Uncovered Options Trading System
Derivative: A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement. Derivatives involve the trading of rights or obligations based on the underlying product but do not directly transfer that product. Derivatives are generally used to hedge risk or to exchange a floating rate of return for fixed rate of return. Derivatives include futures, options, and swaps. For example, futures contracts are derivatives of the physical contract and options on futures are derivatives of futures contracts.
Transaction: Transaction is an entry or liquidation of a trade.
Board of Trade: Any organized exchange or other trading facility for the trading of futures and/or option contracts.
CFTC: CFTC abbreviation stands for the Commodity Futures Trading Commission which is the federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC monitors the futures and options on futures markets in the United States.
Commission: Commission is a fee charged by a broker or brokerage house (company) to a customer (trader) for executing a transaction. In the future market commission is
1) The charge made by a futures commission merchant for buying and selling futures contracts;
2) the fee charged by a futures broker for the execution of an order. Note: when capitalized, the word Commission usually refers to the CFTC.
Commodity: A commodity, as defined in the Commodity Exchange Act, includes the agricultural commodities enumerated in Section 1a(4) of the Commodity Exchange Act, 7 USC 1a(4), and all other goods and articles, except onions as provided in Public Law 85-839 (7 USC 13-1), a 1958 law that banned futures trading in onions, and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.
Commodity Futures Trading Commission: Commodity Futures Trading Commission (CFTC) is the federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC monitors the futures and options on futures markets in the United States.
Commodity Trading Advisor: Commodity Trading Advisor (CTA) is a person who, for compensation (for pay) or profit, directly or indirectly advises others as to the value of commodity futures or the advisability of buying or selling futures or commodity options, or issues analyses or reports concerning commodity futures or options. Providing advice by Commodity Trading Advisor includes exercising trading authority over a customer's account. A Commodity Trading Advisor may be required to be registered with the CFTC (Commodity Futures Trading Commission).
Contract: Contract is a term of reference describing a unit of trading for a commodity future or option. At the same time contract is an agreement to buy or sell a specified commodity, detailing the amount and grade of the product and the date on which the contract will mature and become deliverable.
Contract Market: Contract Market (also referred to as an Exchange) is a board of trade designated by the CFTC (Commodity Futures Trading Commission) to trade futures or options contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded. A contract market can allow both institutional and retail participants and can list for trading futures contracts on any commodity, provided that each contract is not readily susceptible to manipulation. Contract Market is also called designated contract market.
Deliverable Supply: Deliverable Supply is the total supply of a commodity that meets the delivery specifications of a futures contract. See Economically Deliverable Supply.
Exchange: A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options contracts or securities. Exchanges include designated contract markets and derivatives transaction execution facilities.
High: High is the highest price of the day for a particular futures or options on futures contract.
Par: Par refers to the standard delivery point(s) and/or quality of a commodity that is deliverable on a futures contract at contract price. Serves as a benchmark upon which to base discounts or premiums for varying quality and delivery locations. Par in bond markets refers to an index (usually 100) representing the face value of a bond.
Pit: Pit (also referred to as a ring) is the area on the trading floor where trading in futures or options contracts is conducted by open outcry. It is a specially constructed area on the trading floor of some exchanges where trading in a futures contract or option is conducted. On other exchanges, the term ring designates the trading area for commodity contract.
Rally: Rally is an upward movement of prices.
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Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.