Uncovered Options Trading System
Abandon is election not to exercise or offset a long option position.
See Also: Exercise
Accommodation Trading is non-competitive trading entered into by a trader, usually to assist another with illegal trades.
See Also: Trader
Actuals is the physical or cash commodity, as distinguished from a futures contract.
See Also: Cash Commodity
Agency Bond is a debt security that is issued issued by a government-sponsored enterprise, designed to resemble a U.S. Treasury bond.
See Also: Security
Agency Note is a debt security that is issued by a government-sponsored enterprise, designed to resemble a U.S. Treasury note.
See Also: Security
Aggregation is the principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative position limits. In other words, Aggregation is 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.
See Also: Futures
Agricultural Trade Option Merchant is any person that is in the business of soliciting or entering option transactions involving an enumerated agricultural commodity that are not conducted or executed on or subject to the rules of an exchange.
See Also: Option, Trade Option
Allowances is the discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See Differentials.
See Also: Low
American Option is an option that can be exercised at any time prior to or on the expiration date in opposite European Option could be exercised only at its expiration date.
See Also: Option
Approved Delivery Facility could be any bank, stockyard, mill, storehouse, plant, elevator, or other depository that is authorized by an exchange for the delivery of commodities tendered on futures contracts.
See Also: Delivery
Arbitrage is the simultaneous purchase and sale of similar commodities in different markets to take advantage of a price discrepancy. In more detail, Arbitrage is a strategy that involves the simultaneous purchase and sale of identical or equivalent commodity futures contracts or other instruments across two or more markets in order to benefit from a discrepancy in their price relationship. In a theoretical efficient market, there is a lack of opportunity for profitable arbitrage.
See Also: Commodity
Arbitration is the process of resolving disputes between parties by a person or persons (arbitrators) chosen or agreed to by them. The National Futures Association (NFA) arbitration program provides a forum for resolving futures-related disputes between NFA members or between NFA members and customers. Other forums for customer complaints include the American Arbitration Association.
See Also: Futures
Artificial Price is a futures price that has been affected by a manipulation and is thus higher or lower than it would have been if it reflected the forces of supply and demand.
See Also: Futures
Asian Option is an exotic option whose payoff depends on the average price of the underlying asset during some portion of the life of the option.
See Also: Option
Ask is the price level of an offer, as in bid-ask spread. The ask price is a price at which that a trader is willing to sell an owned conmoddity.
See Also: Bid
Assignable Contract is a contract that allows the holder to convey his rights to a third party. Exchange-traded contracts are not assignable.
See Also: Contract
Assignment is designation by a clearing organization of an option writer who will be required to buy (in the case of a put) or sell (in the case of a call) the underlying futures contract or security when an option has been exercised, especially if it has been exercised early.
See Also: Call
Associated Person is an individual who solicits or accepts (other than in a clerical capacity) orders, discretionary accounts, or participation in a commodity pool, or supervises any individual so engaged, on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor, a commodity pool operator, or an agricultural trade option merchant.
See Also: Agricultural Trade Option Merchant
At-the-Market order is an order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading facility.
See Also: Contract
At-the Money options is an option whose strike price is equal (or approximately equal) to the current market price of the underlying futures contract. When an option's strike price is the same as the current trading price of the underlying commodity, the option is considered at-the-money option.
See Also: Commodity
Auction Rate Security is a debt security, typically issued by a municipality, in which the yield is reset on each payment date via a Dutch auction.
See Also: Security
Audit Trial is the record of trading information identifying, for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time or sequence of the trade, the order receipt and execution time, and, ultimately, and when applicable, the customers involved.
See Also: Broker
Automatic Exercise is a provision in an option contract specifying that it will be exercised automatically on the expiration date if this options contract is in-the-money by a specified amount, absent instructions to the contrary.
See Also: Exercise
Back Month is futures delivery months other than the spot or front month (also called deferred months).
See Also: Call
Back Office is the department in a financial institution that processes and deals and handles delivery, settlement, and regulatory procedures.
See Also: Delivery
Back Pricing is the fixing the price of a commodity for which the commitment to purchase has been made in advance. The buyer can fix the price relative to any monthly or periodic delivery using the futures markets.
See Also: Buyer
Back Spread is a delta-neutral ratio spread in which more options are bought than sold. A back spread will be profitable if volatility increases. See Delta.
See Also: Spread
Backwardation is market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the gold quotation for June is $400.00 per ounce and that for December is $390.00 per ounce, the backwardation for five months against June is $10.00 per ounce. (Backwardation is the opposite of contango).
See Also: Contango
Banker's Acceptance is a draft or bill of exchange accepted by a bank where the accepting institution guarantees payment. Used extensively in foreign trade transactions.
See Also: Exchange
Basis is the difference between the current cash price of a commodity and the futures price of the same commodity. In more details, the Basis is the difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. Basis is usually computed in relation to the futures contract next to expire and may reflect different time periods, product forms, grades, or locations.
See Also: Cash Price
Basis Grade is the grade of a commodity used as the standard or par grade of a futures contract.
See Also: Basis
Basis Point is the measurement of a change in the yield of a debt security. One basis point equals 1/100 of one percent.
See Also: Basis
Basis Quote is an offer or sale of a cash commodity in terms of the difference above or below a futures price (e.g., 10 cents over December corn).
See Also: Basis
Basis Risk is the risk associated with an unexpected widening or narrowing of basis between the time a hedge position is established and the time that it is lifted.
See Also: Basis
basis Swap is a swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.
Bear is one who expects a decline in prices. The Bear trader is is the opposite of a Bull trader. A Bear (bearish trader) expect to profit on declining price. A news item is considered bearish if it is expected to result in lower prices.
See Also: Bull
Bear Market is a market in which prices generally are declining over a longer period of time. bear market is opposite of bull market. A market participant who believes prices will move lower is called a "bear."A news item is considered bearish if it is expected to result in lower prices. Bear market is usually called as Bearish market.
See Also: Bear
A temporary rise in prices during a bear market.
See Also: Bear, Bear Market, Rally
1. A trading strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but different strike prices. In a bear spread, the option that is purchased has a lower delta than the option that is bought. For example, in a call bear spread, the purchased option has a higher exercise price than the option that is sold. Also called bear vertical spread.
2. The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize. In agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery.
Beta (beta Coefficient) is a measure of the variability of rate of return or value of a stock or portfolio compared to that of the overall market, typically used as a measure of riskiness.
See Also: Call
Bid is an expression of willingness to buy a commodity at a given price. This is an offer to buy a specific quantity of a commodity at a stated price. Bid is opposite to Ask. Bid price is the price level at which a trader is ready to buy an offered commodity.
See Also: Ask
Bid-Ask Spread is the difference between the bid price and the ask or offer price. This is the difference between the price level at which a buyer a ready to by an offered security and the price which a commodity seller is willing to receive.
Black-Scholes Model is an option pricing model initially developed by Fischer Black and Myron Scholes for securities options and later refined by Black for options on futures.
See Also: Futures
Blackboard Trading is the practice, no longer used, of buying and selling commodities by posting prices on a blackboard on a wall of a commodity exchange.
See Also: Commodity
Block Trade is a large transaction that is negotiated off a trading floor or facility and then executed on an exchange’s trading facility, as permitted under exchange rules. For more information, see CFTC Advisory: Alternative Execution, or Block Trading, Procedures for the Futures Industry.
See Also: CFTC
Any organized exchange or other trading facility for the trading of futures and/or option contracts.
See Also: Contract
Boiler Room is an enterprise that often is operated out of inexpensive, low-rent quarters (hence the term "boiler room"), that uses high pressure sales tactics (generally over the telephone), and possibly false or misleading information to solicit generally unsophisticated investors.
See Also: High
Book Transfer is a series of accounting or bookkeeping entries used to settle a series of cash market transactions.
See Also: Cash Market
Booking the Basis is a forward pricing sales arrangement in which the cash price is determined either by the buyer or seller within a specified time. At that time, the previously-agreed basis is applied to the then-current futures quotation.
See Also: Basis
Box Spread is an option position in which the owner establishes a long call and a short put at one strike price and a short call and a long put at another strike price, all of which are in the same contract month in the same commodity.
See Also: Spread
Break (Price Break) is a rapid and sharp price decline.
See Also: Trend
Broad-Based Security Index is any index of securities that does not meet the legal definition of narrow-based security index.
See Also: Security
Broker is a company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public. A broker charges a fee or commission for executing buy or sell orders for a customer. In commodity futures trading, the term may refer to:
a) a Floor broker, a person who actually executes orders on the trading floor of an exchange;
b) an Account executive or associated person, the person who deals with customers in the offices of futures commission merchants;
c) the futures commission merchant.
See Also: Commercial
Broker Association is two or more persons with exchange trading privileges who
1) share responsibility for executing customer orders;
2) have access to each other's unfilled customer orders as a result of common employment or other types of relationships;
3) share profits or losses associated with their brokerage or trading activity.
See Also: Broker
Bucket Shop is a brokerage enterprise that “books" (i.e., takes the opposite side of) retail customer orders without actually having them executed on an exchange.
See Also: Broker
Bucketing is directly or indirectly taking the opposite side of a customer's order into a broker's own account or into an account in which a broker has an interest, without open and competitive execution of the order on an exchange. Also called trading against.
See Also: Broker
Bull is a trader who expects a rise in prices. Bull trader is the opposite of bear. Bullish trader expects to profit on rising price. A news item is considered bullish if it is expected to result in higher prices.
See Also: Bear
Bull Market (also called Bullish Market) is a market in which prices generally are rising over a longer period of time. Bull market is opposite of bear market. A market participant who believes prices will move higher is called a "bull." A news item is considered bullish if it is expected to result in higher prices.
See Also: Bull
There are two main Bull Spread trading strategies:
1) A trading strategy that involves the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. In a bull vertical spread, the purchased option has a higher delta than the option that is sold. For example, in a call bull spread, the purchased option has a lower exercise price than the sold option. Also called bull vertical spread.
2) A trading strategy that involves the simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a rise in prices but at the same time limiting the potential loss if this expectation is wrong. In agricultural commodities, this is accomplished by buying the nearby delivery and selling the deferred.
Bullion is bars or ingots of precious metals, usually cast in standardized sizes.
See Also: Bull
Bunched order is a discretionary order entered on behalf of multiple customers.
See Also: Day Order, Electronic Order, Limit Order, Market Order, Open Order, Stop Order, Stop Limit Order
Buoyant is a market in which prices have a tendency to rise easily with a considerable show of strength.
Butterfly Spread is a three-legged option spread in which each leg has the same expiration date but different strike prices. For example, a butterfly spread in soybean call options might consist of one long call at a $5.50 strike price, two short calls at a $5.50 trike price, and one long call at a $6.00 strike price.
See Also: Spread
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.
See Also: Call
Buyer's call is a purchase of a specified quantity of a specific grade of a commodity at a fixed number of points above or below a specified delivery month futures price with the buyer allowed a period of time to fix the price either by purchasing a futures contract for the account of the seller or telling the seller when he wishes to fix the price. See Seller’s Call.
Buyer's market is a condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that previously prevailed.
See Also: Buyer
Buying Hedge (also called Long Hedge) is a hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities. See Hedging.
See Also: Call
Calendar Spread is a trading strategy that involves:
1) The purchase of one delivery month of a given futures contract and simultaneous sale of a different delivery month of the same futures contract;
2) the purchase of a put or call option and the simultaneous sale of the same type of option with typically the same strike price but a different expiration date. Callendar Spread is also called a horizontal spread or time spread.
See Also: Spread
There are three meaning of the "Call" term. It could be:
1) An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position;
2) a period at the opening and the close of some futures markets in which the price for each futures contract is established by auction;
3) the requirement that a financial instrument be returned to the issuer prior to maturity, with principal and accrued interest paid off upon return.
See Also: Buyer
Call Around Market is a market, commonly used for options on futures on European exchanges, in which brokers contact each other outside of the exchange trading facility to arrange block trades.
See Also: Call
Call Cotton is a situation when Cotton is bought or sold on call.
See Also: Call
Call options is an option which gives the buyer the right, but not the obligation, to purchase ("go long") the underlying futures contract at the strike price on or before the expiration date for American style options. European style call options could be exercised at their expiration only.
Call rule is an exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day's trading. It holds until the next opening of the exchange.
See Also: Call
Called is another term for exercised when an option is a call. In the case of an option on a physical, the writer of a call must deliver the indicated underlying commodity when the option is exercised or called. In the case of an option on a futures contract, a futures position will be created that will require margin, unless the writer of the call has an offsetting position.
See Also: Call
Capping is an effecting transactions in an instrument underlying an option shortly before the option's expiration date to depress or prevent a rise in the price of the instrument so that previously written call options will expire worthless, thus protecting premiums previously received. See Pegging.
See Also: Call
Carrying Broker is a member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades. Carrying Broker is An exchange member firm, usually a futures commission merchant.
See Also: Broker
Carrying Charge is the cost of storing a physical commodity or holding a financial instrument over a period of time. These charges include insurance, storage, and interest on the deposited funds, as well as other incidental costs. It is a carrying charge market when there are higher futures prices for each successive contract maturity. If the carrying charge is adequate to reimburse the holder, it is called a "full charge." See Negative Carry, Positive Carry, and Contango.
See Also: Call
Cash Commodity (also referred to as Actuals.) is the actual physical commodity as distinguished from the futures contract based on the physical commodity. Cash Commodity sometimes called spot commodity
See Also: Commodity
Cash Forward Sale is the same as Forward Contract. A cash transaction common in many industries, including commodity merchandising, in which a commercial buyer and seller agree upon delivery of a specified quality and quantity of goods at a specified future date. Terms may be more "personalized" than is the case with standardized futures contracts (i.e., delivery time and amount are as determined between seller and buyer). A price may be agreed upon in advance, or there may be agreement that the price will be determined at the time of delivery.
See Also: Buyer
Cash Market is a place where people buy and sell the actual commodities (i.e., grain elevator, bank, etc.). The market for the cash commodity (as contrasted to a futures contract) taking the form of:
1) an organized, self-regulated central market (e.g., a commodity exchange);
2) a decentralized over-the-counter market;
3) a local organization, such as a grain elevator or meat processor, which provides a market for a small region.
See Also: Cash Commodity
cash Price is the price in the marketplace for actual cash or spot commodities to be delivered via customary market channels.
See Also: Spot
Cash Settlement is a method of settling certain futures or options contracts whereby the market participants settle in cash (payment of money rather than delivery of the commodity) value of the commodity traded according to a procedure specified in the contract.. Cash Settlement is also called Financial Settlement, especially in energy derivatives.
See Also: Settlement
CCC is abbreviation for the Commodity Credit Corporation that is a government-owned corporation established in 1933 to assist American agriculture. Major operations include price support programs, foreign sales, and export credit programs for agricultural commodities.
See Also: Commodity
SCD stands for the Certificate of Deposit which is a time deposit with a specific maturity evidenced by a certificate. Large denomination CDs are typically negotiable.
See Also: Call
CEA is an abbreviation for the Commodity Exchange Act or Commodity Exchange Authority.
See Also: Commodity
Certificate of Deposit (CD) is a time deposit with a specific maturity evidenced by a certificate. Large denomination Certificate of Deposits are typically negotiable.
See Also: Call
Certificated or Certified Stocks are stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by an exchange. In grain, called "stocks in deliverable position." Certified Stocks are alse called Deliverable Stocks.
See Also: Call
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.
See Also: Commission
Changer is formerly, a clearing member of both the Mid-America Commodity Exchange (MidAm) and another futures exchange who, for a fee, would assume the opposite side of a transaction on MidAm by taking a spread position between MidAm and the other futures exchange that traded an identical, but larger, contract. Through this service, the changer provided liquidity for MidAm and an economical mechanism for arbitrage between the two markets. MidAm was a subsidiary of the Chicago Board of Trade (CBOT). MidAm was closed by the CBOT in 2003 after all MidAm contracts were delisted on MidAm and relisted on the CBOT as Mini contracts. The CBOT still uses changers for former MidAm contracts that are traded on an open outcry platform.
See Also: Arbitrage
Charting is the use of graphs and charts in the technical analysis of futures markets to plot price movements, volume, open interest or other statistical indicators of price movement as well as volume based technical indicators with the purpose of the analysis history and predicting a possible future trend development.
See Also: Futures
Chartist is a technical trader or technical analysts who analyses charts and reacts to signals derived the analysis of technical studies and indicators plotted on the charts.
See Also: Lot
Cheapest-to-Deliver is usually refers to the selection of a class of bonds or notes deliverable against an expiring bond or note futures contract. The bond or note that has the highest implied repo rate is considered cheapest to deliver.
See Also: Contract
Chooser Option is an exotic option that is transacted in the present, but that at some specified future date is chosen to be either a put or a call option.
See Also: Option
Churning is excessive trading that results in the broker who takes control over the customer's account with the purpose of deriving a profit from commissions while disregarding the best interests of the customers.
See Also: Broker
CIF is the cost, insurance, and freight paid to a point of destination and included in the price quoted.
Circuit Breaker is a system of trading halts and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines or rises. The first known use of the term circuit breaker in this context was in the Report of the Presidential Task Force on Market Mechanisms (January 1988), which recommended that circuit breakers be adopted following the market break of October 1987.
See Also: Break
Class of options are the options of the same type (i.e., either puts or calls, but not both) covering the same underlying futures contract or other asset (e.g., a March call with a strike price of 62 and a May call with a strike price of 58).
See Also: Option
Clear is 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. Through this procedure the clearing organization becomes the buyer to each seller of a futures contract or other derivative, and the seller to each buyer for clearing members.
See Also: Ring
Clearing Association (also called Clearing Organization and Clearing House) is an entity through which futures and other derivative transactions are cleared and settled.
See Also: Ring
Clearing House (also called Clearing Organization and Clearing Association) is an entity through which futures and other derivative transactions are cleared and settled.
See Also: Ring
Clearing member is a member of an exchange clearinghouse responsible for the financial commitments of its customers (a member of clearing organisation). All trades of a non-clearing member must be registered, processed and eventually settled through a clearing member.
See Also: Ring
An entity through which futures and other derivative transactions are cleared and settled. It is also charged with assuring the proper conduct of each contract's delivery procedures and the adequate financing of trading. A clearing organization may be a division of a particular exchange, an adjunct or affiliate thereof, or a freestanding entity. Also called a clearing house, clearing association or multilateral clearing organization.
See Also: Ring
Clearing price is the same as Settlement Price and Closing Price and is the last price paid for a futures contract on any trading day. Clearing prices are used to determine open trade equity, margin calls and invoice prices for deliveries.
See Also: Ring
Clearinghouse is a corporation or separate division of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.
See Also: Ring
Close is the exchange-designated period at the end of the trading session during which all transactions are considered made "at the close."
See Also: Exchange
Closing Price is the same as Settlement Price. Closing price is the last price paid for a future contracts on any trading day. The closing price (or closing price range) recorded during trading that takes place in the final period of a trading session's activity that is officially designated as the "close."
See Also: Close
Closing-Out (also referred to as Offset) is a liquidation of an existing long or short futures or option position with an equal and opposite transaction.
See Also: Futures
Combination is a combination of puts and calls that are held either long or short with different strike prices and/or expirations. Types of combinations include straddles and strangles.
See Also: Call
Commercial is an entity that is involved in the production, processing, or merchandising of a commodity.
See Also: Commodity
Commercial Grain Stocks is the domestic grain that is in store in public and private elevators at important markets and grain afloat in vessels or barges in lake and seaboard ports.
See Also: Commercial
Commercial Paper is a short-term promissory notesissued in bearer form by large corporations, with maturities ranging from 5 to 270 days. Since the notes are unsecured, the commercial paper market generally is dominated by large corporations with impeccable credit ratings.
See Also: Commercial
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.
See Also: Broker
Commission House (also referred to as the Futures Commission Merchant) is individual, association, partnership, corporation, and trust that solicits or accepts orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any exchange and that accept payment from or extend credit to those whose orders are accepted.
See Also: Commission
Commitments, also known as Open Interest, is the total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise.
See Also: Commodity
Commitments of Traders Report (COT) is a weekly report from the CFTC providing a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Open interest is broken down by aggregate commercial, non-commercial, and non-reportable holdings.
See Also: Commitments, Trader
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.
See Also: Commodity Exchange Act
Commodity Credit is a government-owned corporation established in 1933 to assist American agriculture. Major operations include price support programs, foreign sales, and export credit programs for agricultural commodities.
See Also: Commodity
The Commodity Exchange Act (CEA) provides for the federal regulation of commodity futures and options trading. See Commodity Futures Modernization Act.
Commodity Exchange Authority is a regulatory agency of the U.S. Department of Agriculture established to administer the Commodity Exchange Act prior to 1975. The Commodity Exchange Authority was the predecessor of the Commodity Futures Trading Commission.
Commodity Exchange Commission is a commission that consists of the Secretary of Agriculture, Secretary of Commerce, and the Attorney General, responsible for administering the Commodity Exchange Act prior to 1975.
See Also: Commission, Commodity, Exchange
The Commodity Futures Modernization Act (CFMA) reauthorized the Commodity Futures Trading Commission for five years and overhauled the Commodity Exchange Act to create a flexible structure for the regulation of futures and options trading. Significantly, the CFMA codified an agreement between the CFTC (Commodity Futures Trading Commission) and the Securities and Exchange Commission to repeal the 18-year-old ban on the trading of single stock futures.
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.
See Also: Commission, Commodity, Futures
Commodity option is an option on a commodity or a futures contract.
Commodity Pool (also referred to as a Pool) is an enterprise, investment trust, syndicate, or similar form of enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. The Commodity Pool concept is similar to a mutual fund in the securities industry. Typically thought of as an enterprise engaged in the business of investing the collective or "pooled" funds of multiple participants in trading commodity futures or options, where participants share in profits and losses on a pro rata basis.
See Also: Commodity
Commodity Pool Operator (CPO) is a person engaged in a business similar to an investment trust or a syndicate and who solicits or accepts funds, securities, or property for the purpose of trading commodity futures contracts or commodity options. The commodity pool operator either itself makes trading decisions on behalf of the pool or engages a commodity trading advisor to do so.
See Also: Commodity, Commodity Pool
Commodity Price Index is an index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities, e.g., grains or livestock.
See Also: Commodity
Commodity Swap is a swap in which the payout to at least one counterparty is based on the price of a commodity or the level of a commodity index.
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).
See Also: Commodity
Commodity-Linked Bond is a bond in which payment to the investor is dependent to a certain extent on the price level of a commodity, such as crude oil, gold, or silver, at maturity.
See Also: Commodity
Confirmation Statement is a statement sent by a Futures Commission Merchant (FCM) 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 Confirmation Statement is combined with a Purchase and Sale Statement.
See Also: Commission
Congestion is a market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices (see Squeeze, Corner ). In technical analysis, Congestion is a period of time characterized by repetitious and limited price fluctuations.
See Also: Contract
Consignment is a shipment made by a producer or dealer to an agent elsewhere with the understanding that the commodities in question will be cared for or sold at the highest obtainable price. Title to the merchandise shipped on consignment rests with the shipper until the goods are disposed of according to agreement.
See Also: Dealer
Contango is a market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month; the opposite of backwardation.
See Also: Backwardation
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.
See Also: CIF
Contract Grades are those grades of a commodity that have been officially approved by an exchange as deliverable in settlement of a futures contract.
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.
See Also: Contract
Contract Month (also referred to as Delivery Month) is the month in which delivery is to be made in accordance with the terms of the futures contract.
See Also: Contract
Contract Size ( also referred to as Contract Unit) is the actual amount of a commodity represented in a contract.
See Also: Contract
Controlled Account is an account for which trading is directed by someone other than the owner. Also called a Managed Account or a Discretionary Account.
See Also: Call
Convergence (also referred to as a "narrowing of the basis") is the tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.
See Also: Basis
Conversion is a position created by selling a call option, buying a put option, and buying the underlying instrument (for example, a futures contract), where the options have the same strike price and the same expiration.
See Also: Call
Conversion Factors are numbers published by futures exchanges to determine invoice prices for debt instruments deliverable against bond or note futures contracts. A separate conversion factor is published for each deliverable instrument.
See Also: Conversion
Core Principle is a provision of the Commodity Exchange Act with which a contract market, derivatives transaction execution facility, or derivatives clearing organization must comply on an ongoing basis. There are 18 core principles for contract markets, 9 core principles for derivatives transaction execution facilities, and 14 core principles for derivatives clearing organizations.
See Also: Basis
Corner is a securing such relative control of a commodity that its price can be manipulated, that is, can be controlled by the creator of the corner. Corner could be refer in the extreme situation as to obtain contracts requiring the delivery of more commodities than are available for delivery.
See Also: Commodity
Correction is a temporary decline in prices during a bull market that partially reverses the previous rally. Correction is not considered as Bear Market, but rather as a temporary move down.
See Also: Bear
S&F (Cost and Freight) paid to a point of destination and included in the price quoted. S&F is the same as C.A.F.
Cost of Tender is the total of various charges incurred when a commodity is certified and delivered on a futures contract.
See Also: Tender
Counter-Trend Trading is the method in technical analysis by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.
See Also: Trend
Counterparty is the opposite party in a bilateral agreement, contract, or transaction, such as a swap. In the retail foreign exchange (or Forex) context, the party to which a retail customer sends its funds; lawfully, the party must be one of those listed in the Commodity Exchange Act.
See Also: Par
Counterparty Risk is the risk associated with the financial stability of the party entered into contract with. Forward contracts impose upon each party the risk that the counterparty will default, but futures contracts executed on a designated contract market are guaranteed against default by the clearing organization.
See Also: Counterparty, Par
Coupon Rate (or simply Coupon) is a fixed dollar amount of interest payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.
Cover is the purchasing futures to offset a short position (same as Short Covering or Covering Short Position). In some situation Cover is referred to as having in hand the physical commodity when a short futures sale is made, or to acquire the commodity that might be deliverable on a short sale.
See Also: Commodity
Covered Option is a short call or put option position which is covered by the sale or purchase of the underlying futures contract or physical commodity. For example, in the case of options on futures contracts, a covered call is a short call position combined with a long futures position. A covered put is a short put position combined with a short futures position.
Cox-Ross-Rubinstein Option Pricing Model is an option pricing model developed by John Cox, Stephen Ross, and Mark Rubinstein that can be adopted to include effects not included in the Black-Scholes Model (e.g., early exercise and price supports).
See Also: Option, Option Pricing Model
Crack Spread is a trading strategy in energy futures that involves the simultaneous purchase of crude oil futures and the sale of petroleum product futures to establish a refining margin. Crack Spread also referred to as calculation showing the theoretical market value of petroleum products that could be obtained from a barrel of crude after the oil is refined or cracked. This does not necessarily represent the refining margin because a barrel of crude yields varying amounts of petroleum products.
See Also: Spread
Credit Default Option is a put option that makes a payoff in the event the issuer of a specified reference asset defaults. Also called default option.
Credit Default Swap is a bilateral over-the-counter (OTC) contract in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or series of fixed payments; the most common type of credit derivative; also called credit swap; similar to credit default option.
Credit Derivative is an over-the-counter (OTC) derivative designed to assume or shift credit risk, that is, the risk of a credit event such as a default or bankruptcy of a borrower. For example, a lender might use a credit derivative to hedge the risk that a borrower might default or have its credit rating downgraded. Common credit derivatives include credit default options, credit default swaps, credit spread options, downgrade options, and total return swaps.
See Also: Derivative
Credit Event is an event such as a debt default or bankruptcy that will affect the payoff on a credit derivative, as defined in the derivative agreement.
See Also: Credit Derivative
Credit Rating is a rating determined by a rating agency that indicates the agency's opinion of the likelihood that a borrower such as a corporation or sovereign nation will be able to repay its debt. The rating agencies include Standard & Poor's, Fitch, and Moody's.
Credit Spread is the difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities.
See Also: Spread
Credit Spread Option is an option whose payoff is based on the credit spread between the debt of a particular borrower and similar maturity Treasury debt.
See Also: Credit Spread, Option, Spread
Crop Year is the time period from one harvest to the next, varying according to the commodity (e.g., July 1 to June 30 for wheat; September 1 to August 31 for soybeans).
See Also: Commodity
In foreign exchange, Cross Rate is the price of one currency in terms of another currency in the market of a third country. For example, the exchange rate between Japanese yen and Euros would be considered a cross rate in the U.S. market.
See Also: Euro
Cross Trading is offsetting or non-competitive match of the buy order of one customer against the sell order of another, a practice that is permissible only when executed in accordance with the Commodity Exchange Act, CFTC (Commodity Futures Trading Commission) rules, and rules of the exchange.
See Also: CFTC
Cross-Hedge (also referred to as Cross-Hedging) is hedging a cash market position in a futures or option contract for a different but price-related commodity (e.g., using soybean meal futures to hedge fish meal)..
See Also: Cash Market
Cross-Margining is a procedure for margining related securities, options, and futures contracts jointly when different clearing organizations clear each side of the position.
See Also: Margin
In the soybean futures market, Crush Spread is the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin.
See Also: Spread
Curb Trading is trading by telephone or by other means that takes place after the official market has closed and that originally took place in the street on the curb outside the market. Under the Commodity Exchange Act and CFTC rules, curb trading is illegal. Also known as kerb trading.
See Also: CFTC
Currency Swap is a swap that involves the exchange of one currency (e.g., U.S. dollars) for another (e.g., Japanese yen) on a specified schedule.
See Also: Swap
Current Delivery Month (also referred to as Spot Month or Nearby Delivery Month) is the futures contract that matures and becomes deliverable during the present month.
See Also: Delivery, Delivery Month
Customer Segregated Funds (also referred to as Segregated Account) is a special account used to hold and separate customers' assets for trading on futures exchanges from those of the broker or firm.
See Also: Broker
Customer Type Indicator (also referred to as CTI Codes) consists of four identifiers that describe transactions by the type of customer for which a trade is effected. The four codes are:
1) trading by a person who holds trading privileges for his or her own account or an account for which the person has discretion;
2) trading for a clearing member's proprietary account;
3) trading for another person who holds trading privileges who is currently present on the trading floor or for an account controlled by such other person;
4) trading for any other type of customer.
Transaction data classified by the above codes is included in the trade register report produced by a clearing organization.
See Also: Clearing Member
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.
See Also: Price Limit
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.
See Also: Call
A trader who takes positions and then offsets them during the same trading session prior to the close of trading.
See Also: Trader
A Dealer is an individual or firm that acts as a market maker in an instrument such as a security or foreign currency.
See Also: Instrument
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.
See Also: 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.
See Also: Call
Deferred Delivery Month is the distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.
See Also: Delivery, 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.
See Also: Contract
Deliverable Supply is the total supply of a commodity that meets the delivery specifications of a futures contract. See Economically Deliverable Supply.
See Also: Call
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.
See Also: Buyer
Current Delivery is when deliveries have being made during a present month. Sometimes current delivery is used as a synonym for nearby delivery.
See Also: Delivery
Delivery Date is the date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.
See Also: Delivery
Delivery Instrument is a document used to effect delivery on a futures contract, such as a warehouse receipt or shipping certificate.
See Also: Delivery, Instrument
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.
See Also: Delivery
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.
See Also: Delivery
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.
See Also: Delivery
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.
See Also: Delivery
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.
See Also: Delivery
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.
See Also: Commodity
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.
See Also: Delta
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.
See Also: Contract
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.
See Also: Clearing Organization, Derivative, Ring
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.
See Also: Derivative, Transaction
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.
See Also: Self-Regulatory Organization
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.
See Also: 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.
See Also: Allowances
Directional Trading is trading strategies designed to speculate on the direction of the underlying market, especially in contrast to volatility trading.
See Also: Volatility
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.
See Also: Commission
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.
See Also: Commodity
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.
See Also: Broker
Dominant Future is the future that has the largest amount of open interest.
See Also: Open
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.
See Also: Hedging
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.
See Also: Broker
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).
See Also: Bid
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.
See Also: Local
E-Mini is a contract that is traded exclusively on an electronic trading facility. E-Mini is a trademark of the Chicago Mercantile Exchange (CME).
See Also: Mini
"Ease Off" is a minor and/or slow decline in the price of a market.
See Also: Low
Economically Deliverable Supply is the portion of the deliverable supply of a commodity that is in position for delivery against a futures contract, and is not otherwise unavailable for delivery. For example, Treasury bonds held by long-term investment funds are not considered part of the economically deliverable supply of a Treasury bond futures contract.
See Also: Call, Deliverable Supply
An efficient market (in economic theory) is one in which market prices adjust rapidly to reflect new information. The degree to which the market is efficient depends on the quality of information reflected in market prices. In an efficient market, profitable arbitrage opportunities do not exist and traders cannot expect to consistently outperform the market unless they have lower-cost access to information that is reflected in market prices or unless they have access to information before it is reflected in market prices.
See Also: Arbitrage
Electronic Communications Network (ECN) is frequently used for creating electronic stock or futures markets.
See Also: Futures
Electronic Order is an order placed electronically (without the use of a broker) either via the Internet or an electronic trading system.
See Also: Broker
Electronic Trading Facility is a trading facility that operates by an electronic or telecommunications network instead of a trading floor and maintains an automated audit trail of transactions.
See Also: Trading Facility
Electronic Trading Systems are systems that allow participating exchanges to list their products for trading electronically. These systems may replace, supplement or run along side of the open outcry trading.
See Also: Call
Eligible Commercial Entity is an eligible contract participant or other entity approved by the Commodity Futures Trading Commission (CFTC) that has a demonstrable ability to make or take delivery of an underlying commodity of a contract; incurs risks related to the commodity; or is a dealer that regularly provides risk management, hedging services, or market-making activities to entities trading commodities or derivative agreements, contracts, or transactions in commodities.
See Also: Commercial
Eligible Contract Participant is an entity, such as a financial institution, insurance company, or commodity pool, that is classified by the Commodity Exchange Act as an eligible contract participant based upon its regulated status or amount of assets. This classification permits these persons to engage in transactions (such as trading on a derivatives transaction execution facility) not generally available to non-eligible contract participants, i.e., retail customers.
Elliot Wave is a theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature and extended by other technical analysts to futures markets. In technical analysis Elliot Wave method is a charting method based on the belief that all prices act as waves, rising and falling rhythmically.
See Also: Call
Emergency is any market occurrence or circumstance which requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of, or delivery pursuant to, any contracts on a contract market.
See Also: Contract
Enumerated Agricultural Commodities are commodities specifically listed in the Commodity Exchange Act: wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice.
See Also: Call
Equity is used on a trading account statement and it refers to the residual dollar value of a futures or option trading account, assuming it was liquidated at current prices.
See Also: Futures
Euro is the official currency of most members of the European Union.
Eurocurrency is Certificates of Deposit (CDs), bonds, deposits, or any capital market instrument issued outside of the national boundaries of the currency in which the instrument is denominated (for example, Eurodollars, Euro-Swiss francs, or Euroyen).
See Also: Euro
Eurodollars is U.S. dollar deposits placed with banks outside the U.S. Holders and may include individuals, companies, banks, and central banks.
See Also: Euro
An option that may be exercised only on the expiration date in opposite to American Option that may be exercised any time before expiration date.
Even Lot is a unit of trading in a commodity established by an exchange to which official price quotations apply. See Round Lot.
See Also: Lot
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.
See Also: Buyer
Exchange for Physicals (EFP) is a transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously. Also called Exchange of Futures for Cash, AA (against actuals), or Ex-Pit transactions.
See Also: Exchange
Exchange of Futures for Swaps (EFS) is a privately negotiated transaction in which a position in a physical delivery futures contract is exchanged for a cash-settled swap position in the same or a related commodity, pursuant to the rules of a futures exchange. See Exchange for Physicals.
See Also: Exchange, Futures, Swap
Exchange Rate is the price of one currency stated in terms of another currency.
See Also: Exchange
Exchange Risk Factor is the delta of an option as computed daily by the exchange on which it is traded.
See Also: Exchange
Excluded Commodity, as defined by the Commodity Exchange Act is any financial instrument such as a security, currency, interest rate, debt instrument, or credit rating; any economic or commercial index other than a narrow-based commodity index; or any other value that is out of the control of participants and is associated with an economic consequence.
See Also: Commodity
Exempt Board of Trade is a trading facility that trades commodities (other than securities or securities indexes) having a nearly inexhaustible deliverable supply and either no cash market or a cash market so liquid that any contract traded on the commodity is highly unlikely to be susceptible to manipulation. An exempt board of trade's contracts must be entered into by parties that are eligible contract participants.
See Also: Board of Trade
An electronic trading facility that trades exempt commodities on a principal-to-principal basis solely between persons that are eligible commercial entities.
See Also: Commercial
Exempt Commodity is the Commodity Exchange Act defines an exempt commodity as any commodity other than an excluded commodity or an agricultural commodity. Examples include energy commodities and metals.
See Also: Commodity
Exempt Foreign Firm is a foreign firm that does business with U.S. customers only on foreign exchanges and is exempt from registration under Commodity Futures Trading Commission (CFT regulations based upon compliance with its home country's regulatory framework.
See Also: Commission
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.
See Also: Call
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.
See Also: Exercise
Exotic Options is any of a wide variety of options with non-standard payout structures or other features, including Asian options and look-back options. Exotic options are mostly traded in the over-the-counter market.
See Also: Option
Expiration Date is the last date on which an option may be exercised. This is the date on which an option contract automatically expires; the last day 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.
On an option exchange, every 3rd Friday of the month is expiration day for monthly options. A number of option series expire on this day.
At expiration all call options with a higher strike price than the expiration price of the underlying stock/currency or index will be worthless. All series with a lower strike price will have value and will be exercised. In the case of put options the opposite applies.
For all holders of call options it will be optimal when the value of the positions at expiration is as low as possible.
Options expiration date is the most important factor in calculating an options price:
See Also: Call
FAB (Five Against Bond) Spread ia a futures spread trade involving the buying (selling) of a five-year Treasury note futures contract and the selling (buying) of a long-term (15-30 year) Treasury bond futures contract.
See Also: Spread
FAN (Five Against Note) Spread is a futures spread trade involving the buying (selling) of a five-year Treasury note futures contract and the selling (buying) of a ten-year Treasury note futures contract.
See Also: Spread
Fast Market (also called "Fast Tape") is the ransactions in the pit or ring take place in such volume and with such rapidity that price reporters behind with price quotations insert "FAST" and show a range of prices.
See Also: Call
Feed Ratio is the relationship of the cost of feed, expressed as a ratio to the sale price of animals, such as the corn-hog ratio. These serve as indicators of the profit margin or lack of profit in feeding animals to market weight.
See Also: Margin
Fibonacci Numbers is a number sequence discovered by a thirteenth century Italian mathematician Leonardo Fibonacci (circa 1170-1250), who introduced Arabic numbers to Europe, in which the sum of any two consecutive numbers equals the next highest number—i.e., following this sequence: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on. The ratio of any number to its next highest number approaches 0.618 after the first four numbers. These numbers are used by technical analysts to determine price objectives from percentage retracements.
See Also: Cover
Fictitious Trading is wash trading, bucketing, cross trading, or other schemes which give the appearance of trading but actually no bona fide, competitive trade has occurred.
See Also: Bucketing
Fill is the execution of an order.
See Also: Day Order, Electronic Order, Limit Order, Market Order, Open Order, Stop Order, Stop Limit Order
Fill or Kill Order (FOK) is an order that demands immediate execution or cancellation. Typically involving a designation, added to an order, instructing the broker to offer or bid (as the case may be) one time only; if the order is not filled immediately, it is then automatically cancelled.
See Also: Fill
Final Settlement Price is the price at which a cash-settled futures contract is settled at maturity, pursuant to a procedure specified by the exchange.
See Also: Settlement, Settlement Price
Financial Instrument, as used by the Commodity Futures Trading Commission (CFTC), refers to any futures or option contract that is not based on an agricultural commodity or a natural resource. It includes currencies, equity securities, fixed income securities, and indexes of various kinds.
See Also: Instrument
Financial Settlement is cash settlement, especially for energy derivatives.
See Also: Settlement
First Notice Day is 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.
See Also: Notice Day
Fixed Income Security is a security whose nominal (or current dollar) yield is fixed or determined with certainty at the time of purchase, typically a debt security.
See Also: Security
A person, individual with exchange trading privileges who, in any pit, ring, post, or other place provided by an exchange for the meeting of persons similarly engaged, executes for another person any orders for the purchase or sale of any commodity for future delivery.
See Also: Broker
A person, individual with exchange trading privileges and who is a member of an exchange and who executes his own trades by being personally present in the pit or ring for futures trading. See Local.
See Also: Trader
Force Majeure is a clause in a supply contract that permits either party not to fulfill the contractual commitments due to events beyond their control. These events may range from strikes to export delays in producing countries.
See Also: Commitments
Forced Liquidation is the situation in which a customer's account is liquidated (open positions are offset) by the brokerage firm holding the account, usually after notification that the account is under-margined due to adverse price movements and failure to meet margin calls.
See Also: Liquidation
Forex refers to the over-the-counter market for foreign exchange transactions. Also called the foreign exchange market.
See Also: Call
Forward (Cash) Contract is a contract which requires a seller to agree to deliver a specified cash commodity to a buyer sometime in the future, where the parties expect delivery to occur. Terms may be more "personalized" than is the case with standardized futures contracts (i.e., delivery time and amount are as determined between seller and buyer). A price may be agreed upon in advance, or there may be agreement that the price will be determined at the time of delivery.
See Also: Contract
Forward Market is the over-the-counter market for forward contracts.
See Also: Contract
"Free On Board" (FOB) indicates that all delivery, inspection and elevation, or loading costs involved in putting commodities on board a carrier have been paid.
See Also: Delivery
Front Month is the nearby delivery month, the nearest traded contract month. There are also used "Back Month" terminology.
See Also: Contract
Front Running (Aaso known as trading ahead), with respect to commodity futures and options, is the taking a futures or option position based upon non-public information regarding an impending transaction by another person in the same or related future or option.
See Also: Commodity
Front Spread is a delta-neutral ratio spread in which more options are sold than bought. Also called ratio vertical spread. A front spread will increase in value if volatility decreases.
See Also: Spread
Fully Disclosed account is an account carried by a Futures Commission Merchant in the name of an individual customer; the opposite of an Omnibus Account.
See Also: Close
Fund of Funds is a commodity pool that invests in other commodity pools rather than directly in futures and options contracts.
See Also: Commodity
Fundamental Analysis is a method of anticipating future price movement using supply and demand information. In opposite to technical analysis it carries studies of basic, underlying factors that will affect the supply and demand of the commodity being traded in futures contracts.
See Also: Commodity
Fungibility is the characteristic of interchangeability. Futures contracts for the same commodity and delivery month traded on the same exchange are fungible due to their standardized specifications for quality, quantity, delivery date, and delivery locations.
See Also: CIF
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.
See Also: Call
Futures Commission Merchant (FCM) is an individual or organization which solicits or accepts orders to buy or sell futures contracts or commodity options and accepts money or other assets from customers in connection with such orders. An FCM must be registered with the Commodity Futures Trading Commission (CFTC).
See Also: Commission, Futures
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.
Futures Industry Association (FIA) is a membership organization for futures commission merchants (FCMs) which, among other activities, offers education courses on the futures markets, disburses information, and lobbies on behalf of its members.
See Also: Futures
Futures Option is an option on a futures contract.
Futures Price could be referred to the price of a commodity for future delivery that is traded on a futures exchange or Futures Price could refer to the price of any futures contract.
See Also: Futures
Futures-equivalent is a term frequently used with reference to speculative position limits for options on futures contracts. The futures-equivalent of an option position is the number of options multiplied by the previous day's risk factor or delta for the option series. For example, ten deep out-of-money options with a delta of 0.20 would be considered two futures-equivalent contracts. The delta or risk factor used for this purpose is the same as that used in delta-based margining and risk analysis systems.
See Also: Futures
Gamma is a measurement of how fast the delta of an option changes, given a unit change in the underlying futures price; the "delta of the delta."
See Also: Delta
Ginzy Trading is a non-competitive trade practice in which a floor broker, in executing an order—particularly a large order—will fill a portion of the order at one price and the remainder of the order at another price to avoid an exchange's rule against trading at fractional increments or "split ticks."
See Also: Broker
"Give Up" is a contract executed by one broker for the client of another broker that the client orders to be turned over to the second broker. The broker accepting the order from the customer collects a fee from the carrying broker for the use of the facilities. "Give Up" is often used to consolidate many small orders or to disperse large ones.
See Also: Broker
Gold Certificate is a certificate attesting to a person's ownership of a specific amount of gold bullion.
See Also: Bull
Gold Fixing (also referred to as Gold Fix) is the setting of the gold price at 10:30 a.m. (first fixing) and 3:00 p.m. (second fixing) in London by representatives of the London gold market.
See Also: London Gold Market
Gold/Silver Ratio is the number of ounces of silver required to buy one ounce of gold at current spot prices.
See Also: Spot
Good This Week Order (GTW) is an order which is valid only for the week in which it is placed.
See Also: Market Order, Limit Order, Day Order, Stop Order
Good 'Till Cancelled Order (GTC) is an order which is valid until cancelled by the customer, unless specified GTC, unfilled orders expire at the end of the trading day. See Open Order.
See Also: CIF
Grades term refers to the various qualities of a commodity.
See Also: Commodity
Grading Certificates is a formal document setting forth the quality of a commodity as determined by authorized inspectors or graders.
See Also: Commodity
Grain Futures Act is the federal statute that provided for the regulation of trading in grain futures, effective June 22, 1923; administered by the U.S. Department of Agriculture; amended in 1936 by the Commodity Exchange Act.
See Also: Futures
Grantor is a maker, writer, or issuer of an option contract who, in return for the premium paid for the option, stands ready to purchase the underlying commodity (or futures contract) in the case of a put option or to sell the underlying commodity (or futures contract) in the case of a call option.
See Also: Call
Gross Processing Margin (GPM) refers to the difference between the cost of a commodity and the combined sales income of the finished products that result from processing the commodity. Various industries have formulas to express the relationship of raw material costs to sales income from finished products.
See Also: Margin
A Guaranteed Introducing Broker is an IB that has a written agreement with a Futures Commission Merchant (FCM) that obligates the FCM to assume financial and disciplinary responsibility for the performance of the Guaranteed Introducing Broker in connection with futures and options customers. By entering into the agreement, the introducing broker is relieved from the necessity of raising its own capital to satisfy minimum financial requirements. A Guaranteed Introducing Broker is not subject to minimum financial requirements. An independent introducing broker must raise its own capital to meet minimum financial requirements.
See Also: Broker
Haircut is the value of assets for purposes of capital, segregation, or margin requirements, a percentage reduction from the stated value (e.g., book value or market value) to account for possible declines in value that may occur before assets can be liquidated.
See Also: Liquidate
Hand Held Terminal is a small computer terminal used by floor brokers or floor traders on an exchange to record trade information and transmit that information to the clearing organization.
See Also: Broker
Hardening describes a price which is gradually stabilizing; or this term may indicate a slowly advancing market.
See Also: Low
In technical analysis, Head and Shoulders are used to to describe a chart formation that resembles a human head and shoulders and is generally considered to be predictive of a price reversal. A head and shoulders top (which is considered predictive of a price decline) consists of a high price, a decline to a support level, a rally to a higher price than the previous high price, a second decline to the support level, and a weaker rally to about the level of the first high price. The reverse (upside-down) formation is called a head and shoulders bottom (which is considered predictive of a price rally).
See Also: Call
Heavy market is a market in which prices are demonstrating either an inability to advance or a slight tendency to decline.
Hedge Exemption is an exemption from speculative position limits for bona fide hedgers and certain other persons who meet the requirements of exchange and Commodity Futures Trading Commission (CFTC) rules.
See Also: CFTC
Hedge Fund is a private investment fund or pool that trades and invests in various assets such as securities, commodities, currency, and derivatives on behalf of its clients, typically wealthy individuals. Some commodity pool operators operate hedge funds.
See Also: Call
Hedge Ratio is the ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged, a computation necessary to minimize basis risk.
See Also: Basis
Hedging is the practice of taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change; or a purchase or sale of futures as a temporary substitute for a cash transaction that will occur later. . A long hedge involves buying futures contracts to protect against possible increasing prices of commodities. A short hedge involves selling futures contracts to protect against possible declining prices of commodities.
See Also: Cash Market
Henry Hub is a natural gas pipeline hub in Louisiana that serves as the delivery point for New York Mercantile Exchange natural gas futures contracts and often serves as a benchmark for wholesale natural gas prices across the U.S.
See Also: Contract
High is the highest price of the day for a particular futures or options on futures contract.
See Also: Contract
Historical Volatility (also called Standard Deviation) is a statistical measure of the volatility of a futures contract, security, or other instrument over a specified number of past trading days.
See Also: Volatility
Horizontal Spread (also called Time Spread or Calendar Spread) is an options trading strategy that involvs the simultaneous purchase and sale of options of the same class and strike prices but different expiration dates. See Diagonal Spread, Vertical Spread.
See Also: Spread
Hybrid Instruments are the financial instruments that possess, in varying combinations, characteristics of forward contracts, futures contracts, option contracts, debt instruments, bank depository interests, and other interests. Certain hybrid instruments are exempt from Commodity Futures Trading Commission (CFTC) regulation.
See Also: Instrument
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.
See Also: Contract
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.
See Also: Volatility
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.
See Also: Position
"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.
See Also: Commodity
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.
See Also: Call
An Independent Introducing Broker is an Introducing Broker (IB) subject to minimum capital requirements.
See Also: Broker
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.
See Also: Arbitrage
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.
See Also: Bucketing
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.
See Also: Instrument
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.
See Also: Margin
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.
See Also: Commodity
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.
See Also: Futures
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.
See Also: Swap
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.
See Also: Broker
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.
See Also: Derivative, Swap
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.
See Also: Call
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).
See Also: Broker
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.
See Also: Carrying Charges
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.
See Also: Visible Supply
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.
See Also: Call
Job Lot is a form of contract having a smaller unit of trading than is featured in a regular contract.
See Also: Lot
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.
See Also: Bid
A large trader is one who holds or controls a position in any one future or in any one option expiration series of a commodity on any one exchange equaling or exceeding the exchange or CFTC-specified reporting level.
See Also: Trader
Last Notice Day is the final day on which notices of intent to deliver on futures contracts may be issued.
See Also: Notice Day
Last Trading Day is the last day on which trading may occur in a given futures or option. On that day trading ceases for the maturing (current) delivery month.
See Also: CEA
Leaps stands for "Long-term Equity Anticipation Securities" and they are long-dated, exchange-traded options.
See Also: Equity
Leverage is the ability to control large dollar amounts of a commodity with a comparatively small amount of capital.
See Also: Commodity
LIBOR stands for the London Interbank Offered Rate. The rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. LIBOR rates are disseminated by the British Bankers Association. Some interest rate futures contracts, including Eurodollar futures, are cash settled based on LIBOR.
See Also: Contract
Licensed Warehouse is a warehouse approved by an exchange from which a commodity may be delivered on a futures contract.
See Also: Commodity
Life of Contract is a period between the beginning of trading in a particular futures contract and the expiration of trading. In some cases, this phrase denotes the period already passed in which trading has already occurred. For example, "The life-of-contract high so far is $2.50." Same as life of delivery or life of the future.
See Also: Contract
Limit is the maximum price advance (Limit Up) or decline (Limit Down) from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange. In some futures contracts, the limit may be expanded or removed during a trading session a specified period of time after the contract is locked limit.
See Also: CIF
Limit Only is the definite price stated by a customer to a broker restricting the execution of an order to buy for not more than, or to sell for not less than, the stated price.
See Also: Broker
Limit Order is an order in which the customer specifies a minimum sale price or maximum purchase price, as contrasted with a market order, which implies that the order should be filled as soon as possible at the market price.
See Also: CIF
Liquid Market is a market in which selling and buying can be accomplished with minimal effect on price.
See Also: Mini
Liquidate (also referred to as Offset) stands for selling a previously purchased futures or options contract or to buy back a previously sold futures or options position.
See Also: Contract
Liquidation (also called Offset) stands for closing out of a long position. The term is sometimes used to denote closing out a short position (cover short position), but this is more often referred to as covering.
See Also: Call
Liquidity (Liquid Market) is a characteristic of a security or commodity market with enough units outstanding and enough buyers and sellers to allow large transactions without a substantial change in price.
See Also: Buyer
Local is a member of an exchange who trades for his own account. Traditionally Local trades on an exchange floor, and Local's activities provide market liquidity.
See Also: Exchange
Location is a Delivery Point for a futures contract.
See Also: Contract
Locked Limit (also called Limit Move) is a price that has advanced or declined the permissible limit during one trading session, as fixed by the rules of an exchange.
See Also: Call
Locked-In is a hedged position that cannot be lifted without offsetting both sides of the hedge (spread). See Hedging. Locked-In also refers to being caught in a limit price move.
See Also: Hedging
London Gold Market refers to the dealers who set (fix) the gold price in London.
See Also: Dealer
Long Futures trader is a trader who has bought futures contracts or options on futures contracts or owns a cash commodity. Long position (long trading) is opposite to Short position (Short trading).
See Also: Cash Commodity
"Long the Basis" is a person or firm that has bought the spot commodity and hedged with a sale of futures is said to be long the basis.
"Lookalike Option" is an over-the-counter option that is cash settled based on the settlement price of a similar exchange-traded futures contract on a specified trading day.
See Also: Option
"Lookalike Swap" is an over-the-counter swap that is cash settled based on the settlement price of a similar exchange-traded futures contract on a specified trading day.
See Also: Swap
Lookback Option is an exotic option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.
See Also: Option
Lot is a unit of trading. There are several Lot types: Even Lot, Job Lot, and Round Lot.
See Also: Even Lot
Low is the lowest price of the day for a particular futures or options on futures contract.
See Also: Contract
Macro Fund is a hedge fund that specializes in strategies designed to profit from expected macroeconomic events.
See Also: Hedge Fund
Maintenance Margin stands for setting minimum amount (per outstanding futures contract) that a customer must maintain in his margin account to retain the futures position.
See Also: Margin
Manipulation is a planned operation, transaction, or practice that causes or maintains an artificial price. Specific types include corners and squeezes as well as unusually large purchases or sales of a commodity or security in a short period of time in order to distort prices, and putting out false information in order to distort prices.
See Also: Artificial Price
Many-to-Many refers to a trading platform in which multiple participants have the ability to execute or trade commodities, derivatives, or other instruments by accepting bids and offers made by multiple other participants. In contrast to one-to-many platforms, many-to-many platforms are considered trading facilities under the Commodity Exchange Act. Traditional exchanges are many-to-many platforms.
See Also: Bid
Margin is an amount of money deposited by both buyers and sellers of futures contracts and by sellers of options contracts to ensure performance of the terms of the contract (the making or taking delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). Margin in commodities is not a down payment or partial payment on a purchase, as in securities, but rather a performance bond. There are two main types of Margin: initial margin and maintenance margin. Initial margin is the amount of margin required by the broker when a futures position is opened. Maintenance margin is an amount that must be maintained on deposit at all times. In situation when the equity in a customer's account drops to or below the level of maintenance margin because of adverse price movement, the broker must issue a margin call to restore the customer's equity to the initial level. Exchanges specify levels of initial margin and maintenance margin for each futures contract, but futures commission merchants may require their customers to post margin at higher levels than those specified by the exchange. Futures margin is determined by the SPAN margining system, which takes into account all positions in a customer's portfolio.
See Also: Broker
Margin Call is a call from a clearinghouse to a clearing member, or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.
Mark-to-Market stands for debiting or crediting on a daily basis a margin account based on the close of that day's trading session. In this way, buyers and sellers are protected against the possibility of contract default. Mark-to-Market is apart of the daily cash flow system used by U.S. futures exchanges to maintain a minimum level of margin equity for a given futures or option contract position by calculating the gain or loss in each contract position resulting from changes in the price of the futures or option contracts at the end of each trading session. These amounts are added or subtracted to each account balance.
See Also: Basis
Market Maker is a professional securities dealer or person with trading privileges on an exchange who has an obligation to buy when there is an excess of sell orders and to sell when there is an excess of buy orders. By maintaining an offering price sufficiently higher than their buying price, these firms are compensated for the risk involved in allowing their inventory of securities to act as a buffer against temporary order imbalances. In the futures industry, this term is sometimes loosely used to refer to a floor trader or local who, in speculating for his own account, provides a market for commercial users of the market. Occasionally a futures exchange will compensate a person with exchange trading privileges to take on the obligations of a market maker to enhance liquidity in a newly listed or lightly traded futures contract.
See Also: Commercial
Market Order is an order to buy or sell a futures or options contract at whatever price (in opposite to Limit order where price is specified) is obtainable when the order reaches the trading floor.
See Also: CIF
Market-if-Touched (MIT) Order is an order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market. Also referred to as a board order. Compare to Stop Order.
See Also: Low
Market-on-Close Order is an order to buy or sell at the end of the trading session at a price within the closing range of prices. See Stop-Close-Only Order.
See Also: Close
Market-on-Opening Order is an order to buy or sell at the beginning of the trading session at a price within the opening range of prices.
Maturity is a period within which a futures contract can be settled by delivery of the actual commodity.
See Also: Commodity
Member Rate is charged by Commission for the execution of an order for a person who is a member of or has trading privileges at the exchange.
See Also: Commission
Mini (e-Mini) refers to a futures contract that has a smaller contract size than an otherwise identical futures contract.
See Also: Contract
Minimum Price Contract is a hybrid commercial forward contract for agricultural products that includes a provision guaranteeing the person making delivery a minimum price for the product. For agricultural commodities, these contracts became much more common with the introduction of exchange-traded options on futures contracts, which permit buyers to hedge the price risks associated with such contracts.
Minimum Price Fluctuation (Minimum Tick) is the smallest increment of price movement possible in trading a given contract.
See Also: Mini
MOB Spread is a spread between the municipal bond futures contract and the Treasury bond contract.
See Also: Spread
In technical analysis, Momentum is the relative change in price over a specific time interval. Often equated with speed or velocity and considered in terms of relative strength.
See Also: CIF
Money Market is the market for short-term debt instruments.
See Also: Instrument
Naked Option (also referred to as an uncovered option, naked call, or naked put) is the sale of a call or put option without holding an equal and opposite position in the underlying instrument.
See Also: Option
A narrow-based security index, as defined by the Commodity Exchange, is an index of securities that meets one of the following four requirements
1) it has nine or fewer components;
2) one component comprises more than 30 percent of the index weighting;
3) the five highest weighted components comprise more than 60 percent of the index weighting;
4) the lowest weighted components comprising in the aggregate 25 percent of the index's weighting have an aggregate dollar value of average daily volume over a six-month period of less than $50 million ($30 million if there are at least 15 component securities).
See Also: Security
National Futures Association (NFA) authorized by Congress in 1974 and designated by the Commodity Futures Trading Commission (CFTC) in 1982 as a "registered futures association," NFA is the industry wide self-regulatory organization of the futures industry. National Futures Association is a self-regulatory organization whose members include futures commission merchants, commodity pool operators, commodity trading advisors, introducing brokers, commodity exchanges, commercial firms, and banks, that is responsible for certain aspects of the regulation of FCMs, CPOs, CTAs, IBs, and their associated persons, focusing primarily on the qualifications and proficiency, financial condition, retail sales practices, and business conduct of these futures professionals. NFA also performs arbitration and dispute resolution functions for industry participants.
See Also: Futures
Nearby Delivery Month (also referred to as the Spot Month) is the futures contract month closest to expiration.
See Also: Delivery, Delivery Month
Nearbys is the nearest delivery months of a commodity futures market.
See Also: Commodity
Negative Carry is the cost of financing a financial instrument (the short-term rate of interest), when the cost is above the current return of the financial instrument.
See Also: Instrument
Net Asset Value (NAV) is the value of each unit of participation in a commodity pool. Basically a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the total number of outstanding units.
See Also: Call
Net Performance is an increase or decrease in net asset value exclusive of additions, withdrawals and redemptions.
See Also: Net Asset Value
Net Position is the difference between the open long contracts and the open short contracts held by a trader in any one commodity.
See Also: Position
Next Day (also called day ahead) is a spot contract that provides for delivery of a commodity on the next calendar day or the next business day.
See Also: Call
NOB (Note Against Bond) Spread is a futures trading strategy that involves the buying (selling) of a ten-year Treasury note futures contract and the selling (buying) of a Treasury bond futures contract.
See Also: Spread
Nominal Price (or Nominal Quotation) is computed price quotation on a futures or option contract for a period in which no actual trading took place, usually an average of bid and asked prices or computed using historical or theoretical relationships to more active contracts.
See Also: Ask
Non-Member Traders are speculators and hedgers who trade on the exchange through a member or a person with trading privileges but who do not hold exchange memberships or trading privileges.
See Also: Trader
Notice Day is a day on which notices of intent to deliver on futures contracts may be issued.
See Also: Contract
"Notice of Intent to Deliver" (also called "notice of delivery") is a notice that must be presented by the seller of a futures contract to the clearing organization prior to delivery. The clearing organization then assigns the notice and subsequent delivery instrument to a buyer.
See Also: Buyer
In an interest rate swap, forward rate agreement, or other derivative instrument, Notional Principal is the amount. In a currency swap, Notional Principal is each of the amounts to which interest rates are applied in order to calculate periodic payment obligations. Notional Principal also called the notional amount, the contract amount, the reference amount, and the currency amount.
See Also: Call
NYMEX Lookalike is a lookalike swap or lookalike option that is based on a futures contract traded on the New York Mercantile Exchange (NYMEX).
See Also: Contract
NYMEX Swap is a lookalike swap that is based on a futures contract traded on the New York Mercantile Exchange (NYMEX).
See Also: Swap
Offer is an indication of willingness to sell futures contract at a given price. Offer is opposite of bid, the price level of the offer may be referred to as the ask.
See Also: Ask
Offset (also referred to as Liquidation, closing out and cover) is the liquidation of a purchase of futures contracts through the sale of an equal number of contracts of the same delivery month, or liquidating a short sale of futures through the purchase of an equal number of contracts of the same delivery month.
See Also: Contract
Omnibus Account is an account carried by one Futures Commission Merchant (FCM) with another FCM in which the transactions of two or more persons are combined and carried in the name of the originating FCM rather than of the individual customers; the opposite of Fully Disclosed. An originating broker must use an omnibus account to execute or clear trades for customers at a particular exchange where it does not have trading or clearing privileges.
See Also: Broker
On Track (or Track Country Station) is a type of deferred delivery in which the price is set f.o.b. seller's location, and the buyer agrees to pay freight costs to his destination. On Track (or Track Country Station) could refer to commodities loaded in railroad cars on tracks.
See Also: Buyer
One Cancels the Other (OCO) Order is a pair of orders, typically limit orders, whereby if one order is filled, the other order will automatically be cancelled. For example, an OCO order might consist of an order to buy 10 calls with a strike price of 50 at a specified price or buy 20 calls with a strike price of 55 (with the same expiration date) at a specified price.
See Also: Call
One-to-Many refers to a proprietary trading platform in which the platform operator posts bids and offers for commodities, derivatives, or other instruments and serves as a counterparty to every transaction executed on the platform. In contrast to many-to-many platforms, one-to-many platforms are not considered trading facilities under the Commodity Exchange Act.
See Also: Bid
Open is the period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the open."
See Also: Exchange
Open Interest is the total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Open Interest is also called open contracts or open commitments. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.
Open interest is the number of open contracts of a given option. An open contract is either put or call that is not exercised, closed or expired. Open interest increases when a buyer opens a put or call position and, vise versa, open interest decreases when a buyer sells/closes a put or call position.
Volume and open interest are important indicators in futures markets.
See Also: Open
Open Order (or Orders) is an order that remains in force until it is canceled or until the futures contracts expire.
See Also: Open
Open Outcry is a method of public auction for making bids and offers in the trading pits of futures exchanges. Open Outcry is common to most U.S. commodity exchanges, where trading occurs on a trading floor and traders may bid and offer simultaneously either for their own accounts or for the accounts of customers. Transactions may take place simultaneously at different places in the trading pit or ring. At most exchanges outside the U.S., open outcry has been replaced by electronic trading platforms.
See Also: Open
Open Trade Equity is the unrealized gain or loss on open futures positions.
Opening is the period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the opening."
See Also: Open
Opening Price (or Range) is the price (or price range) recorded during the period designated by the exchange as the official opening.
Opening Range is the range of prices at which buy and sell transactions took place during the opening of the market.
See Also: Open, Opening, Range
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.
See Also: 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.
Option Contract is a contract which gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or a futures contract at a specific price within a specified period of time. The seller of the option has the obligation to sell the commodity or futures contract or to buy it from the option buyer at the exercise price if the option is exercised.
Option Premium is the price a buyer pays (and a seller receives) for an option. Premiums are arrived at through the market process. There are two components in determining this price-extrinsic (or time) value and intrinsic value.
Option Pricing Model is a mathematical model used to calculate the theoretical value of an option. Inputs to option pricing models typically include the price of the underlying instrument, the option strike price, the time remaining till the expiration date, the volatility of the underlying instrument, and the risk-free interest rate (e.g., the Treasury bill interest rate). Examples of option pricing models include Black-Scholes and Cox-Ross-Rubinstein.
See Also: Option
An option Seller (also referred to as Writer) is a person that sells options contracts. A trader that sells options without having an underlying assets is uncovered options seller (uncovered options writer). An options seller has obligations before an options buyer.
See Also: Option
Option Writer is the person who originates an option contract by promising to perform a certain obligation in return for the price or premium of the option. Options writer is also known as option grantor or option seller.
Original Margin (also referred to as Initial Margin) is the initial deposit of margin money each clearing member firm is required to make according to clearing organization rules based upon positions carried, determined separately for customer and proprietary positions; similar in concept to the initial margin or security deposit required of customers by exchange rules.
See Also: Margin
Out Trade is a trade that cannot be cleared by a clearing organization because the trade data submitted by the two clearing members or two traders involved in the trade differs in some respect (e.g., price and/or quantity). In such cases, the two clearing members or traders involved must reconcile the discrepancy, if possible, and resubmit the trade for clearing. If an agreement cannot be reached by the two clearing members or traders involved, the dispute would be settled by an appropriate exchange committee.
See Also: Clearing Member
Out-Of-The-Money option is an option that has no intrinsic value. For example, a call with a strike price of $400 on gold trading at $390 is out-of-the-money 10 dollars. Out-of-the-money put options are options with strike price above the current trading underlying assets' price. Out-of-the-money call options are options with strike price above the trading underlying assets' price.
See Also: Call
Outright is an order to buy or sell only one specific type of futures contract; an order that is not a spread order.
See Also: CIF
Over-the-Counter (OTC) (Also referred to as Off-Exchange) is the way of trading commodities, contracts, or other instruments not listed on any exchange. OTC transactions can occur electronically or over the telephone.
See Also: Call
Over-the-Counter Market (OTC) is a market where products such as stocks, foreign currencies and other cash items are bought and sold by telephone, Internet and other electronic means of communication rather than on a designated futures exchange.
See Also: Over-the-Counter
Overbought is a technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bullish and long have turned bearish.
See Also: Bear
Overnight Trade is a trade which is not liquidated during the same trading session during which it was established.
See Also: Liquidate
Oversold is a technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors; rank and file traders who were bearish and short have turned bullish.
See Also: Bear
Paper Profit or Loss is the profit or loss that would be realized if open contracts were liquidated as of a certain time or at a certain price. Paper Profit or Loss is usually referred to paper trading which means not real trading or virtual trading without indolent of real money with the purpose of training, education and testing.
See Also: Contract
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.
See Also: Commodity
Path Dependent Option is an option whose valuation and payoff depends on the realized price path of the underlying asset, such as an Asian option or a Lookback option.
See Also: Option
Pay/Collect is a shorthand method of referring to the payment of a loss (pay) and receipt of a gain (collect) by a clearing member to or from a clearing organization that occurs after a futures position has been marked-to-market.
See Also: Clearing Member
Pegged Price is the price at which a commodity has been fixed by agreement.
See Also: Commodity
Pegging is a process of effecting transactions in an instrument underlying an option to prevent a decline in the price of the instrument shortly prior to the option's expiration date so that previously written put options will expire worthless, thus protecting premiums previously received.
See Also: Expiration Date
Pip is the smallest price unit of a commodity or currency.
See Also: Commodity
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.
See Also: Commodity
Point Balance is a statement prepared by futures commission merchants to show profit or loss on all open contracts using an official closing or settlement price, usually at calendar month end.
See Also: Commission
Point-and-Figure is a method of charting that uses prices to form patterns of movement without regard to time. It defines a price trend as a continued movement in one direction until a reversal of a predetermined criterion is met.
See Also: Charting
Ponzi Scheme is named after Charles Ponzi, a man with a remarkable criminal career in the early 20th century, the term has been used to describe pyramid arrangements whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected, and gives investors the impression that a legitimate profit-making business or investment opportunity exists, where in fact it is a mere fiction.
See Also: Range
One of the major cuts of the hog carcass that, when cured, becomes bacon.
Portfolio Insurance is a trading strategy that uses stock index futures and/or stock index options to protect stock portfolios against market declines.
See Also: Futures
Portfolio Margining (sometimes referred to as risked-based margining) is a method for setting margin requirements that evaluates positions as a group or portfolio and takes into account the potential for losses on some positions to be offset by gains on others. Specifically, the margin requirement for a portfolio is typically set equal to an estimate of the largest possible decline in the net value of the portfolio that could occur under assumed changes in market conditions.
See Also: Margin
Position is a commitment, either long or short, in the market, in the form of one or more open contracts..
See Also: Contract
Position Accountability is a rule adopted by an exchange requiring persons holding a certain number of outstanding contracts to report the nature of the position, trading strategy, and hedging information of the position to the exchange, upon request of the exchange.
See Also: Position
Position Limit is the maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission (CFTC) and/or the exchange where the contract is traded.
See Also: Position
Position Trader is a trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader. Position Trader will normally initiate and offset a futures position within a single trading session.
Positive Carry is the cost of financing a financial instrument (the short-term rate of interest), where the cost is less than the current return of the financial instrument.
See Also: Instrument
Posted Price is an announced or advertised price indicating what a firm will pay for a commodity or the price at which the firm will sell it.
See Also: Commodity
Prearranged Trading is trading between brokers in accordance with an expressed or implied agreement or understanding, which is a violation of the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) regulations.
See Also: Range
Premium is the price (payment) paid by the buyer of an option to an options seller. Options premium is received by the seller of an option (by options writer), In futures market Premium is the cash prices that are above the futures price. At the same time term "Premium" may refer to the amount a price would be increased to purchase a better quality commodity. In some cases Premium stands for a futures delivery month selling at a higher price than another.
See Also: Buyer
Price Basing is a situation where producers, processors, merchants, or consumers of a commodity establish commercial transaction prices based on the futures prices for that or a related commodity (e.g., an offer to sell corn at 5 cents over the December futures price). This phenomenon is commonly observed in grain and metal markets.
See Also: Commercial
Price Discovery is the determination of the price of a commodity by the market process. Price Discovery determination is based on supply and demand conditions. Price discovery may occur in a futures market or cash market.
See Also: Cover
Price Limit (also referred to as Maximum Price Fluctuation) is the maximum advance or decline, from the previous day's settlement price, permitted for a futures contract in one trading session.
See Also: Contract
(1) For producers, their major purchaser of commodities; (2) to processors, the market that is the major supplier of their commodity needs; and (3) in commercial marketing channels, an important center at which spot commodities are concentrated for shipment to terminal markets.
See Also: Commercial
Program Trading is the purchase (or sale) of a large number of stocks contained in or comprising a portfolio. Originally called program trading when index funds and other institutional investors began to embark on large-scale buying or selling campaigns or "programs" to invest in a manner that replicates a target stock index, the term now also commonly includes computer-aided stock market buying or selling programs, and index arbitrage.
See Also: Arbitrage
Prompt Date is the date on which the buyer of an option will buy or sell the underlying commodity (or futures contract) if the option is exercised.
See Also: Buyer
Prop Shop is a proprietary trading group, especially one where the group's traders trade electronically at a physical facility operated by the group.
See Also: Call
Proprietary Account is an account that a futures commission merchant carries for itself or a closely related person, such as a parent, subsidiary or affiliate company, general partner, director, associated person, or an owner of 10 percent or more of the capital stock. The Futures Commission Merchant (FCM) must segregate customer funds from funds related to proprietary accounts.
See Also: Close
Proprietary Trading Group is an organization whose owners, employees, and/or contractors trade in the name of accounts owned by the group and exclusively use the funds of the group for all of their trading activity.
See Also: Contract
In trade parlance, Public is non-professional speculators as distinguished from hedgers and professional speculators or traders.
See Also: Par
Public Elevators are Grain elevators in which bulk storage of grain is provided to the public for a fee. Grain of the same grade but owned by different persons is usually mixed or commingled as opposed to storing it "identity preserved." Some elevators are approved by exchanges as regular for delivery on futures contracts.
See Also: Public
P&S (Purchase and Sale Statement) is a statement sent by a futures commission merchant to a customer when any part of a futures position is offset, showing the number of contracts involved, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, the net profit or loss on the transactions, and the balance. FCMs also send P&S Statements whenever any other event occurs that alters the account balance including when the customer deposits or withdraws margin and when the FCM places excess margin in interest bearing instruments for the customer's benefit.
See Also: Bear
Put is an option contract that gives the holder the right but not the obligation to sell a specified quantity of a particular commodity or other interest at a given price (the "strike price") prior to or on a future date. Call options is another type of options.
See Also: Call
Put Option is an option which gives the buyer the right, but not the obligation, to sell the underlying futures contract at a particular price (strike or exercise price) on or before a particular date. Call options on futures gives right to buy underlying futures contracts at specific price on or before expiration date.
Pyramiding is the use of profits on existing positions as margin to increase the size of the position, normally in successively smaller increments.
See Also: Margin
Quotation is the actual price or the bid or ask price of either cash commodities or futures or options contracts at a particular time.
See Also: Ask
Rally is an upward movement of prices.
See Also: Counter-Trend Trading, Trend, Trendline
Random Walk is an economic theory that market price movements move randomly. Random Walk theory assumes an efficient market. The theory also assumes that new information comes to the market randomly. Together, the two assumptions imply that market prices move randomly as new information is incorporated into market prices. The Random Walk theory implies that the best predictor of future prices is the current price, and that past prices are not a reliable indicator of future prices. If the random walk theory is correct, technical analysis cannot work.
See Also: Efficient Market
Range is the difference between the high and low price of a commodity, futures, or option contract during a given period (trading session, week, month, year, etc).
See Also: Commodity
Ratio Hedge is the number of options compared to the number of futures contracts bought or sold in order to establish a hedge that is neutral or delta neutral.
See Also: Contract
Ratio Spread is a trading strategy which is applied to both puts and calls, and which involves buying or selling options at one strike price in greater number than those bought or sold at another strike price. Ratio spreads are typically designed to be delta neutral. Back spreads and front spreads are types of ratio spreads.
See Also: Spread
Reaction is a downward price movement after a price advance.
See Also: Trend
Recovery is an upward price movement after a decline.
See Also: Cover
Reference Asset is an asset, such as a corporate or sovereign debt instrument, that underlies a credit derivative.
See Also: Credit Derivative
Regular Warehouse is a processing plant or warehouse that satisfies exchange requirements for financing, facilities, capacity, and location and has been approved as acceptable for delivery of commodities against futures contracts. See Licensed Warehouse.
See Also: Contract
Reparations is the term that is used in conjunction with the Commodity Futures Trading Commission's (CFTC's) customer claims procedure to recover civil damages.
See Also: Par
Replicating Portfolio (sometimes referred to as a synthetic asset) is a portfolio of assets for which changes in value match those of a target asset. For example, a portfolio replicating a standard option can be constructed with certain amounts of the asset underlying the option and bonds.
See Also: Option
Repo or Repurchase Agreement is a transaction in which one party sells a security to another party while agreeing to repurchase it from the counterparty at some date in the future, at an agreed price. Repos allow traders to short-sell securities and allow the owners of securities to earn added income by lending the securities they own. Through this operation the counterparty is effectively a borrower of funds to finance further. The rate of interest used is known as the repo rate.
See Also: Counterparty
Reportable Positions is the number of open contracts specified by the Commodity Futures Trading Commission (CFTC) when a firm or individual must begin reporting total positions by delivery month to the authorized exchange and/or the CFTC.
See Also: Position
Reporting Level is the size of positions set by the exchanges and/or the Commodity Futures Trading Commission (CFTC) at or above which commodity traders or brokers who carry these accounts must make daily reports about the size of the position by commodity, by delivery month, and whether the position is controlled by a commercial or non-commercial trader.
See Also: Broker
In technical analysis, Resistance is a price area where new selling will emerge to dampen a continued rise. Support, in opposite to resistance is the price area where buying overcome selling and price starts to recover after being in decline.
See Also: Cover
Resting Order is a limit order to buy at a price below or to sell at a price above the prevailing market that is being held by a floor broker. Such orders may either be day orders or open orders.
See Also: Broker
Retail Customer is a customer that does not qualify as an eligible contract participant under Section 1a(12) of the Commodity Exchange Act, 7 USC 1a(12). An individual with total assets that do not exceed $10 million, or $5 million if the individual is entering into an agreement, contract, or transaction to manage risk, would be considered a retail customer.
See Also: Commodity
In specific circumstances, some exchanges permit holders of futures contracts who have received a delivery notice through the clearing organization to sell a futures contract and return the notice to the clearing organization to be reissued to another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the notice.
See Also: Tender
Retracement is a reversal within a major price trend.
See Also: Reversal
Reversal is a change of direction in prices.
With regard to options, Reverse Conversion or Reversal is a position created by buying a call option, selling a put option, and selling the underlying instrument (for example, a futures contract).
See Also: Conversion
Reverse Crush Spread is a trading strategy that involves sale of soybean futures and the simultaneous purchase of soybean oil and meal futures.
See Also: Crush Spread, Spread
Riding the Yield Curve is a trading in an interest rate futures contract according to the expectations of change in the yield curve.
See Also: Yield, Yield Curve
Ring is a circular area on the trading floor of an exchange where traders and brokers stand while executing futures trades. Some exchanges use pits rather than rings.
See Also: Broker
Risk-Reward Ratio is the relationship between the probability of loss and profit. Risk-Reward Ratio is often used as a basis for trade selection or comparison.
See Also: Basis
Roll-Over is a trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The "Roll-Over" term also applies to lifting a near futures position and re-establishing it in a more deferred delivery month.
See Also: Contract
Round Lot is a quantity of a commodity equal in size to the corresponding futures contract for the commodity.
See Also: Lot
Round Turn is a completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
See Also: Cover
Rules are the principles, standards and requirements for governing an exchange. In some exchanges, rules are adopted by a vote of the membership, while in others, they can be imposed by the governing board.
See Also: Exchange
Runners are messengers or clerks who deliver orders received by phone clerks to brokers for execution in the pit.
See Also: Broker
Sample Grade is usually the lowest quality of a commodity, too low to be acceptable for delivery in satisfaction of futures contracts.
See Also: Commodity
To purchase or sell a scale down means to buy or sell at regular price intervals in a declining market. To buy or sell on scale up means to buy or sell at regular price intervals as the market advances.
Scalper (also referred to as Day trader or Position Trader) is a trader who trades for small, short-term profits during the course of a trading session, holding the positions for only a short time during a trading session, rarely carrying a position overnight. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, e.g., to buy at the bid and sell at the offer or ask price, with the intent of capturing the spread between the two, thus creating market liquidity.
See Also: Ask
Seasonality Claims are misleading sales pitches that one can earn large profits with little risk based on predictable seasonal changes in supply or demand, published reports or other well-known events.
See Also: Pit
Seat is an instrument granting trading privileges on an exchange. A seat may also represent an ownership interest in the exchange.
See Also: Exchange
Securities and Exchange Commission (SEC) is the Federal regulatory agency established in 1934 to administer Federal securities laws.
See Also: Commission, Exchange
Generally, Security is a transferable instrument representing an ownership interest in a corporation (equity security or stock) or the debt of a corporation, municipality, or sovereign. Other forms of debt such as mortgages can be converted into securities. Certain derivatives on securities (e.g., options on equity securities) are also considered securities for the purposes of the securities laws. Security futures products are considered to be both securities and futures products. Futures contracts on broad-based securities indexes are not considered securities.
See Also: Contract
Security Future is a contract for the sale or future delivery of a single security or of a narrow-based security index.
See Also: Security
Security Futures Product is a security future or any put, call, straddle, option, or privilege on any security future.
See Also: Futures, Security, Security Future
Segregated Account (also referred to as Customer Segregated Funds) is a special account used to hold and separate customers' assets for trading on futures exchanges from those of the broker or firm.
See Also: Broker
Self-Regulatory Organizations (SRO) are Exchanges and registered futures associations that enforce minimum financial and sales practice requirements for their members.
See Also: Exchange
Seller's call, also referred to as call purchase, is the same as the buyer's call except that the seller has the right to determine the time to fix the price.
See Also: Call
Seller's Market (in opposite to Buyer's Market) is aA condition of the market in which there is a scarcity of goods available and hence sellers can obtain better conditions of sale or higher prices.
See Also: Buyer
Seller's Option is the right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.
See Also: Option
Selling Hedge (or Short Hedge) is selling futures contracts to protect against possible decreased prices of commodities. See Hedging.
See Also: Contract
Series of Options are Options of the same type (i.e., either puts or calls, but not both), covering the same underlying futures contract or other underlying instrument, having the same strike price and expiration date.
See Also: Option
Settlement is the act of fulfilling the delivery requirements of the futures contract.
See Also: Contract
Settlement Price (also referred to as Closing Price) is the last price paid for a futures contract on any trading day. Settlement prices are used to determine open trade equity, margin calls and invoice prices for deliveries. Settlement price at which the clearing organization clears all trades and settles all accounts between clearing members of each contract month. The term also refers to a price established by the exchange to even up positions which may not be able to be liquidated in regular trading.
See Also: Settlement
Shipping Certificate is a negotiable instrument used by several futures exchanges as the futures delivery instrument for several commodities (e.g., soybean meal, plywood, and white wheat). The shipping certificate is issued by exchange-approved facilities and represents a commitment by the facility to deliver the commodity to the holder of the certificate under the terms specified therein. Unlike an issuer of a warehouse receipt, who has physical product in store, the issuer of a shipping certificate may honor its obligation from current production or through-put as well as from inventories.
See Also: CIF
Shock Absorber is a temporary restriction in the trading of certain stock index futures contracts that becomes effective following a significant intraday decrease in stock index futures prices. Designed to provide an adjustment period to digest new market information, the restriction bars trading below a specified price level. Shock absorbers are generally market specific and at tighter levels than circuit breakers.
See Also: Break
Short (shorting) is the selling side of an open futures contract.
See Also: Contract
Short Selling is selling a futures contract or other instrument with the idea of delivering on it or offsetting it at a later date.
See Also: Short
Short the Basis the purchase of futures as a hedge against a commitment to sell in the cash or spot markets.
Short Trader (opposite to long trader) is one who has sold futures contracts or plans to purchase a cash commodity.
Single Stock Future is a futures contract on a single stock. Single stock futures were illegal in the U.S. prior to the passage of the Commodity Futures Modernization Act.
See Also: Commodity
Small Traders are traders who hold or control positions in futures or options that are below the reporting level specified by the exchange or the Commodity Futures Trading Commission (CFTC).
See Also: Trader
Soft is a description of a price that is gradually weakening. The "Soft" term may also refers to certain "soft" commodities such as sugar, cocoa, and coffee.
When liquidation of a weakly-held position has been completed, and offerings become scarce, the market is said to be sold out.
See Also: Liquidation
As developed by the Chicago Mercantile Exchange (CME), SPAN (Standard Portfolio Analysis of Risk) is the industry standard for calculating performance bond requirements (margins) on the basis of overall portfolio risk. SPAN calculates risk for all enterprise levels on derivative and non-derivative instruments at numerous exchanges and clearing organizations worldwide.
See Also: Basis
Specialist System is a type of trading commonly used for the exchange trading of securities in which one individual or firm acts as a market-maker in a particular security, with the obligation to provide fair and orderly trading in that security by offsetting temporary imbalances in supply and demand by trading for the specialist's own account.
See Also: Exchange
Speculative Bubble is a rapid run-up in prices caused by excessive buying that is unrelated to any of the basic, underlying factors affecting the supply or demand for a commodity or other asset. Speculative bubbles are usually associated with a "bandwagon" effect in which speculators rush to buy the commodity (in the case of futures, "to take positions") before the price trend ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse.
See Also: Commodity
Speculative Position Limit is the maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined that may be held or controlled by one person (other than a person eligible for a hedge exemption) as prescribed by an exchange and/or by the Commodity Futures Trading Commission (CFTC).
See Also: Position, Position Limit
Speculator is a market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. In commodity futures, Speculator is an individual who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.
See Also: Commodity
Split Close is a condition that refers to price differences in transactions at the close of any market session.
See Also: Close
Spot usually refers to a cash market for a physical commodity where the parties generally expect immediate delivery of the actual commodity.
See Also: Cash Market
Spot Commodity is the actual commodity as distinguished from a futures contract. In some cases, the "Spot Commodity" term is used to refer to cash commodities available for immediate delivery.
Spot Month (also called Current Delivery Month) is the futures contract that matures and becomes deliverable during the present month.
See Also: Spot
Spot Price is the price at which a physical commodity for immediate delivery is selling at a given time and place. See Cash Price.
See Also: Spot
Spread (Also referred to as Straddle) is the purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.
A spread is the simultaneous purchase and sale of the same or similar commodity, in different or the same contract months. Spread trading is usually considered to be a lower risk strategy than an outright long or short futures position, and therefore margin requirements are usually less.
Not only can spreads be utilized in futures markets, but options provide even more opportunities for successful spread trading. With so many variables including strike prices, trading months, and different markets available, the permutations and combinations of option strategies are tremendous.
Some of the advantages of spreads are:
- require smaller margin deposits;
- lower risk
- seasonal patterns exist among spread relationships.
See Also: Commodity
Spreading is referred to the buying and selling of two different delivery months or related commodities in the expectation that a profit will be made when the position is offset.
See Also: Spread
Squeeze is a market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.
See Also: Cover
Stop Limit Order is a stop limit order is an order that goes into force as soon as there is a trade at the specified price. The order, however, can only be filled at the stop limit price or better.
See Also: Limit Order
Stop Order (sometimes referred to as stop loss order) is an order that becomes a market order when a particular price level is reached. A sell stop is placed below the market, a buy stop is placed above the market.
See Also: Low
Stop-Close-Only Order is a stop order that can be executed, if possible, only during the closing period of the market. See also Market-on-Close Order.
See Also: Close
Straddle ( also referred to as Spread) is an option position consisting of the purchase of put and call options having the same expiration date and strike price.
See Also: Call
Strangle is an option position consisting of the purchase of put and call options having the same expiration date, but different strike prices.
See Also: Call
Strategy-Based Margining is a method for setting margin requirements whereby the potential for gains on one position in a portfolio to offset losses on another position is taken into account only if the portfolio implements one of a designated set of recognized trading strategies as set out in the rules of an exchange or clearing organization.
See Also: Margin
Street Book is a daily record kept by futures commission merchants and clearing members showing details of each futures and option transaction, including date, price, quantity, market, commodity, future, strike price, option type, and the person for whom the trade was made.
See Also: Clearing Member
Strike Price (Exercise Price) is the price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer. Strike Price is the price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.
See Also: Buyer
STRIPS (Separate Trading of Registered Interest and Principal Securities) is a book-entry system operated by the Federal Reserve permitting separate trading and ownership of the principal and coupon portions of selected Treasury securities. It allows the creation of zero coupon Treasury securities from designated whole bonds.
See Also: Low
The "Strong Hands" term usually means that the party receiving the delivery notice probably will take delivery and retain ownership of the commodity (when used in connection with delivery of commodities on futures contracts). When "Strong Hands" term is used in connection with futures positions, it usually means positions held by trade interests or well-financed speculators.
See Also: Commodity
In technical analysis, Support is a price area where new buying is likely to come in and stem any decline. Support is opposite to resistance that defines the price area at the top of an up-trend trend.
See Also: Resistance
In general, the exchange of one asset or liability for a similar asset or liability for the purpose of lengthening or shortening maturities, or raising or lowering coupon rates, to maximize revenue or minimize financing costs. Swap may entail selling one securities issue and buying another in foreign currency; it may entail buying a currency on the spot market and simultaneously selling it forward. Swaps also may involve exchanging income flows; for example, exchanging the fixed rate coupon stream of a bond for a variable rate payment stream, or vice versa, while not swapping the principal component of the bond. Swaps are generally traded over-the-counter.
See Also: Coupon Rate
Swaption is an option to enter into a swap -i.e., the right, but not the obligation, to enter into a specified type of swap at a specified future date.
See Also: Swap
Switch is a process of offsetting a position in one delivery month of a commodity and simultaneous initiation of a similar position in another delivery month of the same commodity, a tactic referred to as "rolling forward."
See Also: Commodity
Synthetic Futures is a position created by combining call and put options. A synthetic long futures position is created by combining a long call option and a short put option for the same expiration date and the same strike price. A synthetic short futures contract is created by combining a long put and a short call with the same expiration date and the same strike price.
See Also: Futures
Systematic Risk is market risk due to factors that cannot be eliminated by diversification.
See Also: Basis Risk, Counterparty Risk, Exchange Risk Factor, Risk-Reward Ratio, Systemic Risk
Systemic Risk is the risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A's default in X market may affect Intermediary B's ability to fulfill its obligations in Markets X, Y, and Z.
See Also: Default
Taker is the buyer of an option contract.
See Also: Buyer
Technical Analysis (in opposite to fundamental analysis) is an approach to forecasting commodity prices that examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors. Technical analysis can work consistently only if the theory that price movements are a random walk is incorrect.
See Also: Commodity
Ted Spread is the difference between the price of the three-month U.S. Treasury bill futures contract and the price of the three-month Eurodollar time deposit futures contract with the same expiration month.
See Also: Spread
Tender means giving a notice to the clearing organization of the intention to initiate delivery of the physical commodity in satisfaction of a short futures contract.
See Also: Clearing Organization
Terminal Elevator is an elevator located at a point of greatest accumulation in the movement of agricultural products that stores the commodity or moves it to processors.
See Also: Commodity
Terminal Market is usually synonymous with commodity exchange or futures market, specifically in the United Kingdom.
See Also: Call
Tick (also referred to as Minimum Price Fluctuation) is the smallest increment of price movement for a futures contract. Tick is a minimum change in price up or down. An up-tick means that the last trade was at a higher price than the one preceding it. A down-tick means that the last price was lower than the one preceding it. See Minimum Price Fluctuation.
See Also: Contract
Time Decay is the tendency of an option to decline in value (decline in time value) as the expiration date approaches, especially if the price of the underlying instrument is exhibiting low volatility.
See Also: Expiration Date
Time Spread ( also called Horizontal Spread) is a trading strategy that involves selling of a nearby option and buying of a more deferred option with the same strike price.
See Also: Spread
Time value (also called Extrinsic Value) is the portion of an option's premium that exceeds the intrinsic value. The amount of money options buyers are willing to pay for an option in anticipation that over time a change in the underlying futures price will cause the option to increase in value. The time value of an option reflects the probability that the option will move into-the-money. Therefore, the longer the time remaining until expiration of the option, the greater its time value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value.
See Also: Buyer
Time-of-Day Order is an order that is to be executed at a given minute in the session. For example, "Sell 10 April corn at 14:30 p.m."
See Also: Day Order
To-Arrive Contract is a transaction providing for subsequent delivery within a stipulated time limit of a specific grade of a commodity.
See Also: Contract
Total Return Swap (also called total rate of return swap, or TR swap) is a type of credit derivative in which one counterparty receives the total return (interest payments and any capital gains or losses) from a specified reference asset and the other counterparty receives a specified fixed or floating cash flow that is not related to the creditworthiness of the reference asset.
See Also: Swap
Trade on close is buying or selling at the end of the trading session (at market close) within the closing price range.
See Also: Close
Trade on opening is buying or selling at the beginning of a trading session (at market open) within the open price range.
Trade Option is a commodity option transaction in which the purchaser is reasonably believed by the writer to be engaged in business involving use of that commodity or a related commodity.
See Also: Option
Trader is a merchant involved in cash commodities or a professional speculator who trades for his own account and who typically holds exchange trading privileges.
See Also: Call
A facility, often operated by a clearing member that clears trades for locals, where e-locals who trade for their own account can gather to trade on an electronic trading facility (especially if the exchange is all-electronic and there is no pit or ring).
See Also: Clearing Member
Trading Facility is a person or group of persons that provides a physical or electronic facility or system in which multiple participants have the ability to execute or trade agreements, contracts, or transactions by accepting bids and offers made by other participants in the facility or system.
See Also: Bid
Trading Floor is a physical trading facility where traders make bids and offers via open outcry or the specialist system.
See Also: Bid
Transaction is an entry or liquidation of a trade.
See Also: Liquidation
A term "Transfer Notice" is used on some exchanges to describe a notice of delivery.
See Also: Delivery
Transfer Trades (also called Ex-Pit transactions) are entries made upon the books of futures commission merchants (CFM) for the purpose of: transferring existing trades from one account to another within the same firm where no change in ownership is involved, or for the purpose of transferring existing trades from the books of one FCM to the books of another FCM where no change in ownership is involved.
See Also: Call
Transferable Option (or Contract) is a contract that permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.
See Also: Option
Treasury Bill (or T-Bill) is Short-term zero coupon U.S. government obligations, generally issued with various maturities of up to one year.
See Also: Rally
Treasury Bonds (or T-Bonds) are Long-term (more than ten years) obligations of the U.S. government that pay interest semi-annually until they mature, at which time the principal and the final interest payment is paid to the investor.
See Also: Long
Treasury Notes are the same as Treasury bonds except that Treasury notes are medium-term (more than one year but not more than ten years).
See Also: Treasury Bonds
Trend is the general direction, either upward or downward, in which prices have been moving.
See Also: Trendline
In charting, a Trendline is 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.
See Also: Trend
All orders not filled by the end of a trading day are deemed "unable" and void, unless they are designated GTC (Good Until Cancelled) or open.
See Also: Fill
Uncovered Option (also referred to as a Naked Option) is a short call or put option position which is not covered by the purchase or sale of the underlying futures contract or physical commodity.
See Also: Cover, Covered Option, Option
Underlying Commodity is the cash commodity underlying a futures contract. Also, the commodity or futures contract on which a commodity option is based, and which must be accepted or delivered if the option is exercised.
See Also: Commodity
Underlying Futures Contract is a specific futures contract that the option conveys the right to buy (in case of a call) or sell (in the case of a put).
See Also: Contract, Futures, Futures Contract
Variable Limit is a price system that allows for larger than normal allowable price movements under certain conditions. In periods of extreme volatility, some exchanges permit trading at price levels that exceed regular daily price limits.
See Also: Daily Price Limit
Variable Price Limit is a price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.
See Also: Price Limit
Variation Margin is a payment made on a daily or intraday basis by a clearing member to the clearing organization based on adverse price movement in positions carried by the clearing member, calculated separately for customer and proprietary positions. Variation Margin is an additional margin required to be deposited
See Also: Margin
Vault Receipt is a document indicating ownership of a commodity stored in a bank or other depository and frequently used as a delivery instrument in precious metal futures contracts.
See Also: Commodity
Vega is the coefficient measuring the sensitivity of an option value to a change in volatility.
See Also: Option
Vertical Spread is a trading strategy that involves the simultaneous purchase and sale of options of the same class and expiration date but different strike prices, including bull vertical spreads, bear vertical spreads, back spreads, and front spreads. There are other types of spread trading strategies, such as Horizontal Spread and Diagonal Spread.
See Also: Spread
Visible Supply, in opposite to invisible supply, usually refers to supplies of a commodity in licensed warehouses. Visible Supply often includes floats and all other supplies "in sight" in producing areas.
See Also: Commodity
Volatility is a statistical measurement of the change in price of a futures contract, security, or other instrument underlying an option over a given time period.
Volatility is one of the most important factors in an option's price. It measures the amount by which an underlying asset is expected to fluctuate in a given period of time. It significantly impacts the price of an option's premium and heavily contributes to an option's time value. In basic terms, volatility can be viewed as the speed of change in the market, although you may prefer to think of it as market confusion. The more confused a market is, the better chance an option has of ending up in-the-money. A stable market moves slowly.
Volatility measures the speed of change in the price of the underlying instrument or the option. The higher the volatility, the more chance an option has of becoming profitable by expiration. That's why volatility is a primary determinant in the valuation of options' premiums. There are options strategies that can be used to take advantage of either scenario.
See Also: Contract
Volatility Quote Trading refers to the quoting of bids and offers on option contracts in terms of their implied volatility rather than as prices.
See Also: Volatility
Volatility Spread is a trading strategy that involves a delta-neutral option spread designed to speculate on changes in the volatility of the market rather than the direction of the market.
See Also: Spread, Volatility
Volatility Trading is trading strategies designed to speculate on changes in the volatility of the market rather than the direction of the market.
See Also: Volatility
Volume is the number of purchases and sales of futures contracts made during a specified period of time, often the total transactions for one trading day.
See Also: CIF
Volume of Trade is the number of contracts traded during a specified period of time. It may be quoted as the number of contracts traded or as the total of physical units, such as bales or bushels, pounds or dozens.
See Also: Volume
Warehouse Receipt is a document certifying possession of a commodity in a licensed warehouse that is recognized for delivery purposes by an exchange.
See Also: Commodity
Warrant is an issuer-based product that gives the buyer the right, but not the obligation, to buy (in the case of a call) or to sell (in the case of a put) a stock or a commodity at a set price during a specified period.
See Also: Buyer
Warrant or Warehouse Receipt for Metals is a certificate of physical deposit, which gives title to physical metal in an exchange-approved warehouse.
See Also: Warehouse Receipt, Warrant
Wash Trading occurs when entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader's market position. The Commodity Exchange Act prohibits wash trading. Also called Round Trip Trading, Wash Sales.
See Also: Call
Weak Hands term used in connection with delivery of commodities on futures contracts, the term usually means that the party probably does not intend to retain ownership of the commodity; when used in connection with futures positions, the term usually means positions held by small speculators.
See Also: Commodity
Weather Derivative is a derivative whose payoff is based on a specified weather event, for example, the average temperature in Chicago in January. Such a derivative can be used to hedge risks related to the demand for heating fuel or electricity.
See Also: Derivative
Wild Card Option refers to a provision of any physical delivery Treasury bond or Treasury notes futures contract that permits shorts to wait until as late as 8:00 p.m. on any notice day to announce their intention to deliver at invoice prices that are fixed at 2:00 p.m., the close of futures trading, on that day.
See Also: Option
Winter Wheat is wheat that is planted in the fall, lies dormant during the winter, and is harvested beginning about May of the next year.
See Also: Ring
Writer is the issuer, grantor, or seller of an option contract. Writer is a person who sells an option and assumes the potential obligation to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price. Also referred to as an Option Grantor.
See Also: Call
Yield is a measure of the annual return on an investment.
See Also: Total Return Swap
Yield Curve is a graphic representation of market yield for a fixed income security plotted against the maturity of the security. The yield curve is positive when long-term rates are higher than short-term rates.
See Also: Yield
Yield to Maturity is the rate of return an investor receives if a fixed income security is held to maturity.
Zero Coupon refers to a debt instrument that does not make coupon payments, but, rather, is issued at a discount to par and redeemed at par at maturity.
See Also: Discount
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.