 |
|
American-style options
|
|
Options that permit exercise at any time on or before the expiration date. |
Arbitrage
|
|
The
simultaneous purchase and sale of identical or equivalent financial
instruments or commodity futures in order to benefit from a
discrepancy in their price relationship.
|
Ask
|
|
Also
called "offer." Indicates a willingness to sell a futures
contract at a given price. See Bid.
|
Assignment
|
|
Notice
to the seller of an option that has been exercised by the buyer. |
Associated
person (AP)
|
|
A
person, commonly called a commodity broker, associated with and
soliciting customers and orders for a futures commission merchant or
introducing broker. The AP must pass a Series 3 examination, be
licensed by the CFTC and be a member of the NFA.
|
At-the-money
|
|
An
option with a strike price equal to the underlying futures price. |
Back months
|
|
The
futures or options on futures months being traded that are furthest
from expiration. Also called deferred or distant months. |
Bar chart
|
|
A
graph of prices, volume and open interest for a specified time
period used by the chartist to forecast market trends. A daily bar
chart plots each trading session's high, low and settlement prices. |
Basis
|
|
The
local cash market price minus the price of the nearby futures
contract. |
Basis contract
|
|
A
forward contract in which the cash price is based on the basis
relating to a specified futures contract. |
Bear
|
|
One
who believes prices will move lower. |
Bear market
|
|
A
market in which prices are declining. |
Bear spread
|
|
A
vertical spread involving the sale of the lower strike call and the
purchase of the higher strike call, called a bear call spread.
Also, a vertical spread involving the sale of the lower strike put
and the purchase of the higher strike put, called a bear put
spread. |
Bearish key
reversal
|
|
A
bar chart formation that occurs in an uptrending market when the
day's high is higher, low is lower and close is below the previous
day's. Can signal an upcoming downtrend. |
Bid
|
|
The
price that the market participants are willing to pay. |
Blowoff volume
|
|
An
extraordinarily high volume trading session occurring suddenly in an
uptrend signaling the end of the trend. |
Breakaway gap
|
|
A
gap in prices that signals the end of a price pattern and the
beginning of an important market move. |
Breakeven
|
|
The
point at which an option buyer or seller experiences no loss and no
profit on an option. Call breakeven equals the strike price plus the
premium. Put breakeven equals the strike price minus the premium. |
Broker
|
|
A
firm or person engaged in executing orders to buy or sell futures
contracts for customers. A full service broker offers market
information and advice to assist the customer in trading. A discount
broker simply executes orders for customers. |
Brokerage house
|
|
A
firm that handles orders to buy and sell futures and options
contracts for customers. |
Bull
|
|
One
who expects prices to rise. |
Bull market
|
|
A
market in which prices are rising. |
Bull spread
|
|
A
vertical spread involving the purchase of the lower strike call and
the sale of the higher strike call, called a bull call spread.
Also, a vertical spread involving the purchase of the lower strike
put and the sale of the higher strike put, called a bull put
spread. |
Bullish key
reversal
|
|
A
bar chart formation that occurs in a downtrending market when the
day's high is higher, low is lower and close is above the previous
day's. Can signal an upcoming uptrend. |
Buy On Opening
|
|
To
buy at the beginning of a trading session at a price within the
opening range. |
Cabinet Trade or
cab
|
|
A
trade that allows options traders to liquidate deep out-of-the-
money options by trading the option at a price equal to one-half
tick. |
Call
|
|
An
option to buy a commodity, security or futures contract at a
specified price any time between now and the expiration date of the
option contract. See Option
|
Call breakeven
|
|
See
Breakeven
|
Call profit/loss
|
|
For
a long call, equal to the call value minus the premium. For a short
call, equal to the premium minus the call value. |
Call value
|
|
At
expiration, equal to the futures price minus the strike price of the
call. |
Car
|
|
A
loosely used term to describe contract quantities. |
Carryover
|
|
Last
year's ending stocks of a storable commodity. |
Cash commodity
|
|
The
actual physical commodity as distinguished from a futures contract. |
Cash price
|
|
Current
market price of the actual physical commodity. Also called
"spot price." |
Cash sales
|
|
The
sale of commodities in local cash markets such as elevators,
terminals, packing houses and auction markets. |
Cash settlement
|
|
Final
disposition of open positions on the last trading day of a contract
month. Occurs in markets where there is no actual delivery. |
CFTC
|
|
Acronym
for the Commodity Futures Trading Commission as created by the
Commodity Futures Trading Commission Act of 1974. This government
agency currently regulates the nation's commodity futures industry. |
Chartist
|
|
One
who engages in technical analysis. |
Clearing House
|
|
An
adjunct to the CME responsible for settling trading accounts,
clearing trades, collecting and maintaining performance bond funds,
regulating delivery and reporting trading data. |
Close
|
|
The
period at the end of the trading session. Sometimes used to refer to
the closing range. |
Closing range
|
|
The
high and low prices, or bids and offers, recorded during the period
designated as the official close. See Settlement price.
|
Commission
|
|
For
futures contract, the one-time fee charged by a broker to cover the
trades you make to open and close each position, payable when you
exit the position. Also called round-turn. Commissions on options
are usually half on initiation and half on liquidation. |
Commitment
|
|
When
a trader or institution assumes the obligation to accept or make
delivery on a futures contract. |
Commodity
exchange
|
|
An
organization that formulates rules and procedures for the trading of
futures and options on futures contracts, provides physical
facilities for trading and/or access to electronic trading
technologies, and oversees trading practices. |
Contract
|
|
Unit
of trading for a financial or commodity future. Also, actual
bilateral agreement between the parties (buyer and seller) of a
futures or options on futures transaction as defined by an exchange.
|
Contract month
|
|
The
month in which futures contracts may be satisfied by making or
accepting delivery. Also called the delivery month. |
Credit spread
|
|
An
option spread in which there is a net collection of premium. |
Day order
|
|
An
order that will be filled during the day's trading session or
canceled. |
Day trader
|
|
A
trader who establishes and liquidates positions within one day's
trading, ending the day with no established position in the market. |
Day trading
|
|
Refers
to establishing and liquidating the same position or positions
within one day's trading, thus ending the day with no established
position in the market. |
Debit spread
|
|
An
option spread in which there is a net payout of premium. |
Deferred
|
|
See
Back Months.
|
Deferred pricing
agreement
|
|
A
cash sale in which you deliver the commodity and agree with the
buyer to price it at a later time. |
Delivery
|
|
The
tender and receipt of an actual commodity of financial instrument in
settlement of a futures contract. |
Delivery month
|
|
See
Contract Month
|
Delta
|
|
The
measure of the price-change relationship between an option and the
underlying futures price. Equal to the change in premium divided by
the change in futures price. |
Demand
|
|
The
quantity of a commodity that buyers are willing to purchase from the
market at a given price. |
Discount broker
|
|
See
Broker
|
Distant
|
|
See
Back Months |
Double top,
bottom
|
|
A
bar chart formation that signals a possible trend reversal. In a
point and figure chart, double tops and bottoms are used for buy and
sell signals. |
Downtrend
|
|
A
price trend characterized by a series of lower highs and lower lows.
|
DRT
|
|
See
With discretion |
Electronic
trading
|
|
Trading
via computer through an automated, order entry and matching system.
GLOBEX� is an example of an international electronic
trading system. |
Elliot wave
theory
|
|
A
type of technical analysis that studies price wave sequences. |
Ending stocks
|
|
The
amount of a storable commodity remaining at the end of a year. |
European-style
options
|
|
Options
that may be exercised only on the option's expiration date. |
Exercise
|
|
The
process of an option holder exchanging it for the underlying futures
contract. |
Exercise notice
|
|
A
notice tendered by a brokerage firm to the CME Clearing House that
exchanges an option for a futures contract. |
Exercise price
|
|
The
price at which the holder (buyer) may purchase or sell the
underlying futures contract. Also called strike price. |
Exhaustion gap
|
|
A
gap in prices near the top or bottom of a price move that signals an
abrupt turn in the market. |
Expiration date
|
|
The
last day that an option may be exercised into the underlying futures
contract. Also, the last day of trading for a futures contract. |
Expire
|
|
Letting
the expiration date for an option pass without exercising or
offsetting the option. |
Fast market
|
|
Term
used to define unusually hectic market conditions. |
Fill-or-kill
order (FOK)
|
|
A
limit order that must be filled immediately or canceled. |
FLEX�
options
|
|
Flexible
term options providing more expiration dates and a broader range of
strike prices, available in American- or European-style. |
Floor broker
|
|
An
exchange member who is paid a fee for executing orders for clearing
members or their customers. A floor broker executing orders must be
licensed by the CFTC. |
Floor trader
|
|
An
exchange member who generally trades only his or her own account or
for an account controlled by him or her. Also referred to as a
local. |
Forward contract
|
|
A
private agreement between buyer and seller for the future delivery
of a commodity at an agreed price. |
Full service
broker
|
|
See
Broker
|
Fundamental
analysis
|
|
The
study of supply and demand information to help project futures
prices. |
Fundamentalist
|
|
One
who engages in fundamental analysis. |
Futures
|
|
A
term used to designate all contracts covering the purchase and sale
of financial instruments or physical commodities for future delivery
on a commodity futures exchange. |
Futures
commission merchant (FCM)
|
|
A
firm or person engaged in soliciting or accepting and handling
orders for the purchase or sale of futures contracts, subject to the
rules of a futures exchange and, who, in connection with
solicitation or acceptance of orders, accepts any money or
securities to margin any resulting trades or contracts. The FCM must
be licensed by the CFTC. |
Futures contract
|
|
A
standardized agreement, traded on a futures exchange, to buy or sell
a commodity at a specified price at a date in the future. Specifies
the commodity, quality, quantity, delivery date and delivery point
or cash settlement. |
Gamma
|
|
The
measure of the change in an option's delta given a change in the
futures price. Equal to the change in delta divided by the change in
futures price. |
Gap
|
|
A
price area at which the market didn't trade from one day to the
next. See Breakaway gap, Exhaustion gap, Runaway gap. |
Gap theory
|
|
A
type of technical analysis that studies gaps in prices. |
Good-til (GT)
|
|
An
order that remains in effect until it's canceled or until the
specified date is passed. |
Good-til-canceled
(GTC)
|
|
An
order that remains in effect until it's canceled, filled or until
the contract expires. |
Historical
volatility
|
|
See
Volatility |
Holder
|
|
One
who purchases an option. |
Head and
shoulders
|
|
A
sideways price formation at the top or bottom of the market that
indicates a major market reversal. |
Hedge
|
|
The
purchase or sale of a futures contract as a temporary substitute for
a cash market transaction to be made at a later date. Usually it
involves opposite positions in the cash market and futures market at
the same time. See Long Hedge and Short Hedge. |
Hedger
|
|
A
person or firm who uses the futures market to offset price risk when
intending to sell or buy the actual commodity. See Pure hedger,
Selective hedger. |
Hedging
|
|
The
purchase or sale of a futures contract as a temporary substitute for
a cash market transaction to be made at a later date. |
Hedging line of
credit
|
|
Financing
from your lender for the purpose of hedging the sale and purchase of
commodities. |
Holder
|
|
One
who purchases an option. |
Hundredweight
|
|
100
pounds. Abbreviated cwt. |
Implied
volatility
|
|
See
Volatility |
Initial
performance bond
|
|
The
funds required when a futures position (or a short options on
futures position) is opened. Previously referred to as initial
margin. See Performance Bond. |
Inter-commodity
spread
|
|
A
spread trade involving the same month of different but related
futures contracts. |
Inter-market
spread
|
|
A
spread trade involving same or related commodities at different
exchanges. Also called an inter-exchange spread. |
In-the-money
|
|
A
call option with a strike price less than the underlying futures
price. A put option with a strike price greater than the underlying
futures price. |
Intra-market
spread
|
|
A
spread trade involving different contract months of the same
commodity. Also called an inter-delivery spread. |
Intrinsic value
|
|
The
relationship of an option's in-the-money strike price to the current
futures price. For a put: Strike Price - Futures Price. For a
call: Futures Price - Strike Price. |
Introducing
broker (IB)
|
|
A
firm or person engaged in soliciting or accepting and handling
orders for the purchase or sale of futures contracts, subject to the
rules of a futures exchange, but not in accepting any money or
securities to margin any resulting trades or contracts. The IB is
associated with a correspondent futures commission merchant and must
be licensed by the CFTC. |
Leverage
|
|
The
use of a small amount of assets to control a greater amount of
assets. |
Limit order
|
|
An
order that can be filled only at a specified price or better. |
Limit move
|
|
See
Maximum price fluctuation. |
Liquidation
|
|
Any
transaction that offsets or closes out a long or short futures or
options on futures position. |
Livestock cycle
|
|
A
long, repeating pattern of increasing and decreasing livestock
supply and prices. |
Long
|
|
One
who has bought a futures or options on futures contract to establish
a market position and who has not yet closed out this position
through an offsetting procedure. The opposite of short. |
Long cash
|
|
You
own and plan to sell a commodity. |
Long hedge
|
|
The
purchase of a futures contract in anticipation of an actual purchase
in the cash market. Used by processors or exporters as protection
against an advance in the cash price. See Hedge. |
Lot
|
|
The
term used to describe a designated number of contracts, e.g., a 5
lot purchase. Also called "cars." |
Margin
|
|
See
Performance bond. |
Maintenance
performance bond
|
|
A
sum, usually smaller than the initial performance bond, which must
remain on deposit in the customer's account for any position. A drop
in funds below this level requires a deposit back to initial
performance bond levels. Previously referred to as maintenance
margin. See Performance bond call. |
Market-if-touched
(MIT)
|
|
An
price order that becomes a market order when the market trades at a
specified price at least once. |
Market-on-close
(MOC)
|
|
A
market order filled during the close of a trading session. |
Market order
|
|
An
order filled immediately at the best price available. |
Mark-to-market
|
|
The
daily adjustment of performance bond accounts to reflect profits and
losses. |
Maximum price
fluctuation
|
|
The
maximum amount the contract price can change up or down during one
trading session, as stipulated by Exchange rules. |
Minimum price
fluctuation
|
|
The
smallest increment of price movement possible in trading a given
contract, often referred to as a tick. |
Moving averages
|
|
A
type of technical analysis using the averages of settlement prices. |
Moving average
chart
|
|
A
chart recording moving averages (3-day, 10-day, etc.) of market
prices. |
National Futures
Association (NFA)
|
|
A
self-regulatory organization for the commodity futures industry
comprised of firms and individuals that conduct business with the
public. Overseen by the CFTC
|
Nearby
|
|
The
nearest active trading month of a futures or options on futures
contract. Also referred to as the lead month. |
Non-serial
options
|
|
Options
for months for which there are existing futures contracts of the
same months. |
Not-held (NH)
|
|
A
discretionary note on an order telling the floor broker that he or
she won't be held accountable if the trade is executed outside the
requirements of the order. Gives the broker discretion on getting
the order filled. |
Offer
|
|
Indicates
a willingness to sell a futures contract at a given price. |
Offset
|
|
Selling
if one has bought, or buying if one has sold, a futures or options
on futures contract. |
Offsetting a
hedge
|
|
For
a short hedger, to buy back futures and sell a commodity. For a long
hedger, to sell back futures and buy a commodity. |
Offsetting a
long option
|
|
Offset
a put by selling a put with the same strike price. Offset a call by
selling a call with the same strike price. |
Opening
|
|
The
beginning of the trading session. |
Opening range
|
|
The
range of prices at which the first bids and offers were made or
first transactions were completed. Must be initiated by at least one
trade. |
Open interest
|
|
Total
number of futures or options on futures contracts that have not yet
been offset or fulfilled for delivery. |
Open order
|
|
See
Good-til-canceled. |
Open outcry
|
|
The
method of trading publicly so that each trader has a fair chance to
buy or sell. |
Option
|
|
The
right, but not the obligation, to sell or buy the underlying (in
this case, a futures contract) at a specified price within a
specified time. |
Option
assignment
|
|
The
random selection of an option writer to take a futures position when
an option is exercised. |
Option buyer
|
|
One
who purchases an option and pays a premium. |
Option seller
|
|
One
who sells an option and receives a premium. |
Order-cancels-other
(OCO)
|
|
An
order that includes two orders, one of which cancels the other when
filled. Also referred to as one-cancels-other. |
Out-of-the-money
|
|
An
option with no intrinsic value. A call option with a strike price
greater than the underlying futures price. A put option with a
strike price less than the underlying futures price. |
Out-trades
|
|
A
situation that results when there is some confusion or error on a
trade - for example, when both traders think they were buying. |
Overbought/oversold
|
|
A
technical opinion of a market which has risen/fallen too much in
relation to underlying fundamental factors. |
Performance bond
|
|
Funds
that must be deposited by a customer with his or her broker, by a
broker with a clearing member or by a clearing member with the
Clearing House. The performance bond helps to ensure the financial
integrity of brokers, clearing members and the Exchange as a whole.
Previously referred to as margin. |
Performance bond
call
|
|
A
demand for additional funds to bring the customer's account back up
to the initial performance bond level whenever adverse price
movement has caused the account to go below the maintenance.
Previously referred to as a margin call. See Maintenance performance
bond. |
Point and figure
chart
|
|
A
graph of prices charted with x's for price increases and o's for
price decreases, used by the chartist for buy and sell signals. |
Position
|
|
An
interest in the market, either long or short, in the form of open
contracts. See Open interest. |
Position trader
|
|
A
trader who takes a position in the market and might hold that
position over a long period of time. |
Premium
|
|
The
amount agreed upon between the buyer and seller for the purchase or
sale of a futures option - the buyer pays the premium and the
seller receives the premium. The excess of one futures contract
price over that of another or over the cash market price. |
Price order
|
|
An
order to sell or buy at a certain price or better. |
Pure hedger
|
|
A
person who places a hedge to lock in a price for a commodity. He or
she offsets the hedge and transacts in the cash market
simultaneously. |
Put breakeven
|
|
See
Breakeven. |
Put option
|
|
An
option granting the right, but not the obligation, to sell a futures
contract at the stated price prior to the expiration of the option. |
Put profit/loss
|
|
For
a long put, equal to the put value minus the premium. For a short
put, equal to the premium minus the put value. |
Put value
|
|
At expiration, equal to the strike price minus the futures price. |
Rally
|
|
An
upward movement of prices following a decline. The opposite of a
reaction. |
Range
|
|
The
high and low prices or high and low bids and offers recorded during
a specified time. |
Retracement
|
|
A
price move in the opposite direction of a recent trend. |
Registered
representative
|
|
A
person employed by, and soliciting business for, a commission house
or futures commission merchant. |
Resistance line
|
|
A
price level above which prices tend not to rise due to selling
pressure. |
Round-turn
|
|
See
Commission. |
Runaway gap
|
|
A
gap in prices after a trend has begun that signals the halfway point
of a market move. |
Scalp
|
|
To
trade for small gains. Scalping normally involves
establishing and liquidating a position quickly, usually within the
same day, hour or even just a few minutes. |
Selective hedger
|
|
A
person who hedges only when he or she believes that prices are
likely to move against him or her. |
Selling climax
|
|
An
extraordinarily high volume occurring suddenly in a downtrend
signaling the end of the trend. |
Serial options
|
|
Options
for months for which there are no futures contracts. The underlying
futures contract for a serial option month would be the next nearby
futures contract. |
Settlement price
|
|
A
figure determined by the closing range that is used to calculate
gains and losses in futures market accounts, performance bond calls
and invoice prices for deliveries. See Closing range. |
Short
|
|
One
who has sold a futures contract to establish a market position and
who has not yet closed out this position through an offsetting
procedure. The opposite of long. |
Short cash
|
|
Describes
a trader who needs and plans to buy a commodity. |
Short hedge
|
|
The
sale of a futures contract in anticipation of a later cash market
sale. Used to eliminate or lessen the possible decline in value of
ownership of an approximately equal amount of the cash financial
instrument or physical commodity. See Hedge. |
Sideways trend
|
|
Seen
in a bar chart when prices tend not to go above or below a certain
range of levels. |
Speculator
|
|
One
who attempts to anticipate price changes and, through buying and
selling futures contracts, aims to make profits. Does not use the
futures market in connection with the production, processing,
marketing or handling of a product. The speculator has no interest
in taking delivery. |
Spot Price
|
|
See
Cash price. |
Spread
|
|
The
price difference between two contracts. Holding a long and a short
position in two related futures or options on futures contracts,
with the objective of profiting from a changing price relationship. |
Spread order
|
|
An
order that indicates the purchase and sale of futures contracts
simultaneously. |
Spread trade
|
|
The
simultaneous purchase and sale of futures contracts for the same
commodity or instrument for delivery in different months or in
different but related markets. A spreader is not concerned
with the direction in which the market moves, but only with the
difference between the prices of each contract. |
Stop close only
order
|
|
A
stop order that is executed only during the closing range of the
trading session. |
Stop limit order
|
|
An
order that becomes a limit order only when the market trades at a
specified price. |
Stop order
|
|
An
order that becomes a market order only when the market trades at a
specified price. |
Stop with a
price limit
|
|
A
stop order with a specified worst price at which the order can be
filled. |
Storage gain
|
|
The
selling price received after storage minus the previous harvest
market price. |
Straddle
|
|
The
purchase of a put and a call, in which the options have the same
expiration and same strike price, called a long straddle.
Also, the sale of both a put and a call in which the options have
the same expiration and same strike price, called a short
straddle. |
Strangle
|
|
The
purchase of a put and a call, in which the options have the same
expiration and the put strike is lower than the call strike, called
a long strangle. Also the sale of a put and a call, in which
the options have the same expiration and the put strike is lower
than the call strike, call a short strangle. |
Strike price
|
|
The
price at which the option buyer may purchase or sell the underlying
futures contract upon exercise. See Exercise price. |
Supply
|
|
The
quantity of a commodity that producers are willing to provide to the
market at a given price. |
Symmetrical
triangles
|
|
A
price formation that can either signal a reversal or a continuation
of price movement. |
Synthetic
futures
|
|
A
combination of a put and a call with the same strike price, in which
both are bullish, called synthetic long futures. Also, a
combination of a put and a call with the same strike price, in which
both are bearish, called synthetic short futures. |
Synthetic call
option
|
|
A
combination of a long futures contract and a long put, called a synthetic
long call. Also, a combination of a short futures contract and a
short put, called a synthetic short call. |
Synthetic option
|
|
A
combination of a futures contract and an option, in which one is
bullish and one is bearish. |
Synthetic put
option
|
|
A
combination of a short futures contract and a long call, called a synthetic
long put. Also, a combination of a long futures contract and a
short call, called a synthetic short put. |
Target price
|
|
An
expected selling or buying price. For long and short hedges with
futures: Futures Price + Expected Basis. For puts: Futures
Price - Premium + Expected Basis. For calls: Futures Price +
Premium + Expected Basis. |
Technical
analysis
|
|
The
study of historical price patterns to help forecast futures prices. |
Theta
|
|
The
measure of the change in an option's premium given a change in the
option's time until expiration. Equal to the change in the option's
premium divided by the change in time to expiration. |
Tick
|
|
Refers
to a change in price, either up or down. See Minimum price
fluctuation. |
Time value
|
|
The
amount by which an option's premium exceeds the intrinsic value of
the option. Usually relative to the time left to expiration. |
Trader
|
|
A
member of the exchange who buys and sells futures and options on the
floor of the exchange. See Day trader, Floor broker, Position trader
and Scalper. |
Trend
|
|
The
general direction of the market. |
Uptrend
|
|
A
price trend characterized by a series of higher highs and higher
lows. |
Vega
|
|
The
measure of the change in an option's premium for a 1% change in the
volatility of the underlying futures contract. Equal to the change
in premium divided by 1% change in volatility. |
Vertical spread
|
|
The
purchase of a call (put) and the sale of a call (put), where the
options have the same expiration and different strike prices. |
Volatility
|
|
A
annualized measure of the fluctuation in the price of a futures
contract. Historical volatility is the actual measure of
futures price movement from the past. Implied volatility is a
measure of what the market implies it is, as reflected in the
option's price. |
Volume
|
|
The
number of transactions in futures or options on futures made during
a specified period of time. |
With discretion (DISC) |
|
A
discretionary note on an order telling the floor broker to use his
or her own discretion in filling the order. |
Writer
|
|
An
individual who sells an option. |
