchanged for either a fixed rate or a floating rate on each payment date.
- Constant Maturity Treasury Swap
- A swap where the yield on a Treasury bond is exchanged for either a fixed rate or a floating rate on each payment date.
- Consumption Asset
- An asset held for consumption rather than investment.
- Contango
- A condition characterized by the futures price is above the
expected future spot price. Consequently, the price will decline to the
spot price before the delivery date.
- Continuous Compounding
- A way of quoting interest rates. It is the limit as the assumed compounding interval is made smaller and smaller.
- Contingent Orders
- Orders that are working based on a preset condition.
- Contingent Time
- The hours that a contingent order will be in effect. To use this feature by itself, set the contingent price to greater than $1.
- Contingent Trailing Stop
- A "trailing stop" order will be placed only if/when the market
price for the security (stock) specified meets the criteria (greater
than or less than a price entered). This means that you can trigger a
"trailing stop" order, a stop order that moves along with a favorable
movement in a security, when a stock or index reaches a desired price
level based on the security's last trade price.
- Contract
- In futures markets, a standardized traded instrument that specifies
the quantity and quality of a commodity (or financial asset) for
delivery (or cash settlement) at a specified future date.
- Control Variate Technique
- A technique that can sometimes be used for improving the accuracy of a numerical procedure.
- Convenience Yield
- A measure of the benefits from ownership of an asset that are not
obtained by the holder of a long futures contract on the asset.
- Conversion Factor
- A factor used to determine the number of bonds that must be delivered in the Chicago Board of Trade bond futures contract.
- Convertible Bond
- A corporate bond that can be converted into a predetermined amount of the company's equity at certain times during its life.
- Convexity
- A measure of the curvature in the relationship between bond prices and bond yields.
- Convexity Adjustment
- An overworked term. For example, it can refer to the adjust¬ment
necessary to convert a futures interest rate to a forward interest
rate. It can also refer to the adjustment to a forward rate that is
sometimes necessary when Black's model is used.
- Convergence
- The tendency for prices of physical commodities and futures to
approach one another, usually during the delivery month. Also called a
“narrowing of the basis.”
- Convertible Bond
- A debt security feature that allows the holder to convert to another issue.
- Copula
- A way of defining the correlation between variables with known distributions.
- Cornish-Fisher Expansion
- An approximate relationship between the fractiles of a probability distribution and its moments.
- Corporate Bonds
- Debt obligations that are issued by corporations.
- Cost of Carry
- The storage costs plus the cost of financing an asset minus the income earned on the asset.
- Cost of Carry
- See Carrying Charge.
- Coupon Rate
- The percentage rate of interest in fixed income securities.
- Coupon Yield
- Is a bond's coupon payment divided by the par value.
- Counterparty
- The opposite side in a financial transaction.
- Coupon
- Interest payment made on a bond.
- Covariance
- Measure of the linear relationship between two variables (equals
the correlation between the variables limes the product of their
standard deviations).
- Cover
- A term used to describe the act of purchasing options to close an
existing short position. In this case, the purchase is also a closing
transaction.
- Coverdell Education Savings Account
- An account designed to help fund a child's education. Contributions
are taxed, but earnings used toward qualifying education expenses are
tax exempt. The entire account must be disbursed prior to the
beneficiary's 30th birthday. Any withdrawals after this date will be
subject to income taxes and a penalty. The account may be transferred
to another family member.
- Covered Call
- A short call option position against a long position in an underlying stock or futures.
- Covered Combination
- See covered strangle.
- Covered Option
- An option against which the seller has enough collateral (either in
cash or stock) to fulfill the contract in the event of assignment.
Covered Call - a call option is considered covered when the writer
(seller) of the option already owns the shares and doesn't have to make
an open market purchase should an assignment occur Covered Put - a put
option is considered covered when the seller has enough cash in the
account to purchase the shares at the strike price if the holder of the
option exercises the right to sell the stock at that price.
- Covered Strangle
- A short call and a short put with the same expiration but different
strike prices combined with a long stock position. Technically, to
describe this as "covered" is a bit of a misnomer because only the
short call is covered by the long stock. 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.
- Credit
- an increase in the cash balance of an account resulting from a sale or deposit.
- Credit Default Swap
- An instrument that gives the holder the right to sell a bond for its face value in the event of a default by the issuer.
- Credit Derivative
- A derivative whose payoff depends on the creditworthiness of one or more companies or countries.
- Credit Rating
- A measure of the creditworthiness of a bond issue.
- Credit Ratings Transition Matrix
- A table showing the probability that a company will move from one credit rating to another during a certain period of time.
- Credit Risk
- The risk that a loss will be experienced because of a default by the counterparty in a derivatives transaction.
- Credit Spread (also Limit/Credit)
- The difference in value between two options, where the value of the
short position exceeds the value of the long position. Bear call
spreads and bull put spreads are examples of credit spreads.
- Credit Spread Option
- Option whose payoff depends on the spread between the yields earned on two assets.
- Credit Value at Risk
- The credit loss that will not be exceeded at some specified confidence level.
- CreditMetrics
- A procedure for calculating credit value at risk.
- Cross-Hedging
- Hedging a cash commodity using a different but related futures
contract when there is no futures contract for the cash commodity being
hedged and the cash and futures market follow similar price trends
(e.g., using soybean meal futures to hedge fish meal).
- Cross-Margining
- A procedure for margining related securities, options, and futures
contracts jointly when different clearing houses clear each side of the
position.
- Cross Rate
- The exchange rate between any two currencies that are considered
non-standard in the country where the currency pair is quoted. For
example, in the United States, a GBP/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.
- Current Position Value
- The sum of the current market value of marginable stocks, bonds and
mutual funds using real-time data. A short position is subtracted from
this sum, thus a negative amount equals more short value than long
value.
- Current Yield
- Coupon rate divided by the market price of the bond.
- CUSIP
- A CUSIP is a unique identifier assigned to a bond at the time it is issued.
- Custodial Account
- An account created for the benefit of a minor which is managed by an adult as the custodian.
- 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. See also Traditional IRA and Roth IRA.
- Customer Segregated Funds
- See Segregated Account.
- Cycle
- The expiration months associated with a particular series of options.
- Cumulative Distribution Function
- The probability that a variable will be less than x as a function of x
- Currency Swap
- A swap where interest and principal in one currency are exchanged for interest and principal in another currency.
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D- Dated Date
- It is the first day that interest begins accruing on newly issued bonds
- Day Count
- A convention for quoting interest rates.
- 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.
- Day Trade
- Any position initiated and closed on the same day.
- Debenture Bond
- A debt issue by a corporation and backed by the good name of the company.
- Debit
- A decrease in the cash balance of an account resulting from a purchase or withdrawal.
- Debit Spread (also Limit/Debit)
- A trade that decreases the cash balance of an account because the
cost of the options purchased (long position) exceeds the proceeds from
the sale of short options.Bull call spreads and bear put spreads are
examples of debit spreads
- Debt/Equity Ratio
- A measure of a company's leverage, calculated by dividing long-term
debt by common shareholders' equity, commonly using the data from the
previous fiscal year.
- Decay
- Also known as time decay. The way in which the theoretical value of
an option decreases as time passes. The specific measurement of the
option's change in value over time is represented by the Greek letter
theta. The rate at which an option loses its value increases more
rapidly during the final 30 days of an option's life.
- Default Correlation
- Measures the tendency of two companies to default at about the same time.
- Default Intensity
- See Hazard Rate.
- Default Probability Density
- Measures the unconditional probability of default in a future short period of time.
- Deferred Payment Option
- An option where the price paid is deferred until the end of the option's life.
- Deferred Swap
- An agreement to enter into a swap at some time in the future (also called a forward swap).
- Deferred Delivery Month
- The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.
- Delivery (futures)
- The transfer of the cash commodity from the seller of a futures
contract to the buyer of a futures contract. Each futures exchange has
specific procedures for delivery of a cash commodity. Some futures
contracts, such as stock index contracts, are cash settled.
- Delivery (options)
- The act of meeting the obligations of a contract upon assignment.
For a call writer, delivery occurs when the stock is transferred to the
call holder at the strike price specified in the contract. For a put
writer, delivery occurs when the option writer pays the agreed upon
price for the stock and then receives the shares.
- Delivery Month
- See Contract Month.
- Delivery Notice
- A notice stating a clearing member's intentions to deliver a stated
quantity of a commodity with regard to the settlement of a futures
contract.
- Delivery Price
- Price agreed to (possibly some time in the past) in a forward contract.
- Delta
- The sensitivity of an option’s theoretical value to a change in the
price of the underlying futures contract. Specifically, the expected
change in an option’s price given a one-unit change in the price of the
underlying futures contract. An option’s delta is always between 0 and
1.00 and changes as market conditions change. A futures contract always
has a delta of 1.00.
- Delta
- The rate of change of the price of a derivative with the price of the underlying asset.
- Delta Hedging
- A hedging scheme that is designed to make the price of a portfolio
of derivatives insensitive to small changes in the price of the
underlying asset.
- Delta-Neutral Portfolio
- A portfolio with a delta of zero so that there is no sensitivity to small changes in the price of the underlying asset.
- Delta Neutral
- The process by which professional traders offset option positions
with stock to create a position that has 0 deltas. A zero delta
position, by definition, is neither long nor short. Therefore, the
position theoretically has limited risk
- Derivative
- A financial contract whose value is "derived" from another
security, such as stocks, bonds, commodities, or a market index such as
the S&P 500 or the Wilshire 5000. The most common types of
derivatives are options, futures, and mortgage-backed securities.
- Deterministic Variable
- A variable whose future value is known.
- Diagonal Spread
- A position in which the trader buys and sells options with
different strike prices and expirations. For example, a diagonal spread
could be created by buying one July 75 call and selling one June 70
call.
- DIAMONDs
- Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones
Industrial Average. The fund is structured as a unit investment trust.
- Discount
- (1) The amount a price would be reduced to purchase a commodity of
lesser grade; (2) sometimes used to refer to the price differences
between futures of different delivery months, as in the phrase “July is
trading at a discount to May,” indicating that the price of the July
future is lower than that of May; (3) applied to cash grain prices that
are below the futures price.
- Dividend Rate
- The fixed or adjustable rate paid on common stock or preferred stock
- Diagonal Spread
- A position in two calls where both the strike prices and times to
maturity are different. (A diagonal spread can also be created with put
options.)
- Differential Swap
- A swap where a floating rate in one currency is exchanged for a
floating rate in another currency and both rates are applied to the
same principal.
- Diffusion Process
- Model where value of asset changes continuously (no jumps).
- Dirty Price of Bond
- Cash price of bond.
- Discount Bond
- See Zero-Coupon Bond.
- Discount Instrument
- An instrument, such as a Treasury bill, that provides no coupons.
- Discount Rate
- The annualized dollar return on a Treasury bill or similar instrument expressed as a percentage of the final face value.
- Dividend
- A cash payment made to the owner of a stock.
- Dividend Yield
- The dividend as a percentage of the stock price.
- Dow Jones Industrial Average (DJIA)
- The oldest and most widely known index of the U.S. stock market,
the 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.
- Downtick
- When the most recent trade for a particular instrument occurs at a lower price than the trade immediately preceding it.
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- Down-and-In Option
- An option that comes into existence when the price of the underlying asset declines to a prespecified level.
- Down-and-Out Option
- An option that ceases to exist when the price of the under¬lying asset declines to a prespecified level.
- Downgrade Trigger
- A clause in a contract that states that the contract will be
terminated with a cash settlement if the credit rating of one side
falls below a certain level.
- Drift Rate
- The average increase per unit of time in a stochastic variable.
- Duration
- A measure of the average life a bond. It is also an approximation
to the ratio of the proportional change in the bond price to the
absolute change in its yield.
- Duration Matching
- A procedure for matching the durations of assets and liabilities in a financial institution.
- Dynamic Hedging
- A procedure for hedging an option position by periodically changing
the position held in the underlying asset. The objective is usually to
maintain a delta-neutral position.
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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.
- Earnings per Share
- A company's total earnings divided by the number of shares outstanding.
- Efficient Market Hypothesis
- A hypothesis that asset prices reflect relevant information.
- Electronic Trading
- System of trading where a computer is used to match buyers and sellers.
- Embedded Option
- An option that is an inseparable part of another instrument.
- Empirical Research
- Research based on historical market data.
- Equilibrium Model
- A model for the behavior of interest rates derived from a model of the economy.
- Equity Swap
- A swap where the return on an equity portfolio is exchanged for either a fixed or a floating rate of interest.
- Eurocurrency
- A currency that is outside the formal control of the issuing country's monetary authorities.
- Eurodollar
- A dollar held in a bank outside the United States.
- Eurodollar Futures Contract
- A futures contract written on a Eurodollar deposit.
- Eurodollar Interest Rate
- The interest rate on a Eurodollar deposit.
- European Option
- An option that can be exercised only at the end of its life.
- Equity option
- A contract that allows the holder to buy or sell shares of a publicly traded stock at a predetermined price.
- European Option
- A contract that can be exercised only on the date of expiration, not before.
- EWMA
- Exponentially weighted moving average.
- Exchange Option
- An option to exchange one asset for another.
- Ex-dividend Date
When a dividend is declared, an ex-dividend date is specified.
Investors who own shares of the stock just before the ex-dividend date
receive the dividend. - Executive Stock Option
- A stock option issued by company on its own stock and given to its executives as part of their remuneration.
- Exercise Limit
- Maximum number of option contracts that can be exercised within a five-day period.
- Exercise Price
- The price at which the underlying asset may be bought or sold in an option contract (also called the strike price).
- Exotic Option
- A nonstandard option.
- Expectations Theory
- The theory that forward interest rates equal expected future spot interest rates.
- Expected Shortfall
- Sec Conditional Value at Risk.
- Expected Value of a Variable
- The average value of the variable obtained by weighting the alternative values by their probabilities.
- Expiration Date
- The end of life of a contract.
- Explicit Finite Difference Method
- A method for valuing a derivative by solving the underlying
differential equation. The value of the derivative at time t is related
to three values at time t +?t. It is essentially the same as the
trinomial tree method.
- Exponentially Weighted Moving Average Model
- A model where exponential weight¬ing is used to provide forecasts
for a variable from historical data. It is sometimes applied to
variances and covariances in value at risk calculations.
- Exponential Weighting
- A weighting scheme where the weight given to an observation depends
on how recent it is. The weight given to an observation i time periods
ago is ? times the weight given to an observation i — 1 time periods
ago where ? < 1.
- Exposure
- The maximum loss from default by counterparty.
- Extendable Bond
- A bond whose life can be extended at the option of the holder.
- Extendable Swap
- A swap whose life can be extended at the option of one side to the contract.
- Exchange-traded fund (ETF)
- A fund comprised of a basket of securities that is designed to track an index and trades like a regular stock.
- Exchange for Physical
- A transaction generally used by two hedgers who want to exchange
futures for cash positions. Also referred to as "against actuals" or
"versus cash."
- Ex-dividend date
- The date before which investors must own shares to be eligible to
receive whatever dividend has been declared. On the day a stock goes
ex-dividend, the stock price drops by the amount of the dividend since
people buying after that point will not receive the dividend. This is
very important when you are in a spread position. It is not uncommon
for the short call to be assigned the day before Ex-Dividend day (with
notification coming on Ex-Dividend day). This means that the spread
holder will be responsible for the dividend.
- Execution
- The process of completing an order to buy or sell securities. Once
a trade is executed, it is reported by a Confirmation. Also known as a
"Fill".
- Exercise
- To invoke the right associated with a particular option contract.
When exercising a call option, the holder buys stock at a predetermined
price (strike) from the option seller. In the case of a put, the holder
of the option sells the stock to the option seller at the strike price.
- Exercise by Exception
- Also known as Automatic Exercise. The procedure implemented by the
Options Clearing Corporation (OCC) to protect customers from losing the
intrinsic value of options they forget to exercise. The OCC
automatically exercises all stock option that have at least $0.05 of
intrinsic value or an index option worth $0.01 or more.
- Exercise Price
- Also known as Strike Price. The price specified by the option contract at which the holder can buy or sell the underlying stock.
- Expense Ratio
- The percentage of total assets used to pay for fund expenses.
- Expiration Date
- Generally the last date on which an option may be exercised. 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.
- Extrinsic Value
- Also known as time value. The amount by which the current price of
an option exceeds its intrinsic value. The price of out-of-the-money
and at-the-money options is made up exclusively extrinsic value.
Back to topF- Face Value
- The dollar value of a U.S. Treasury Bill at maturity. T-Bills are
issued at a discount to face value and gradually increase in value
until reaching the full face value on the maturity date.
- Factor
- Source of uncertainty.
- Factor analysis
- An analysis aimed at finding a small number of factors that
describe most of the variation in a large number of correlated
variables (similar to a principal components analysis).
- Fair Value
- When the market price of an option is in line with its theoretical value as predicted by a formula such as Black-Scholes.
- 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. In a fast market, it often happens that
customers don't get filled on orders where they might expect. When this
occurs during a fast market, brokers generally can't be held
responsible.
- Federal funds rate
- The interest rate that is charged by banks on overnight loans to other banks.
- Fill
- See Execution.
- Fill Or Kill
- An order that must be filled immediately or canceled.
- Financial Intermediary
- A bank or other financial institution that facilitates the flow of funds between different entities in the economy.
- Finite Difference Method
- A method for solving a differential equation.
- First Notice Day (FND)
- 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.
Varies from contract to contract.
- Flat Volatility
- The name given to volatility used to price a cap when the same volatility is used for each caplet.
- Flex Option
- An option traded on an exchange with terms that are different from the standard options traded by the exchange.
- Flexi Cap
- Interest rate cap where there is a limit on the total number of caplets that can be exercised.
- Floor
- See Interest Rate Floor.
- Floor-Ceiling Agreement
- See Collar.
- Floorlet
- One component of a floor.
- Floor Rate
The rate in an interest rate floor agreement.
- Floor Broker
- A trader on the exchange floor who executes customer orders.
- Floor Trader
- A person on the exchange floor who buys and sells contracts for his
or her own account. In this capacity, the person acts as a market maker.
- Foreign Exchange
- The foreign exchange market. This is the cash market for foreign
currencies. Trade does not occur on centralized contract markets but
rather, over-the-counter in an international network of dealers.
- Foreign Currency Option
- An option on a foreign exchange rate.
- Forward Contract
- A contract that obligates the holder to buy or sell an asset for a predetermined delivery price at a predetermined future time.
- Forward Exchange Rate
- The forward price of one unit of a foreign currency.
- Forward Interest Rate
- The interest rate for a future period of time implied by the rates prevailing in the market today.
- Forward Price
- The delivery price in a forward contract that causes the contract to be worth zero.
- Forward Rate
- Rate of interest for a period of tune in the future implied by today's zero rates.
- Forward Rate Agreement (FRA)
- Agreement that a certain interest rate will apply to a certain principal amount for a certain time period in the future.
- Forward Risk-Neutral World
- A world is forward risk-neutral with respect to a certain asset
when the market price of risk equals the volatility of that asset.
- Forward Start Option
- An option designed so that it will be at-the-money at some time in the future.
- Forward Swap
- See Deferred Swap.
- Forex
- See Foreign Exchange.
- Forward (Cash) Contract
- A contract which requires a seller to agree to deliver a specified
cash commodity to a buyer sometime in the future. All terms of the
contract are customized, in contrast to futures contracts whose terms
are standardized. Forward contracts are not traded on exchanges.
- Fund Assets
- Amount of assets currently in the fund.
- Funds Available to Withdraw
- Estimated based on cash available and for margin accounts, it is
based on the leverage from your current marginable securities. Requests
to withdraw funds may be effected by the pricing of positions and the
settlement of transactions. Withdrawal is subject to approval and may
be delayed or refused due to the processing of trades, other
withdrawals or position risk.
- Fund Name
- The official name of the fund, i.e. AIM Balanced Fund.
- Fundamental Analysis
- The practice of evaluating the attractiveness of a particular stock
using financial information (e.g., revenue, profit, and management
performance) as it relates to the current stock price. See Technical
Analysis.
- Fungibility
- The ability to trade the same instrument interchangeably across exchanges or other marketplaces.
- Futures Cash
- Total required segregated funds after a futures position is
initiated. Funds must remain segregated until the position is closed.
- 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.
- Futures Option
- An option on a futures contract.
- Futures Price
- The delivery price currently applicable to a futures contract.
- FX
- See Foreign Exchange.
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G- Gamma
- The Greek letter used to represent the rate of change of an option
delta as the underlying price changes. This information is primarily
only helpful to professional traders who manage large positions.
- Globex
- The Chicago Mercantile Exchange’s electronic trading platform. Some
futures contracts are available for trading on Globex only during the
U.S. evening hours, while others -- such as the very popular E-mini
contracts -- trade electronically nearly around-the-clock.
- Good-Until-Cancelled (GTC)
- An order to execute a trade that remains open until the trade is
completed or the customer cancels the order. 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.
- "The Greeks"
- A term that refers to the analytical tools used by traders to manage risk. These include: Delta, Gamma, Theta, Vega and Rho
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H- Hedge
- A trade initiated for the primary purpose of protecting an
established position (e.g., the purchase of puts to protect a long
stock position).
- Hedge Ratio
- See Delta (2) and Delta Neutral.
- High-Yield Bond
- A bond with a credit rating Ba (Moody's) or BB (S&P) or lower.
- Historical Volatility
- a measurement of the actual movement of stock price over a specific
period of time. This number can be plugged into an option pricing
formula like Black-Scholes to determine if current option prices are
high or low relative to the stock's past performance. See Implied
Volatility.
- Holder
- The person who currently owns calls, puts or stock.
- Horizontal Spread
- Also known as a time or calendar spread. This spread is established
by buying and selling options with different expirations but the same
strike price. For example, if you bought the July 45 call and sold the
June 45 call, you'd be long the calendar.
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I- ISE
- (International Stock Exchange). The ISE is a completely electronic exchange
- Implied Volatility
- The amount of movement expected in the stock given the current price of the options
- Index
- As it relates to stocks, an index is created by combining multiple
stocks and monitoring their performance as a group. A change in the
index, therefore, represents the cumulative change of all individual
components. The S&P 100 is an index that tracks the performance of
100 top companies.
- Index Option
- An option based on an index, such as the S&P 100, rather than
an individual stock. These options are typically cash-settled because
it would be too cumbersome to buy or sell all of the stocks that make
up the index in the event of an assignment.
- Indicated Annual Dividend
- Represents the amount paid to a shareholder during the course of a
year, based upon the current indicated periodic dividend (usually
quarterly).
- 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.
- Individual Retirement Account (IRA)
- A tax-deferred retirement account set up with a financial
institution such as a bank, broker, or mutual fund in which
contributions may be invested in many types of securities such as
stocks, bonds, money market funds, CDs, etc. Also known as a
"Traditional" IRA. For other types of IRAs, see Keogh plan, Simplified
Employee Pension (SEP) plan, 401(k), Roth, or Rollover IRA.
- In-the-Money
- An option with intrinsic value because its strike price is below
(in the case of a call) or above (in the case of a put) the current
market price of the underlying stock.
- 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. Also referred to as original margin. See also maintenance
margin.
- Intermarket Spread
- A spread between commodities that are traded on more than one
market. For example, a typical intermarket spread might be made between
Chicago wheat and Kansas City wheat.
- Intermediary Bank
- The intermediary bank is the bank that your financial institution uses to accept wires.
- Intrinsic Value
- The portion of an option's price that can be account for by the
amount the option is in-the-money. For example, with the stock at $74,
a 70 call trading at 5.25 has $4 of intrinsic value (74-70) and 1.25 of
extrinsic or time value (5.25 - 4).
- Inverted Market
- See Backwardation.
- Iron Butterfly
- A limited risk, limited reward strategy with the same general
profit graph as a butterfly, but created using a combination of puts
AND calls (unlike the butterfly which is ALL puts or ALL calls). In
this case, the body of the iron butterfly is created by a long (or
short)straddle. The wings are created using a short (or long) strangle.
To create an iron butterfly, if you sell the straddle, you buy the
strangle and vice versa.
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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.
- 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.
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K- Keogh
- A U.S. tax-deferred qualified retirement plan for self-employed
individuals and unincorporated businesses also known as a self-employed
pension.
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L- Last Trading Day (LTD)
- The final day in which trading may occur for a particular delivery
month. After the last trading day, any remaining commitment must be
settled for delivery.
- LEAPS®
- Long-term Equity Anticipation Securities, or LEAPS®, are long-term
stock or index options that expire more than 9 months in advance, and
can last as long as 2 years. 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.
- Leg
- Part of a larger position consisting of multiple options. 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.
- Leverage
- A characteristic of options that makes it possible for option
holders to realize a greater percentage of profit and loss than they
would with a long or short position in the same underlying stock. For
example, a 5% move in the stock might increase (or decrease) the value
of the option position by 50%.
- Level-Load Funds
- Mutual funds that charge a high 12b-1 fee over the life of the fund. These funds do not charge any other sales fee.
- Limit Order
- To buy or sell a predetermined number of shares at a specified
price (or better than specified price, if available). Limit orders
guarantee a price (or better price than specified), but do not
guarantee an execution.
- Liquid Market
- A high volume trading environment in which buyers and sellers
benefit from narrow bid-ask spreads. Under these conditions, large
orders can be executed without significantly impacting the market price.
- Liquidity
- A measure of how quickly a security can be sold at a fair price and
converted to cash. Illiquid securities are ones that don't trade in
high volume. For example, having too many shares of a stock that
doesn't trade frequently would make for a position that cannot
necessarily be sold.
- Listed Option
- An exchange traded put or call contract issued by the OCC with standardized strike prices and expiration dates.
- Load
- A sales commission paid when purchasing shares of a mutual fund
(called a front-end load) or when redeeming shares of a mutual fund
(called a back-end load). For example, if the fund has a front-end load
of 5%, for every $100 you place into the fund, only $95 is invested,
with $5 going to the salesperson and/or mutual fund company.
- Long Position
- 1) A position that results from an initial purchase of stock or
options—i.e., long calls, long puts, long stock 2) a position in which
the holder expects to benefit from an increase in the price of the
underlying—e.g., long stock, long call, short put.
- Lot
- A unit of trading. In the futures market, one lot refers to one
futures or options contract. In the forex market, one lot is equivalent
to 100,000 units of a particular foreign currency.
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M- Management fee
- The money paid to the manager(s) of a mutual fund, annuity
subaccount, or other type of professionally managed investment. Also
called an advisory fee.
- Maintenance Margin
- A sum, usually smaller than the initial margin, which must remain
on deposit in the customer's account for any position. A drop in funds
below this level requires a deposit back to initial margin levels.
- Margin
- The amount of collateral or equity required to borrow money for
investing purposes. Traders who buy on margin borrow a percentage of
the purchase price from their brokerage firm.
- Margin Balance
- For cash accounts including IRAs the "margin location" is used by
our system in order to custodize spread transactions and positions
eligible for spread transactions. Use of the margin location in cash
accounts results in custody of balances in "margin" but does not
indicate an extension of credit.
- Margin Call
- A brokerage firm's demand that a customer deposit enough money or
securities to bring a margin account back up to the minimum maintenance
amount.
- Margin Equity Percentage
- Calculates the value of your securities in relation to the money
you have borrowed. Keep in mind, a negative margin balance does not
necessarily indicate borrowed funds.
- Market-If-Touched (MIT) Order
- An order placed much like a Limit order (buy orders should be
placed below the current market price; sell orders above the current
market price), but when the market touches the specified price, the
order immediately converts to a Market order. MIT order are used by
traders who definitely want to be filled if the market touches the
specified order price.
- Market Maker
- A floor trader who provides two-sided markets (bid-ask) and takes
the opposite side of a customer trade. In this capacity, market makers
provide liquidity in the market. Market makers may trade for their own
accounts or they may represent a proprietary trading firm.
- 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.
- Mark-to-Market
- The process of valuing an account at the end of the day based on the settlement prices of the securities.
- Market-Not-Held-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.
- Market-on-Close (MOC) Order
- An order to buy or sell a futures or options contract at the
prevailing market price during the closing range (usually, the last
30-60 seconds of trading). Similar to a market order in that no price
is specified during order entry. This order is ideal for a trader who
wishes to offset an existing position by the close but doesn’t wish to
wait to the last minute to enter a market order.
- Market Order
- A customer order that is to be executed as quickly as possible at the prevailing market price.
- Married Put Strategy
- The practice of simultaneously buying stock and buying puts to limit downside risk.
- MIT
- See Market-if-Touched Order.
- MOC
- See Market-on-Close Order.
- Money Market Funds
- A type of mutual fund contains securities such as T-bills and
commercial paper. Most of these funds invest in short-term debt
instruments with no longer than a 90 day duration.
- Money Purchase Plan
- A Trust in which a defined portion or percentage of the account is
distributed to the trustee(s) on a defined basis whether the account is
profitable or not.
- Mortgage-Backed Securities
- A number of mortgages bundled together into a single security to be sold.
- Municipal Bond
- A bond that is issued by a state or local government. Historically,
the interest paid on these bonds has been exempt from federal, state
and local taxes in the state of issuance.
- Municipal Securities Rulemaking Board (MSRB)
- An independent self-regulatory organization in charge of establishing rules and regulations in trading of municipal securities.
- Mutual Fund
- An open-end investment company that invests the money of thousands
of people in a number of securities to achieve a specific objective
over time.
- Mutual Fund Category
- A number of mutual funds specialized to a certain type of investment objective, carrying similar levels of risks and returns.
- Mutual Fund Exchange
- Switching on mutual fund investment from one fund to a different fund within the same mutual fund family.
- Mutual Fund Family
- A group of mutual funds managed by a single company.
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N- Naked Option
- Options that are sold on securities when the seller does not actually own shares of the underlying securities or options.
- NASD
- See National Association of Securities Dealers.
- Nasdaq (National Association of Securities Dealers Automated Quotations)
- A computerized system that stores and displays up-to-the-second price quotations for securities traded over the counter.
- National Association of Securities Dealers (NASD)
- The largest securities-industry self-regulatory organization in the
United States. Through its subsidiaries -- the NASD Regulation, Inc.
and The Nasdaq Stock Market, Inc. -- the National Association of
Securities Dealers develops rules and regulations and conducts
regulatory reviews of members' business activities.
- National Best Bid or Offer (NBBO)
- A term applying to the 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.
- NBBO
- See National Best Bid or Offer.
- 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. For a long leg, the NBBO single leg "ask" quote will be used,
while short leg quotes will use the NBBO "bid" quote to combine for a
synthetic NBBO combination trade quote.
- Nearby Delivery Month
- The futures contract month closest to expiration. Also referred to as the Spot Month.
- Net asset value (NAV)
- The price of each share of a mutual fund. It is calculated by
subtracting the fund's liabilities from its total assets, and dividing
that figure by the number of shares outstanding. 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.
- Net income
- Gross income minus total expenses gives you net income. You'll find this information on the income statement.
- Net investment
- Gross, or total, investment minus depreciation.
- Net profit
- The bottom line. This is how much money the company made in
profits. It can also refer to net profit margin, which is a percentage
telling you how many cents on each dollar is pure profit.
- Net profit margin
- Net income as a percentage of sales. You get this by dividing net
income by sales. Since it's a percentage, it tells you how many cents
on each dollar of sales is pure profit.
- New Next Trade
- Checking this box lets Xecute know that you wish to participate in
the next new trade recommended by your advisory service. Unchecking
this box lets Xecute know that you do not wish to participate in the
next new trade recommended by your advisory service.
- New York Mercantile Exchange (NYMEX)
- Founded in 1872 as a market for cheese, butter, eggs, its principle
commodities today include heating oil and petroleum products.
- New York Stock Exchange (NYSE)
- The oldest and largest stock exchange in the United States.
- No-load fund
- A mutual fund that does not charge a sales commission.
- Non-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. 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.
- Non-callable
- A security, such as a note or bond, that cannot be called prior to its maturity.
- Non-equity Option
- An option that has an underlying security other than stock—e.g., futures, commodities.
- Not Held
- An order submitted to a brokerage firm with the understanding that
it will use its best efforts to execute the order according to the
customer’s instructions, but the broker may not be held responsible or
liable for any lost profits, trading losses, or damages resulting from
the manner in which the order is handled. optionsXpress accepts
contingent orders strictly on a “Not Held” basis.
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O- One Cancels Other (OCO)
- A qualifier used when multiple orders are entered and the execution
of one order cancels a second or alternate order. For example, with OCO
you can place two orders linked to each other, allowing you to place a
stop loss order on the same option.
- One Triggers Other (OTO)
- An optionsXpress qualifier used when multiple stock or option
orders are entered and the execution of one order submits a second or
alternate order.
- Open-End Fund
- A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell.
- 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.
- Opening Transaction
- A trade that creates a new position or adds to an existing one. The new position can consist of either short or long options or
stock.
- Open Interest
- The number of contracts, either long or short, traded on a
particular option that have not been offset by a closing transaction. A
closing transaction lowers open interest while an opening transaction
increases open interest.
- Open Outcry
- The term used to describe the pit-trading environment in which market makers compete for trades.
- 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. 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.
- Option Buying Power
- Calculated based upon account equity less any requirements and pending purchases.
- 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.
- Option Period
- The time from the creation of an option to its expiration.
- Option Clearing Corporation (OCC)
- The firm responsible for issuing and standardizing all exchange
traded options. The OCC, which serves as an intermediary between buyers
and sellers, guarantees that all option contracts are honored and
executed according to their terms.
- Option Requirements
- The balance you must maintain based upon the risk of the options
positions in your account. Please review our for more information.
- 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.
- Original Issue Discount (OID)
- An original issue discount bond is a bond issued at a price below par value. A zero-coupon bond is an example of an OID.
- Out-of-the-Money
- An option that has no intrinsic value because its strike price is
above (in the case of a call) or below (in the case of a put) the
current market price of the underlying. Extrinsic or time value is the
only component of an out-of-the-money option's price.
- Over-the-Counter Market (OTC)
- A market where products such as foreign currencies are bought and
sold by telephone and other electronic means of communication rather
than on a designated futures exchange.
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P- Pacific Exchange PCX
- Located in San Francisco, an exchange that trades equities and options.
- Pair Trading
- Commonly refers to buying one stock and selling another related stock against it.
- Parity
- The term used to describe an in-the-money option with a price that
is the same as its intrinsic value. For example, with a stock at $50, a
40 call trading at $10 would be trading at parity because its price
does not include any extrinsic or time value. In contrast, a 40 call
trading at 10.25 would not be considered at parity because it includes
a .25 of time value.
- Partial Fill
- A partial fill is when part of a limit order has been filled. A
partial fill may be completed in the same day and then subsequently
cancelled or the remainder may be filled. A day limit order that is
partially filled will have the remainder cancelled at the end of the
day if it has not been entirely filled. A partial fill on a GTC order
may be carried over to the next market day until it is cancelled or
filled in its entirety.
- Note: If a Good-Until-Cancelled (GTC) order is partially filled one
day and the balance of the order is filled on another day, you will be
charged two separate commissions. If you do not want to accept a
partial fill for an order, you may indicate it is an "All-or-None"
order, however All-or-none orders have unique risks. See also
All-or-None, GTC, split fill. Also, an order that is partially filled
during the day but then modified (cancelled and replaced) will create a
separate commission charge since this is a new order in the marketplace.
- Price-to-earnings ratio (P/E)
- The share price of a stock, divided by its per-share earnings over the past year.
- P/E (Forward)
- Price/earnings ratio, using earnings estimates for the next four quarters.
- PEG Ratio
- A stock's price/earnings ratio divided by its year-over-year earnings growth rate.
- Pending Purchases
- The current market value, based on real-time data, for the orders
you have open. This sum includes OCO ("one cancels other") orders; it
does not include open contingent orders.
- Philadelphia Stock Exchange (PHLX)
- The Philadelphia Stock Exchange (PHLX) was founded in 1790. The
PHLX trades stocks, equity options, index options and currencies.
- Physical Settlement
- The process of settling a futures contract at the expiration date by delivering the underlying instrument.
- Pin Risk
- When an underlying security settles at the option's strike price.
The risk results from short option holders not knowing if they will be
assigned.
- Pips
- Slang forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001. See also
Points.
- Pit
- The area at an exchange where traders meet to buy and sell specific contracts (e.g., 30-year bond options, IBM options, DELL
options).
- Points
- Predominately a forex term used to describe digits added to or
subtracted from the fourth decimal place in a quoted currency rate,
i.e. 0.0001.
- Pool
- See Commodity Pool.
- Portfolio
- All the securities held by an individual, institution, or mutual fund.
- Position
- The net of all open long and short contracts in a specific trading account.
- Position Limits
- Set by an exchange, this is the number of option contracts (or
deltas) that an individual trader cannot exceed. The specifics of this
limit differ by exchange and option type.
- Premium
- The extent to which an option price exceeds its intrinsic value. 2)
the total price of an option including both intrinsic and extrinsic or
time value.
- Price to Book Ratio
- A stock's capitalization divided by its book value.
- Price to Cash Flow Ratio
- A stock's capitalization divided by its cash flow for the latest fiscal year.
- Price to Sales Ratio
- A stock's capitalization divided by its sales over the trailing 12 months.
- 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. This can change day to day.
- Profit Sharing Plan Trust
- A Trust in which a defined portion or percentage of the account profits are shared with the trustee(s) on a defined basis.
- Purchase and Sale Statement (P&S)
- A statement sent by a Futures Commission Merchant to a customer
when a futures or options position has been liquidated or offset. 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, the
commission charges and the net profit or loss on the transaction.
Sometimes combined with a Confirmation Statement.
- Put/Call ratio
- A ratio of the trading volume of put options to call options. It is
used to gauge investor sentiment. For example, a high volume of puts
compared to calls indicates a bearish sentiment in the market.
- 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. 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.
- Pyramiding
- The practice of using accrued paper profits to margin additional trades.
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Q
- Back to top
R- Range
- The difference between the highest and lowest prices recorded during a given trading session, week, month, or year.
- Ratio Calendar Spread
- A strategy in which more options are bought or sold at one expiration than another.
- Ratio Spread
- 1) Any option strategy in which the number of contracts purchased
is greater or less than the number sold. 2) a strategy in which the
number of options traded against a stock are not in a 1:1 proportion
with the stock.
- Ratio Write
- A partially covered position in which the options sold represent
more shares than are covered by the corresponding stock position (e.g.,
long 100 shares of stock, short 2 out-of-the-money calls). If the stock
price rises and the options are assigned, this person will have to turn
over 200 shares at the strike price. However, since the person only has
100 shares, the potential loss on the position is unlimited because one
of the calls is uncovered.
- Realized Profit & Losses
- The profit or loss that results from closing a position.
- Redemption Fee
- Fee levied for selling shares of your index fund. Usually a fixed percentage of the total value of your fund.
- Refunding
- The retiring of a bond by issuing a new bond
- Repair Strategy
- A stock/option strategy designed to compensate for a losing long
stock position. In this case, an in-the-money call is purchased and two
out-of-the-money calls are sold. The credit received effectively lowers
the break-even point of the stock thereby covering some of the
unrealized losses.
- 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. This is a key concept of technical
analysis.
- 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. In either case, the trader is said to have
retendered the delivery notice.
- Retracement
- A reversal within a major price trend.
- Revenue Bond
- A municipal bond issued to finance a specific public works project and is supported by the revenues of that project.
- Reversal
- A change of direction in market price.
- rho
- The Greek letter representing the expected change in an option's price given a 1% move in interest rates.
- Rolling
- A strategy in which the trader closes one position and immediately opens another position at a different strike or expiration.
- Rollover
- Moving all or a portion of tax-deferred retirement plan savings into another plan (e.g., moving 401(k) assets into an IRA).
- Rollover IRA
- A traditional individual retirement account holding money from a qualified plan, such as a 401(k).
- Roth IRA
- A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005).
Contributions are subject to taxes. However, withdrawals, subject to certain rules, are tax exempt.
- Round Turn
- A round turn counts both the buy and the sell of a trade as one
event. In a typical exchange volume measurement, a one-contract trade
between a buyer and seller would be counted as one round turn. From the
customer's perspective, a round turn represents two filled orders from
his or her brokerage firm - one to take a position and one to offset
that position (i.e., same customer, different trades). See also side.
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S- Scalper
- a floor trader who profits from the spread between the bid and the offer as well as from short-term price
fluctuations.
- SEC (Securities and Exchange Commission)
- The federal agency charged with protecting investors and maintaining the integrity of the securities markets.
- Secondary market
- A market that provides liquidity for previously listed securities.
- Securities
- Assets such as shares of stock, bonds, or any kind of financial asset that can be traded.
- Securities Investor Protection Corporation (SIPC)
- 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. SIPC either acts as trustee or
works with an independent court-appointed trustee in a fraud case to
recover funds. The statute that created SIPC rules provides that
customers of a failed brokerage firm receive all non-negotiable
securities that are already registered in their names or in the process
of being registered. At the same time, funds from the SIPC reserve are
available to satisfy the remaining claims of each customer up to a
maximum of $500,000. This figure includes a maximum of $100,000 on
claims for cash.
- Security Futures
- See Single Stock Futures.
- Sell To Close
- An order entered to close a long position. Generally used in
futures/options investing to distinguish between establishing vs.
closing a position. Consequently, a "buy to open" order is always used
to open a long position.
- Sell To Open
- An order entered to establish a new short position. Generally used
in futures/options investing to distinguish between establishing vs.
closing a position. Consequently, a "buy to close" order is always used
to close a short position.
- SEP IRA
- Simplified Employee Pension Plan IRA. A retirement plan for
self-employed people or owners of small companies which allows them to
defer taxes on investments intended for retirement.
- Selling Hedge
- Selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future.
- Series of Options
- Calls and puts based on the same underlying stock with the same strike and expiration.
- 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. The settlement price is based on the opening prices
of all the stocks in a particular Index. These figures are then used to
find the settlement price.
- Short Position
- An option or stock position that will profit from a decrease in the
price of the underlying (e.g., short stock, short call, long put).
- Short Stock Position
- A position initiated by selling stock in an opening transaction
with the goal of buying it later at a lower price (i.e., sell high, buy
low). To accomplish this, the stock must be borrowed from a
broker-dealer before it can be sold.
- Side
- A side considers the buy and sell actions of a trade as separate
events. Each matched trade, and each contract, has two sides - the
buyer side and the seller side. Taken together, these two sides equal
one round turn. Measuring matched trade volume "per side" counts volume
on each side of the trade.
- Simplified Employee Pension (SEP) plan
- A SEP is an easy method for a small employer to establish a
retirement plan for employees without the complex administration and
expense found in qualified retirement plans. In fact, an employer may
establish a SEP only if that employer has no qualified retirement plan
in effect. Under a SEP, the employer may make a contribution of up to
the lesser of 15% or $30,000 of compensation to IRAs established in
each employee's name.
- Single-Stock Futures
- An agreement between two parties that commits one party to buy a
stock and one party to sell a stock at a given price and on a specified
date.
- SIPC
- See Securities Investor Protection Corporation
- Speculator
- A market participant who tries to profit from buying and selling
futures and options contracts by anticipating future price movements.
Speculators assume market price risk and add liquidity and capital to
the futures markets.
- Spot Delivery Month
- The nearest delivery month among all those traded at any point in
time. 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. See Also Nearby Delivery
Month.
- Spot Price
- The price quoted for the actual commodity same; same as cash commodity price.
- Spread
- 1) the difference between the bid and the offer (e.g., if the
bid-ask is 5- 5.30, the spread is $0.30). 2) a limited risk, limited
reward strategy established by combining options that would, if
separate, profit from opposite moves in the price of the underlying.
- Spread Stop Order
- A contingency order to buy or sell an option spread when the market
reaches a particular level. When the price reaches that level specified
in the stop order, the stop order triggers a sell/buy to close/open the
spread at the customer's predetermined price (Limit or Market).
- Standard & Poor's 500 Index
- An index of 500 of the biggest publicly traded companies in the
United States. The S&P 500 is generally thought of as the best
measurement of the overall U.S. stock market.
- 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.
- 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.
- Stop-Limit Order
- Like a stop order, this order will be triggered by a move up or
down to a particular price level. Once that level is reached, the order
becomes a limit order, which must be executed at a specific price. In
contrast, a regular stop order will be executed at the market price
rather than at a specified price.
- Stop Order
- A contingency order to buy or sell a stock when the market reaches
a particular level. 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.
- Stop-with-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. Two
prices must be stipulated when the order is placed -- the stop price
and the limit price. When the stop is elected, the order will be filled
if it is possible to do so without exceeding the limit price. If this
isn’t possible, the order becomes a working limit order. 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.
- Straddle
- An option position in which a call and a put with the same strike
price and expiration are both bought (long straddle) or sold (short
straddle). A long straddle has unlimited profit potential given a large
move up or down. A short straddle has limited profit (if the stock
remains stable) and unlimited risk (if the stock moves significantly in
either direction.
- Strangle
- An option spread strategy involving a long put and a long call or a
short put and a short call with different strikes but the same
expiration. The most common strangles involve out-of-the-money options.
- Strike Price
- Also known as Exercise Price. The price, specified by the option
contract, at which the holder can buy or sell the underlying stock.
- Strike Price Interval
- The standard price difference between consecutive options. For
stocks over $25, the strikes generally occur at $5 intervals (e.g.
,30,35,40). Stocks below $25 have options that trade at $2.50 intervals.
- Subordinated Debenture
- A debenture whose claim to interest and principal of the corporation comes after those of the regular debt securities.
- 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 ofbuyers.
For example, a stock that has fallen near $27 on several occasions only
to reverse the trend and increase in price is said to have support at
$27.
- Symbol
- Ticker symbol.
- Synthetic Positions
- Also known as an equivalent position. By using a combination of
options or options and stock, traders can create positions that have
the same risk/reward characteristics of option only or stock only
positions. The following summarizes the most common synthetic positions.
- Synthetic long stock
- A short put option and a long call option with the same strike and expiration
- Synthetic short stock
- A long put option and a short call option with the same strike and expiration
- Synthetic long call
- A long put and a long position in the underlying stock
- Synthetic short call
- A short put and a short position in the underlying stock
- Synthetic long put
- A long call and a short position in the underlying stock
- Synthetic short put
- A short call and a long position in the underlying stock
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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. See also Charting.
- Theoretical Value
- The fair value of an option as predicted by a mathematical formula
such as Black-Scholes. This takes into account the following factors:
strike price, the current price of the underlying, interest rates, time
remaining until expiration, dividends (if any), and volatility.
- Theta
- The Greek letter representing the change in an option's value given a one-unit (day) change in time
- Tick
- The smallest increment an option, stock, or commodity price can change
- Time Decay
- The way in which an option naturally loses value as time passes.
- Time Spread
- Also known as a horizontal or calendar spread. This spread is
established by buying and selling options with different expirations
but the same strike price. For example, if you bought the July 45 call
and sold the June 45 call, you'd be long the calendar.
- Time Value
- Also known as extrinsic value. The amount by which the current price of an option exceeds its intrinsic value. The price of
out-of-the-money and at-the-money options is made up exclusively of extrinsic value
- Total Money Markets & Cash
- Defined as the net sum of your balances held in cash, margin, and
money market funds. This does not include your mutual funds balances.
Cash/Margin/Money Market sweep movements update daily before the market
opens.
- Trader
- 1) An exchange member who buys and sells contracts in the trading
pit of an exchange. 2) an investor who holds positions for a short
period of time in an effort to capitalize on market momentum.
- Trading Level
- Your trading level has been determined based on your trading
experience, income level, age and overall knowledge of options. The
list below outlines the various trades permitted at each trading level.
-
| -1 |
Trading Disabled |
| 0 |
Buy Stocks/Bonds/ Mutual Funds |
| 1 |
Covered Calls / Sell Stock Short |
| 2 |
Buy Calls and Puts / Cash Secured Put Writing |
| 3 |
Debit Spreads (purchase a spread) |
| 4 |
Credit Spreads / Equity Put Writing (sell a spread) |
| 5 |
Naked Equity Call Writing / Naked Index Put & Call Option Writing |
- Traditional IRA
- A tax-deferred retirement account that permits a contribution up to
$4,000 per year or $4,500 per year if over age 50 (2005). Earnings are
tax-deferred until withdrawals begin. Eligible withdrawals may begin at
age 59 1/2 or later, a 10% penalty will apply for non-qualified
withdrawals made prior to age 59 1/2. Eligible withdrawals will be
taxed at the current tax rate.
- Trailing Stop
- A "trailing stop" order is a stop order that moves along with a
favorable movement in a security. Trailing sell stop orders will move
upward a defined distance as long as the security moves upward.
Trailing buy stop orders will move downward a defined distance as long
as the security moves downward.
- Trailing (Stop) Trigger
- The price at which a trailing stop will activate.
- Contingent Trigger
- On entry of the order the customer can choose bid, ask or last. If last is chosen, it will only be used if it is in between the
consolidated bid and ask.
- Transaction Costs
- The fees related to initiating and maintaining a position. These include commissions, margin fees, and exchange fees.
- Treasury Auction
- Where new issues of Treasury bills, notes and bonds can be sold to the investing public.
- Treasury Bills (T-Bills)
- Obligations issued by the department of the Treasury maturing in 13, 26 or 52 weeks.
- Treasury Bond (T-Bond)
- A long term government debt security with maturity of 10 to 30 years.
- Treasury Note (T-Note)
- A medium term government debt security with maturity of 1 to 10 years.
- Trend
- The general direction, either upward or downward, in which prices have been moving.
- Trendline
- In charting, a line drawn across the bottom or top of a price chart
indicating the direction or trend of price movement. If up, the
trendline is called “bullish;” if down, it is called “bearish.”
- Triple witching
- It occurs when the contracts for stock index futures, stock index
options and stock options all expire on the same day. This happens four
times a year: The 3rd Friday of March, June, September and December.
- Trust
- A legal arrangement in which an individual (Trustor) gives
fiduciary control of the account to a person or institution (Trustee)
for the benefit of their estate or beneficiaries. A trust can include a
variety of entities.
- Type of Options
- There are two option types: puts and calls.
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U- Unit Investment Trust (UIT)
- An SEC-registered investment company which purchases a fixed,
unmanaged portfolio of income-producing securities and then sells
shares in the trust to investors. 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.
- Uncovered Option
- Also known as a naked option. A short position, not protected by
offsetting options, in which the writer of the options lacks the stock
or collateral that would be required upon assignment. For example, a
naked call writer doesn't own the stock that would have to be sold at
the strike price if the calls were exercised. Similarly, a naked put
writer doesn't have the full amount in the account to buy the
underlying shares at the strike price in the event of an exercise. For
obvious reasons, naked option writing is a risky strategy.
- Underlying Security
- The stock, commodity, or other financial instrument on which an option contract is based.
- Uptick
- When the most recent trade for a particular instrument occurs at a higher price than the trade immediately preceding it.
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V- Vega
- The Greek letter representing the change in an option's theoretical value given a 1% change in the volatility of the underlying.
- Versus Cash
- See Exchange for Physicals
- Versus Purchase Notes
- This note is used to specify the original shares of stock or a fund
sold for tax recording purposes. In order to designate shares, please
enter a note in the free text field (e.g. "Vs. 200sh. XYZ BOT 8/3/04").
The note will appear under the "Remarks" area of your confirmationhttp://www.universalbroker.co.id/v2
- Vertical Spread
- A position in which the options bought and sold have the same expiration but different strike prices.
- Volatility
- The mathematical measure of stock price fluctuation over a period of time. See Implied Volatility.
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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.
- Write
- To sell an option in an opening transaction.
- 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.
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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.
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Y- Yield
- The percentage return on an investment.
- Yield to Call (YTC)
- The yield of a bond or note if you were to buy and hold the
security until the call date. This yield is only valid if the security
is called prior to maturity.
- Yield to Maturity (YTM)
- The yield of a bond or note if you were to buy and hold the
security until maturity. 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.
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Z
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