Uncovered Options Trading System
Implied Repo Rate is the rate of return that can be obtained from selling a debt instrument futures contract and simultaneously buying a bond or note deliverable against that futures contract with borrowed funds. The bond or note with the highest implied repo rate is cheapest to deliver.
Implied Volatility is the volatility of a futures contract, security, or other instrument as implied by the prices of an option on that instrument, calculated using an options pricing model.
Term "In Position" refers to a commodity located where it can readily be moved to another point or delivered on a futures contract. Commodities not so situated are "out of position." Soybeans in Mississippi are out of position for delivery in Chicago, but in position for export shipment from the Gulf of Mexico.
"In Sight" is the amount of a particular commodity that arrives at terminal or central locations in or near producing areas. When a commodity is "in sight," it is inferred that reasonably prompt delivery can be made; the quantity and quality also become known factors rather than estimates.
A term "In-The-Money" is used to describe an option contract that has a positive value if exercised. In-the-Money options is an options that has intrinsic value. A call with a strike price of $400 on gold trading above $400 is in-the-money. A put with a strike price of $400 on gold trading below $400 is in-the-money.
An Independent Introducing Broker is an Introducing Broker (IB) subject to minimum capital requirements.
Index Arbitrage is the simultaneous purchase (sale) of stock index futures and the sale (purchase) of some or all of the component stocks that make up the particular stock index to profit from sufficiently large inter-market spreads between the futures contract and the index itself. Also see Arbitrage, Program Trading.
Indirect Bucketing (also referred to as indirect trading against) refers to when a floor broker effectively trades opposite his customer in a pair of non-competitive transactions by buying (selling) opposite an accommodating trader to fill a customer order and by selling (buying) for his personal account opposite the same accommodating trader. The accommodating trader assists the floor broker by making it appear that the customer traded opposite him rather than opposite the floor broker.
Inflation-Indexed Debt Instrument is a debt instrument (such as a bond or note) on which the payments are adjusted for inflation and deflation. In a typical inflation-indexed instrument, the principal amount is adjusted monthly based on an inflation index such as the Consumer Price Index.
Initial Margin is the amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract. Margin is required to guarantee of contract fulfillment at the time a futures market position is established.
Instrument is a tradable asset such as a commodity, security, or derivative, or an index or value that underlies a derivative or could underlie a derivative.
Intercommodity Spread (also called an intermarket spread) is trading strategy in which the long and short legs are in two different but generally related commodity markets.
Interdelivery Spread (also called an intracommodity spread) is a spread involving two different months of the same commodity.
Interest Rate Futures are futures contracts traded on fixed income securities such as U.S. Treasury issues, or based on the levels of specified interest rates such as LIBOR (London Interbank Offered Rate). Currency is excluded from this category, even though interest rates are a factor in currency values.
Interest Rate Swap is a swap in which the two counterparties agree to exchange interest rate flows. Typically, one party agrees to pay a fixed rate on a specified series of payment dates and the other party pays a floating rate that may be based on LIBOR (London Interbank Offered Rate) on those payment dates. The interest rates are paid on a specified principal amount called the notional principal.
Intermediary is a person who acts on behalf of another person in connection with futures trading, such as a futures commission merchant, introducing broker, commodity pool operator, commodity trading advisor, or associated person.
International Swaps and Derivatives Association (ISDA) is a New York-based group of major international swaps dealers, that publishes the Code of Standard Wording, Assumptions and Provisions for Swaps, or Swaps Code, for U.S. dollar interest rate swaps as well as standard master interest rate, credit, and currency swap agreements and definitions for use in connection with the creation and trading of swaps.
Intrinsic Value is the amount by which an option is in-the-money. Intrinsic Value measures the value of an option or a warrant if immediately exercised, that is, the extent to which it is in-the-money. The amount by which the current price for the underlying commodity or futures contract is above the strike price of a call option or below the strike price of a put option for the commodity or futures contract. A call with a strike price of $400 on gold trading above $420 has $20 Intrinsic value. A put with a strike price of $400 on gold trading below $380 has $20 Intrinsic value.
Introducing Broker (IB) is a firm or individual (other than a person registered as an associated person of a futures commission merchant) that solicits and accepts commodity futures orders from customers but does not accept money, securities or property from the customer. All Introducing Brokers must be registered with the Commodity Futures Trading Commission (CFTC).
Inverted Market is a futures market in which the nearer months are selling at prices higher than the more distant months; a market displaying "inverse carrying charges," characteristic of markets with supply shortages.
Invisible Supply, in opposite to Visible Supply, is uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and producers that cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.
Invoice Price is the price fixed by the clearing house at which deliveries on futures are invoiced—generally the price at which the futures contract is settled when deliveries are made. Also called Delivery Price.
Job Lot is a form of contract having a smaller unit of trading than is featured in a regular contract.
Large Order Execution (LOX) Procedures are rules in place at the Chicago Mercantile Exchange that authorize a member firm that receives a large order from an initiating party to solicit counterparty interest off the exchange floor prior to open execution of the order in the pit and that provide for special surveillance procedures. The parties determine a maximum quantity and an "intended execution price." Subsequently, the initiating party's order quantity is exposed to the pit; any bids (or offers) up to and including those at the intended execution price are hit (acceptable). The unexecuted balance is then crossed with the contraside trader found using the LOX procedures.
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.