Uncovered Options Trading System
The Daily Price limit is the maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.
Day order is an order that if not executed expires automatically at the end of the trading session on the day it was entered. There may be a day order with time contingency. For example, an "off at a specific time" order is an order that remains in force until the specified time during the session is reached. At such time, the order is automatically cancelled.
A trader who takes positions and then offsets them during the same trading session prior to the close of trading.
A Dealer is an individual or firm that acts as a market maker in an instrument such as a security or foreign currency.
Deck (also referred to as an order book) is the orders for purchase or sale of futures and option contracts held by a floor broker.
Default is the failure to perform on a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.
Deferred Delivery Month is the distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.
Deliverable Stocks are stocks of commodities located in exchange-approved storage for which receipts may be used in making delivery on futures contracts. In the cotton trade, the term refers to cotton certified for delivery.
Deliverable Supply is the total supply of a commodity that meets the delivery specifications of a futures contract. See Economically Deliverable Supply.
Delivery is the transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. It is the tender and receipt of the actual commodity, the cash value of the commodity, or of a delivery instrument covering the commodity (e.g., warehouse receipts or shipping certificates), used to settle 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.
Current Delivery is when deliveries have being made during a present month. Sometimes current delivery is used as a synonym for nearby delivery.
Delivery Date is the date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.
Delivery Instrument is a document used to effect delivery on a futures contract, such as a warehouse receipt or shipping certificate.
Delivery Month is the specified month within which a futures contract matures and can be settled by delivery or the specified month in which the delivery period begins.
Nearby Delivery is when the delivery will occur in the the nearest traded month, the front month. In plural form, one of the nearer trading months.
Delivery Notice (also called Notice of Intent to Deliver or Notice of Delivery) is the written notice given by the seller of his intention to make delivery against an open short futures position on a particular date. This notice, delivered through the clearing organization, is separate and distinct from the warehouse receipt or other instrument that will be used to transfer title.
Delivery Option is a provision of a futures contract that provides the short with flexibility in regard to timing, location, quantity, or quality in the delivery process.
Delivery Point is a location designated by a commodity exchange where stocks of a commodity represented by a futures contract may be delivered in fulfillment of the contract. Also called Location.
Delivery Price (also called Invoice Price) is the price fixed by the clearing organization at which deliveries on futures are invoiced - generally the price at which the futures contract is settled when deliveries are made.
Delta is the expected change in an option's price given a one-unit change in the price of the underlying futures contract or physical commodity. For example, an option with a delta of 0.5 would change $.50 when the underlying commodity moves $1.00.
Delta Margining (also called Delta-Based Margining) is an option margining system used by some exchanges that equates the changes in option premiums with the changes in the price of the underlying futures contract to determine risk factors upon which to base the margin requirements.
Delta neutral refers to a position involving options that is designed to have an overall delta of zero.
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.
Derivatives Clearing Organization is a clearing organization or similar entity that, in respect to a contract enables each party to the contract to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties. Derivatives Clearing Organization arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such contracts. Derivatives Clearing Organization provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such contracts.
Derivatives Transaction Execution Facility (DTEF) is a board of trade that is registered with the Commodity Futures Trading Commission (CFTC). A Derivatives Transaction Execution Facility is subject to fewer regulatory requirements than a contract market. To qualify as a Derivatives Transaction Execution Facility, an exchange can only trade certain commodities (including excluded commodities and other commodities with very high levels of deliverable supply) and generally must exclude retail participants (retail participants may trade on Derivatives Transaction Execution Facilities through futures commission merchants with adjusted net capital of at least $20 million or registered commodity trading advisors that direct trading for accounts containing total assets of at least $25 million). See Derivatives Transaction Execution Facilities.
Self-regulatory organizations (i.e., the commodity exchanges and registered futures associations) must enforce minimum financial and reporting requirements for their members, among other responsibilities outlined in the CFTC's regulations. When a Futures Commission Merchant (FCM) is a member of more than one Self-Regulatory Organization (SRO), the Self-Regulatory Organizations may decide among themselves which of them will be primarily responsible for enforcing minimum financial and sales practice requirements. The SRO will be appointed Designated Self-Regulatory Organization (DSRO) for that particular Futures Commission Merchant. National Futures Association (NFA) is the DSRO for all non-exchange member Futures Commission Merchants.
Diagonal Spread is a trading strategy that involves a spread between two call options or two put options with different strike prices and different expiration dates. There are other trading strategies, such as Horizontal Spread and Vertical Spread.
Differentials is the discount (premium) allowed for grades or locations of a commodity lower (higher) than the par of basis grade or location specified in the futures contact. See Allowances.
Directional Trading is trading strategies designed to speculate on the direction of the underlying market, especially in contrast to volatility trading.
Disclosure Document is the statement that some Commodity Pool Operators (CPOs) must provide to prospective customers the description of trading strategy, potential risk, commissions, fees, performance, and other relevant information.
Discount is the amount a price would be reduced to purchase a commodity of lesser grade. Discount is 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. Discount could be applied to cash grain prices that are below the futures price.
Discretionary Account (also referred to as a Managed Account or Controlled Account) is an arrangement by which the owner of the account gives written power of attorney to someone else, usually the broker or a Commodity Trading Advisor, to buy and sell without prior approval of the account owner.
Dominant Future is the future that has the largest amount of open interest.
Double Hedging implies a situation where a trader holds a long position in the futures market in excess of the speculative position limit as an offset to a fixed price sale, even though the trader has an ample supply of the commodity on hand to fill all sales commitments.
Dual trading occurs when a floor broker executes customer orders and, on the same day, trades for his own account or an account in which he has an interest. At the same time Dual Trading could be witnessed when a futures commission merchant carries customer accounts and also trades or permits its employees to trade in accounts in which it has a proprietary interest, also on the same trading day.
Duration is a measure of a bond's price sensitivity to changes in interest rates.
Dutch Auction is an auction of a debt instrument (such as a Treasury note) in which all successful bidders receive the same yield (the lowest yield that results in the sale of the entire amount to be issued).
E-Local is a person with trading privileges at an exchange with an electronic trading facility who trades electronically (rather than in a pit or ring) for his or her own account, often at a trading arcade.
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.