Glossary

Option Contract

See Also:

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.

Option: Option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument. There are two types of options: Put Options and Call Options.

Buyer: Buyer is a market participant (trader/investor) who takes a long futures position or buys an option. An option buyer is also called a taker, holder, or owner.

CIF: CIF is the cost, insurance, and freight paid to a point of destination and included in the price quoted.

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.

Exercise: Exercise is the action taken by the holder of a call option if he wishes to purchase the underlying futures contract or by the holder of a put option if he wishes to sell the underlying futures contract.

Exercise Price: Exercise Price (also referred to as Strike Price) is the price specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer.

Futures: Futures (also called Futures Contract) is a legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are normally standardized according to the quality, quantity, delivery time and location for each commodity, with price as the only variable.

Futures Contract: Futures Contract is an agreement to purchase or sell a commodity for delivery in the future: (1) at a price that is determined at initiation of the contract; (2) that obligates each party to the contract to fulfill the contract at the specified price; (3) that is used to assume or shift price risk; and (4) that may be satisfied by delivery or offset.

Option Buyer: Option Buyer is a person (trader) who buys calls, puts, or any combination of calls and puts purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Option Buyer is also referred to as a Holder.

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