Глоссарий трейдинга содержит термины и определения , необходимые при торговле фьючерсами и опционами на западных биржевых площадках. Надеемся, что информация, размещенная на этой странице поможет вам разобраться в перипетиях трейдинга.
A technical analysis tool representing the total of differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole, stock indexes such as the DJIA only tell us the strength of 30 stocks where as the A/D line provides much more insight.
Failure to exercise or offset an option before its expiration.
A quote made which is given as an absolute rate rather than in reference to a funding base such as LIBOR, US treasury rates, etc. For example rather than T-Bill rate + 0.25% the bid is expressed as 5.75%, (If T-Bill = 5.50%).
The bookkeeping record of a customer’s transaction and credit (or debit) balances. This record usually includes confirmation of transactions, listing of holdings and/or open positions, cash and/or cash equivalents, beginning and ending liquidating value.
The amount of money or debt in an account.
Occurs when a certain amount of an account is reserved for a specified period. During the blockage, the blocked amount of the account cannot be touched by the account holder. An account can be totally or partially blocked.
Action of preventing any movement or action in an account.
The broker or clerk that is assigned to work with a customer and his/her account on behalf of a financial institution.
(1) A series of characters (alpha and/or numeric) used to identify a customer account or relationship. (2) The remitting financial institution’s account serviced by the receiving bank. (3) The identification assigned by a financial institution often called the account number.
Refers to all data that can be recorded in a database about an account, e.g., address, financial information, etc.
See Account identification.
The balance and current holdings of an account.
Action of reinstating an account to its normal condition, after a blocking or deactivation operation.
The status of an account often affects what and how many transactions can be performed on that account. For example an account that is undermargined (insufficient funds) will not be allowed to add positions to the account.
The physical (cash) commodity or financial instrument rather than a futures or derivative contract for that commodity or financial instrument.
Adjusted Strike Price
The change in the strike price of an option contract that results from a corresponding change in the underlying. In the case of a stock option, when a stock does a 2-for-1 split, the option strike prices will change to reflect the revised stock price. The resulting strike prices, in this case, will not fall in the standard $5 increments. For example, if you own 100 shares of a $100 stock and it does a 2-for-1 split, you will then own 200 shares of the same stock now valued at $50 per share. Likewise, if you owned one 55 call before the stock split, you would own two 22 1/2 calls afterwards. In either case, the value of the position remains unchanged.
A technical indicator that quantifies the strength of the markets trend. 10-15 flat market, 16-25 trading range, 26-40 trending, 41+ hypertrend.
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.
The term used to refer to an order that has been only partially executed. Oftentimes, this term applies to a limit order which was unable to be totally filled due to a lack of other parties in the trading pit willing to buy or sell at that price.
The total cost of a financial transaction including interest cost, periodic charges and all front-end compensation expressed as a per cent per annum figure.
All-or-None Order (AON)
An All-or-None order allows a trader to buy or sell a specified number of contracts at a single price. The number of contracts must meet or exceed a predetermined threshold level, and these orders must be executed during pit trading sessions. All Or None orders are routed to the primary exchange where they are manually held and executed when eligible. Furthermore, these orders are not reflected in the bid / ask quotes. Generally, AON is not recommended on orders of less than 20 contracts since order execution may be affected.
Alpha refers to that part of a stock’s risk and return that is attributable to the stock individually, as apposed to the overall market. Alpha-capture is a spread trade between a stock future and a stock index future. You may see alpha-capture also referred to as «company-specific trading.»
American Stock Exchange (AMEX)
A stock exchange, a private, not-for-profit corporation, located in New York City. The third most-active market in the U.S. The exchange was founded in 1842. Also called Amex, and the curb exchange.
An option that may be exercised at any time prior to expiration.
Annual Percentage Rate (APR)
Cost of a loan which includes interest, fees and other charges. Expressed as a yearly interest rate.
Annual Percentage Yield (APY)
Annual rate of return on an investment that takes into account compounding.
A classic trading strategy to profit from different prices for the same security, commodity or financial instrument in different markets. Market forces will normally ensure that these arbitrage differences are short lived. The simultaneous purchase of one commodity against the sale of another in order to profit from distortions from usual price relationships.
Arbitrage Pricing Theory
A theory that if an investor earns a higher-than-normal return, then that is because he/she is accepting a higher-than-normal risk.
Dispute resolution technique in which both parties agree to submit their cases to a private individual or body for resolution. A forum for the fair and impartial settlement of disputes. NFA’s arbitration program provides a forum for resolving futures related disputes.
An indication by a trader or a dealer of a willingness to sell a security, a futures, or other financial instrument. The price at which an investor can buy. Syn. offer. See also bid; quotation.
The number of futures or options contracts offered at a certain price.
The price that someone is willing to accept for a security, futures or other financial instrument. The ask portion of a quote is the lowest price anyone is willing to accept at that time.
The price at which sellers offer securities, futures or other financial instrument to buyers. Also called offer price.
The process through which an option seller is notified by the Option Clearing Corporation (OCC) that the person who bought an option contract has decided to exercise the right to buy or sell shares at the strike price. Upon notification, the option seller is obligated to deliver or receive shares according to the terms of the contract. Since not all contracts are exercised, the OCC processes assignments on a random basis.
Associated Person (AP)
An individual who solicits orders, customers, or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, or a Commodity Pool Operator and who is registered with the Commodity Futures Trading Commission (CFTC) via the National Futures Association (NFA).
At or better
(1) In a buy order for securities, futures or other financial instruments it is purchasing at the specified price or under it (2) For a sell order, it is selling at the specified price or above it. See limit order
At the market
See Market Order.
An option with a strike price equal to the current price of the instrument, such as a stock, upon which the option was granted.
An order that specifies it is to be executed at the opening of the market or of trading or else it is to be canceled. The order does not have to be executed at the opening price, but within the opening range of prices.
Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month.
Departments in a financial institution in which the majority of their work is accounting, balancing, clearing, and bookkeeping, not directly in dealing with clients.
A sales charge paid when mutual fund shares are sold. Also may be called deferred sales charge.
A spread strategy in which the net position has more long options than short ones. To create a call backspread you might sell one lower strike call and buy two higher strike calls. This position offers limited risk and unlimited profit potential. It’s also worth noting that backspreads are often initiated as delta neutral positions.
A futures market in which the relationship between two delivery months of the same commodity is abnormal. The opposite of Contango. See also Inverted Market.
The difference between the current cash price and the futures price of the same commodity. The basis is determined by the costs of actually holding the commodity versus contracting to buy it for a later delivery (i.e. a futures contract). The basis is affected by other influences as well, such as unusual situations in supply or demand. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis. (See Carrying Charge)
A one one- hundredth of one percent (i.e., 0.01%), used to express interest rates and bond yield differentials. The smallest measure used in quoting yields on bonds and notes.
The risk of a movement between two different interest rate profiles, for example, prime lending rate and US Treasury rates.
Bear Call Spread
This strategy involves selling a call with a lower strike and buying a call with a higher strike. The maximum profit is achieved when the stock trades at or below the lower strike.
A technical charting pattern that looks like a flag with a mast on the left side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
Bear Market (bear/bearish)
A market in which prices are declining. A trader who believes prices will move lower is called a “bear.” A period of generally failing prices and pessimistic attitudes.
Bear Put Spread
This strategy involves buying a put with a higher strike price and selling a put with a lower strike price. In this case, the maximum profit is achieved at or below the lower strike price.
A position consisting of multiple options that benefits from a decline in the stock price. The position may include stock as well as options.
Best Ask or Best Offer
The lowest quoted offer of all competing market makers to sell a particular security at any given time.
The highest quoted bid of all competing market makers to buy a particular security at any given time.
A measure of an investment’s volatility. The lower the beta, the less risky the investment.
A means of measuring the volatility of an individual market (security, future, financial instrument) in comparison with the market as a whole. A beta of 1 indicates that the individual market’s price will move with the overall market.
An indication of a trader of a willingness to buy a security. The price at which an investor can sell.
The number of futures or options contracts bid at a certain price.
The difference between the bid price and the offer price.
A mathematical formula provides theoretical values for options given the various factors that impact an option’s price (i.e., the strike price, the price of the underlying, the current interest rate, the amount of time remaining until expiration, dividends, and volatility).
Board of Trade
Any exchange or association of persons who are engaged in the business of buying or selling any commodity or receiving the same for sale on consignment. It usually means an exchange where commodity futures and/or options are traded. Sometimes referred to as Contract Market or Exchange.
A security that represents the debt of a corporation, municipality or any other entity.
Book Value per Share
The book value of a company divided by the number of shares outstanding.
The Boston Options Exchange.
A rapid and sharp price decline.
(1) The point at which gains equal losses. (2) The price a market must reach for an option buyer to avoid a loss if he exercises. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid.
An individual or firm that charges a fee or commission for executing buy and sell orders placed by another individual or firm, floor broker in commodities futures trading, a person who actually executes orders on the trading floor of an exchange; an account executive (associated person) as the person who deals with customers and their orders in commission house offices.
Desired limit price will be applied as an offset to the triggered quote, at the time the order is sent to the exchange.
Bull Call Spread
This strategy involves buying a call with a lower strike and selling a call with a higher strike. The maximum profit is achieved when the stock trades at or above the higher strike.
A technical charting pattern that looks like a flag with a mast on right side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
Bull Market (bull/bullish)
A market in which prices are rising. A trader who believes prices will move higher is called a “bull”. A news item is considered bullish if it is expected to bring on higher prices.
Bull Put Spread
This strategy involves selling a put with a higher strike and buying a put with a lower strike. Again, the maximum profit is achieved at or above the higher strike price.
A position consisting of multiple options that benefits from an increase in the stock price. The position may include stock as well as options.
A limited risk, limited reward strategy that involves 4 options (all calls or all puts) at 3 different strike prices. For example, to buy a butterfly, you might buy one call at a lower strike, sell two calls at the middle strike, and buy one call at the higher strike. In this case, the highest and lowest strikes are «wings» while the middle strike makes up the «body» of the butterfly.
A purchase to offset, cover or close a short position.
Buy Limit order
An order to a broker to buy a specified quantity of a security at or below a specified price (called the limit price).
Buy on close
Buying securities, futures or other financial instruments at the end of a trading session at a price within the closing range.
Buy on opening
Buying securities, futures or other financial instruments at the beginning of a trading session at a price within the opening range.
Buy Stop Order
An order to buy a market that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.
Buying Hedge (or Long Hedge)
Buying futures contracts (or other financial instruments) to protect against possible increased cost of inputs slated for futures uses. See Hedging.
see Covered Call.
Also known as a time or horizontal spread. This spread consists of buying and selling options with different expirations but the same strike price.
See call option.
Publicly traded contract granting the owner the right, but not the obligation, to buy a specific amount of foreign currency or other financial instrument at a specified price at a stated future date. The buyer of a call option acquires the right but not the obligation to purchase a particular market at a stated price on or before a particular date.
Call option position delta’s
The sum of the delta amounts of call options bought and written for each currency.
A member of a commodity exchange, usually a clearinghouse member, through whom other brokers or customers, clear all or some trades.
Carrying Charge (Cost To Carry)
For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost necessary to buy the instrument. (See Basis)
The actual commodity or financial instrument as opposed to a futures contract based upon the commodity or instrument. See also Actuals.
The underlying commodity, security, currency or money market in which transactions for the purchase and sale of cash instruments which futures and derivative contracts relate to, are carried out.
The price of the actual underlying commodity that a futures contracts is based upon. In the case of SSF, the price of the underlying stock.
Typically associated with index options, this is the process through which option holders receive the intrinsic value of the options in cash at expiration. In this case, option sellers are responsible for cash payment. This contrasts with equity options in which stock is exchanged at expiration rather than cash.
The Chicago Board Options Exchange. The CBOE has markets in Equities, Options and Over-the-counter securities.
The Chicago Board of Trade.
Certificate Of Deposit (CD)
A time deposit held in a bank which pays a certain amount of interest to the depositor.
The Commodities Futures Trading Commission
The difference between the current price and the previous day’s close or settlement price.
Chicago Board of Trade (CBOT or CBT)
The oldest futures exchange in the United States; established in 1848. The exchange lists agricultural commodity futures such as corn, oats and soybeans, in addition to financial instruments, e.g., Treasury Bond, Treasury Notes.
Chicago Board Options Exchange
An exchange by the Chicago Board of Trade to trade stock options.
Excessive trading of the customer’s account by a broker, who has control over the trading decisions for the account, to make more commissions while disregarding the best interest of the customer. This violates the NASD, CFTC, and NFA rules.
A system of coordinated trading halts on equities and equity derivative markets designed to provide a cooling off period during large intraday price movements. The halts are triggered by a specified decline in a broad-based stock index such as the Dow Jones Industrial Average or the S&P 500.
The formal completion of a trade.
The procedure through which trades are checked for accuracy. Once the trades are validated, the clearinghouse or association becomes the buyer to each seller and the seller to each buyer.
A member of a clearinghouse or an association. All trades of a non-clearing member must be registered and eventually settled through a clearing member.
An organization with which securities may be deposited for safe- keeping and through which the purchase and sale transactions may be realized. The two main systems in the Eurobond market are Cedel and Euroclear.
See Settlement Price.
An agency connected with exchanges through which all transactions are made, offset, or fulfilled through delivery of the actual cash market and through which financial settlement is made; often, is a fully chartered separate corporation rather than a division of the exchange proper.
The period at the end of a trading session during which all transactions are considered to be made at the close.
A fund that does not issue new shares or accept new money after the initial public offering. Closed-end securities can be purchased in the open market, just like a stock.
The balance of entries posted to the account at the close of the statement period.
The price at which transactions are made just before the close on a given day. A number of transactions are often made at this time and they will be included over a range of prices. See also closing range.
A range of closely related prices at which transactions took place at the closing of the market; buy and sell orders at the closing might have been filled at any point within such a range.
An acronym for Chicago Mercantile Exchange. Also operates the International Monetary Market (IMM), the Index and Options Market (IOM) and the Growth and Emerging Markets (GEM)..
This strategy involves the purchase of stock and the sale of a call against that stock (covered call), while purchasing a put option on the same stock (protective put). Also known as a «fence» or «cylinder». Use primarily to protect an existing stock position.
Any marginable securities (e.g., stock, cash) used a basis for borrowing money. If the value of the securities (against which the loan was made) dips significantly, the investor may be forced to provide additional collateral or liquidate part of the position to repay the loan.
A broad term used to describe positions consisting of an equal number of long calls and short puts or long puts and short calls. Combinations often have different strike prices and/or expirations.
Is an unsecured debt issued by corporations to finance its short-term needs. Maturity ranges from 2 to 270 days.
(1) A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts. Banks charge commissions for issuing letters of credit, accepting drafts drawn under letters of credit, entering foreign exchange transactions for their customers, custodial services, acting as fiscal agent, etc. Fees are paid by banks to others for various services and include fees to foreign exchange brokers for arranging foreign exchange transactions. A commission must be fair and reasonable, considering all the relevant factors of the transaction. (2) Sometimes used to refer to the Commodity Futures Trading Commission (CFTC).
A member of an exchange who executes orders for the sale or purchase of financial futures contracts.
Commission Merchant (Futures Commission Merchant)
One who makes a trade, either for another member of the exchange or for a non-member client, in his or her own name and becomes liable as principal to the other party to the transaction.
An entity of trade or commerce, services, or rights in which contracts for future delivery may be traded. Some of the contracts currently traded are wheat, corn, cotton, livestock, copper, gold, silver, oil, propane, plywood, currencies, Treasury Bills, Treasury Bonds, and Stock Indexes.
Commodity Exchange Act (CEA)
The federal act that provides for federal regulation of futures trading. CEA is administered by the Commodity Future Trading Commission.
Commodity Exchange of New York (CMX)
A division of the New York Mercantile Exchange.
Commodity Futures Trading Commission (CFTC)
The federal agency established by the Commodity Futures Trading Commission Act of 1974 to ensure the open and efficient operation of the futures markets. The five futures markets commissioners are appointed by the President (subject to Senate approval).
An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts and/or options on futures. Not the same as a joint account.
Commodity Pool Operator (CPO)
An individual or organization which operates or solicits funds for a commodity pool. Generally required to be registered with the Commodity Futures Trading Commission.
Commodity Trading Advisor (CTA)
Individuals or firms that, for a fee, issue analysis or reports concerning commodities, provide advice to others trading commodity futures, options, or leverage contracts.
The department within a brokerage firm that oversees the trading and market-making activities of the firm. It ensures that the employees and officers of the firm are abiding by the rules and regulations of the SEC, CFTC, NASD, and NFA exchanges and Designated Supervisory Regulatory Organizations (SROs).
Interest earned on both an original investment and interest already accrued.
A narrower range than prior periods.
A statement sent by a commission house to a customer when a transaction is made. The statement confirms the number of contracts bought or sold and the prices at which the contracts were bought or sold.
A technical analysis term. A pause in trading activity in which price moves sideways, setting the stage for the next move. Traders are said to evaluate their positions during periods of consolidation.
Consumer Price Index (CPI)
A measure of price changes in consumer goods and services used to identify periods of inflation or deflation. The index is based on a list of specific goods and services purchased in urban areas. It is released monthly by the Labor Department.
A condition characterized by the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date.
The hours that a contingent order will be in effect. To use this feature by itself, set the contingent price to greater than $1.
Contingent Trailing Stop
A «trailing stop» order will be placed only if/when the market price for the security (stock) specified meets the criteria (greater than or less than a price entered). This means that you can trigger a «trailing stop» order, a stop order that moves along with a favorable movement in a security, when a stock or index reaches a desired price level based on the security’s last trade price.
(1) An agreement between at least two parties to buy or sell on certain conditions, a certain product, as a result of which a legal status concerning rights and duties of the parties exists. (2) A term of reference describing a unit of trading for a commodity.
Standards or grades of commodities listed in the rules of the exchanges which must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the contract grade.
A board of trade designated by the Commodity Futures Trading Commission to trade futures or option contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded. See also Board of Trade and Exchange.
The month in which deliveries to be made in accordance with a futures contract.
The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month. Also called a “narrowing of the basis.”
A debt security feature that allows the holder to convert to another issue.
Debt obligations that are issued by corporations.
The percentage rate of interest in fixed income securities.
Is a bond’s coupon payment divided by the par value.
The action of offsetting a futures securities or other financial instrument transaction with an equal and opposite transaction. Short covering — is a purchase to offset an earlier sale of an equal number of the same delivery month. Liquidation — is the sale to offset the obligation to take delivery.
A call option is considered covered when the writer (seller) of the option already owns the shares and doesn’t have to make an open market purchase should an assignment occur.
An option against which the seller has enough collateral (either in cash or stock) to fulfill the contract in the event of assignment.
A put option is considered covered when the seller has enough cash in the account to purchase the shares at the strike price if the holder of the option exercises the right to sell the stock at that price.
A short call and a short put with the same expiration but different strike prices combined with a long stock position. Technically, to describe this as «covered» is a bit of a misnomer because only the short call is covered by the long stock. For the short put to be covered as well, there would have to be enough cash in the account to cover the purchase of the stock at the put strike price in the event of an assignment.
An increase in the cash balance of an account resulting from a sale or deposit.
Credit Spread (also Limit/Credit)
The difference in value between two options, where the value of the short position exceeds the value of the long position. Bear call spreads and bull put spreads are examples of credit spreads.
The hedging of a cash instrument on a different, but related, futures or other derivatives market.
The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the United States, a GBP/JPY quote would be considered a cross rate, whereas in both the United Kingdom or Japan, it would be one of the primary currency pairs traded.
Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures market follow similar price trends (e.g., using soybean meal futures to hedge fish meal).
A procedure for margining related securities, options, and futures contracts jointly when different clearing houses clear each side of the position.
Commodity Trading Advisor.
Cup and Handle
A pattern on bar charts. The pattern can be as short as seven weeks and as long as 65 weeks. The cup is in the shape of a U. And the handle has a slight downward drift. The right hand side of the pattern has low trading volume. As the stock comes up to test the old highs. The stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for 4 days to 4 weeks, then it takes off.
Publicly traded contract involving the sale or purchase of a standardized amount of foreign currency at a price with delivery at a stated future date.
Publicly traded contract giving the owner the right, but not the obligation, to sell or buy a standardized amount of foreign currency at a price at a stated future date (see also call option; put option)
Current Delivery (Month)
The futures contracts which will come to maturity and become deliverable during the current month; also called “spot month”.
Current Position Value
The sum of the current market value of marginable stocks, bonds and mutual funds using real-time data. A short position is subtracted from this sum, thus a negative amount equals more short value than long value.
Coupon rate divided by the market price of the bond.
A CUSIP is a unique identifier assigned to a bond at the time it is issued.
An account created for the benefit of a minor which is managed by an adult as the custodian.
Custodial IRA Account
An account created for the benefit of a minor that is managed by an adult as the custodian and restricted by the rules associated with corresponding IRA account. See also Traditional IRA and Roth IRA.
The daily pattern (see abbreviations) indicating an interday trend.
An order that if not executed expires automatically at the end of the trading session of the day it was entered.
The purchase and sale of a futures or an options contract in the same day, thus ending the day with no established position in the market or being flat.
Traders who take positions in the market and then liquidate them prior to the close of the trading day.
A put or call on a physical commodity, not originating on or subject to the rules of an exchange, written by a firm which deals in the underlying cash commodity.
A debt issue by a corporation and backed by the good name of the company.
A sum owed.
Accounting condition where the trading losses in a customer’s account exceed the amount of equity in the customer’s account.
Debit Spread (also Limit/Debit)
A trade that decreases the cash balance of an account because the cost of the options purchased (long position) exceeds the proceeds from the sale of short options. Bull call spreads and bear put spreads are examples of debit spreads.
A measure of a company’s leverage, calculated by dividing long-term debt by common shareholders’ equity, commonly using the data from the previous fiscal year.
Also known as time decay. The way in which the theoretical value of an option decreases as time passes. The specific measurement of the option’s change in value over time is represented by the Greek letter theta. The rate at which an option loses its value increases more rapidly during the final 30 days of an option’s life.
All of the unexecuted orders in a floor broker’s possession.
The distant delivery months in which futures or options trading is taking place, as distinguished from the nearby futures delivery month.
The tender and receipt of an actual cash commodity or warehouse receipt or other negotiable instrument covering such market, in settlement of a futures contract or other forward financial transaction.
The date on which a financial instrument is to be/have been delivered/received.
A calendar month during which a futures or options contract matures and becomes deliverable.
Notice from the clearinghouse of a seller’s intention to deliver the physical commodity against a short futures position; it precedes and is distinct from the warehouse receipt or shipping certificate, which is the instrument of transfer of ownership.
Those locations designated by commodity exchanges at which stocks of a commodity represented by a futures contract may be delivered in fulfillment of the contract.
The official settlement price of the trading session during which the buyer of futures contracts receives, through the clearinghouse, a notice of the seller’s intention to deliver and the price at which the buyer must pay for the commodities represented by the futures contract.
In all foreign currency transactions there is a delivery risk between currency settlement hours outside the country involved, and the actual settlement hours in the country of the currency.
A measure of the relationship between an option price and its underlying futures contract or stock price. Delta measures how rapidly the value of an option moves in relation to the underlying value. It is the change in an option’s price divided by the change in the price of the underlying instrument. An option whose price changes by $1 for every $2 change in the price of the underlying instrument, has a delta of 0.5.
The partial offset of the exchange risk of a currency option by an opposite open currency spot position in the same foreign currency.
A type of investment whose value depends on the value of other investments, indices or assets. Futures contracts and futures options are common types of derivatives.
A position in which the trader buys and sells options with different strike prices and expirations. For example, a diagonal spread could be created by buying one July 75 call and selling one June 70 call.
Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust.
(1) A downward adjustment in price allowed for delivery of stocks of a commodity of lesser than deliverable grade against a futures contract. (2) Sometimes used to refer to the price difference between futures of different delivery months, as in the phrase “July at a discount to May,” indicating that the price of the July future is lower than that of the May. (3) In general, the amount by which one market price is less than another.
An arrangement by which the holder of the account gives written power of attorney to another, often a broker, to make buying and selling decisions without notification to the holder; often referred to as a managed account or controlled account.
The fixed or adjustable rate paid on common stock or preferred stock.
Measures the downward movement of a market. Many analysts believe an indication of a bullish market occurs when the DMI- crosses under the DMI+. This signals an opportunity to establish a long position. Conversly, an indication of a bearish market occurs when the DMI- crosses above the DM+-. This provides an opportunity to establish a short position and/or liquidate any existing long positions.
Measures the downward movement of a market. Many analysts believe an indication of a bullish market occurs when the DMI+ crosses under the DMI-. This signals an opportunity to establish a long position. Conversly, an indication of a bearish market occurs when the DMI+ crosses below the DMI-. This provides an opportunity to establish a short position and/or liquidate any existing long positions.
Dow Jones Industrial Average (DJIA)
The oldest and most widely known index of the U.S. stock market, the Dow represents the price movements of the 30 companies that, in the opinion of the editors of The Wall Street Journal, most represent the American economy.
When the most recent trade for a particular instrument occurs at a lower price than the trade immediately preceding it.
The right provided by American options that allows the holder to buy or sell shares at the strike price before the expiration date.
Earnings per Share
A company’s total earnings divided by the number of shares outstanding.
The computerized matching of buyers and sellers of financial instruments, Globex, Project A and Access are examples.
An option that may be exercised only on its expiration date.
An association of persons or entities engaged in the business of buying and selling futures and/or options usually involving an auction process. Also called a Board of Trade or Contract Market.
Exchange for Physical
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as «against actuals» or «versus cash.»
The date before which investors must own shares to be eligible to receive whatever dividend has been declared. On the day a stock goes ex-dividend, the stock price drops by the amount of the dividend since people buying after that point will not receive the dividend. This is very important when you are in a spread position. It is not uncommon for the short call to be assigned the day before Ex-Dividend day ( with notification coming on Ex-Dividend day ). This means that the spread holder will be responsible for the dividend.
(1) The completion of an order for a transaction. (3) The carrying out of an instruction.
The date on which a trader wishes to exercise the option.
Exercising an option means the buyer elects to accept the underlying market at the option’s strike price.
The date on which the buyer of an option chooses to exercise the buyer’s right under the option contract with the seller of the option.
Exercise date and striking price
The last day on which the option can be exercised as well as the currency and price at which the market can be purchased or sold, on or before that date.
The price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract. Also called strike price or strike.
The percentage of total assets used to pay for fund expenses.
Generally the last date on which an option may be exercised or a transaction can be made.
Also known as time value. The amount by which the current price of an option exceeds its intrinsic value. The price of out-of-the-money and at-the-money options is made up exclusively extrinsic value.
The dollar value of a U.S. Treasury Bill at maturity. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date.
When the market price of an option is in line with its theoretical value as predicted by a formula such as Black-Scholes.
A market in which the bids and offers change so quickly that the difference between what is quoted and where a trade actually takes place may be significant. In a fast market, it often happens that customers don’t get filled on orders where they might expect. When this occurs during a fast market, brokers generally can’t be held responsible.
Federal funds rate
The interest rate that is charged by banks on overnight loans to other banks.
The Financial Industry Regulatory Authority (Formerly referred to as NASD), is the largest non-governmental regulator for all securities firms doing business in the United States.
First Notice Day
First day on which notices of intention to deliver cash commodities against futures contracts can be presented by sellers and received by buyers through the exchange clearinghouse.
(1) The lowest rate a financial market is allowed to fall. (2) The trading floor of an exchange.
An individual who executes orders on the trading floor of an exchange for any other person or entity.
Members of an exchange who are personally present, on the trading floors of the exchanges, to make trades for themselves.
FOK (Fill or Kill)
FOK (Fill or Kill) When an order is given to a broker that must immediately be filled in its entirety or, if this is not possible, totally canceled.
The foreign exchange market. This is the cash market for foreign currencies. Trade does not occur on centralized contract markets but rather, over-the-counter in an international network of dealers.
A market for foreign exchange involving delivery of currency at some date in the future.
The difference between the spot rate and the forward rate for a specific foreign currency, measured in pips.
The difference between the higher forward and the lower spot price of a currency expressed as an annualized percentage.
An exchange rate for delivery on a date later than spot date.
The premium or discount of forward (i.e. future) foreign exchange swap contracts and the forward spot rates.
Trading, in which actual delivery and settlement is made at a future date. Forward trade occurs in the commodity, foreign exchange, stock, bond and futures markets.
Brokers who execute buy and sell orders, research investments, help investors develop and meet investment goals and give advice to investors. They charge commissions for their work.
An account carried by the Futures Commission Merchant or other financial institution in the actual name of the individual customer; it is the opposite of an omnibus account.
Amount of assets currently in the fund.
An approach to the analysis of markets which examines the underlying factors which will affect the supply and demand of the market, overall economy, industry conditions, etc. (See also Technical Analysis.)
Funds Available to Withdraw
Estimated based on cash available and for margin accounts, it is based on the leverage from your current marginable securities. Requests to withdraw funds may be effected by the pricing of positions and the settlement of transactions. Withdrawal is subject to approval and may be delayed or refused due to the processing of trades, other withdrawals or position risk.
The ability to trade the same instrument interchangeably across exchanges or other marketplaces.
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)
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. The individual or organization must be registered with the Commodity Futures Trading commission.
A standardized binding agreement to buy or sell a specified quantity or grade of a commodity at a later date, i.e., during a specified month. Futures contracts are freely transferable and can be traded only by public auction on designated exchanges.
The Greek letter used to represent the rate of change of an option delta as the underlying price changes. This information is primarily only helpful to professional traders who manage large positions.
In technical analysis, a trading day during which the daily price range is completely above or below the previous day’s range
Used in the context of general equities. Opening price that is substantially higher or lower than the previous day’s closing price, usually because of some extraordinarily positive or negative news.
The Chicago Mercantile Exchange’s electronic trading system that trades virtually 24 hours a day.
GTC (Good until cancelled)
GTC (Good until cancelled) orders are generally held on file and considered to be active unless cancelled by you. Upon expiration of the contract, the GTC order will be automatically cancelled.
Head and shoulders
A technical analysis chart, pattern that has three peaks resembling a head and two shoulders. The market’s price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). A head and shoulders top typically forms after a substantial rise and indicates a market reversal. A head and shoulders bottom (an inverted head and shoulders) indicates a market advance.
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 also hedging)
The proportion of underlying currencies, securities or options needed to hedge a written option.
A transaction strategy used by dealers and traders in foreign exchange, commodities and securities, as well as farmers, manufactures, and other producers, to protect against severe fluctuations in exchange rates and market prices. A current sale or purchase is offset by contracting to purchase or sell at a specified future date.
A bond with a credit rating Ba (Moody’s) or BB (S&P) or lower.
a measurement of the actual movement of stock price over a specific period of time. This number can be plugged into an option pricing formula like Black-Scholes to determine if current option prices are high or low relative to the stock’s past performance. See Implied Volatility.
Also known as a time or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price. For example, if you bought the July 45 call and sold the June 45 call, you’d be long the calendar.
Daily range contained within the prior day’s range.
The amount of movement expected in the stock given the current price of the options.
In the Money
An option having intrinsic value. A call is in the money if its strike price is below the current price of the underlying futures contract. A put is in the money if its strike price is above the current price of the underlying futures contract.
As it relates to stocks, an index is created by combining multiple stocks and monitoring their performance as a group. A change in the index, therefore, represents the cumulative change of all individual components. The S&P 100 is an index that tracks the performance of 100 top companies.
An option based on an index, such as the S&P 100, rather than an individual stock. These optionsare typically cash-settled because it would be too cumbersome to buy or sell all of the stocks that make up the index in the event of an assignment.
Indicated Annual Dividend
Represents the amount paid to a shareholder during the course of a year, based upon the current indicated periodic dividend (usually quarterly).
Account ownership by a single individual in their legal name only which, upon death of the owner, the account typically passes to the control of his or her estate.
Individual Retirement Account (IRA)
A tax-deferred retirement account set up with a financial institution such as a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market funds, CDs, etc. Also known as a «Traditional» IRA. For other types of IRAs, see Keogh plan, Simplified Employee Pension (SEP) plan, 401(k), Roth, or Rollover IRA.
The minimum value on deposit in your account to establish a new futures or options position, or to add to an existing position. Initial margin amount levels differ by contract. Brokerage firms set the level of Initial Margin required, and it may change at any time at their discretion. Increases or decreases in Initial Margin levels reflect anticipated or actual changes in market volatility. Also called «Initial Performance Bond.» (See also Margin)
A spread between commodities that are traded on more than one market. For example, a typical intermarket spread might be made between Chicago wheat and Kansas City wheat.
The intermediary bank is the bank that your financial institution uses to accept wires.
Two calculated support and resistance levels for the current day trading. The prices will only hit the Level 2 ranges under extreme market conditions.
The absolute value of the in the money amount; that is, the amount that would be realized if an in the money option were exercised.
Introducing Broker (IB)
A firm or individual that solicits and accepts commodity futures orders from customers but does not accept money, securities, or property from the customer. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through an FCM on a fully disclosed basis.
Futures or forward market in which the nearer months are selling at premiums over the more distant months; it is, characteristically, a market in which supplies are currently in shortage.
IOC (Immediate or Cancel)
IOC (Immediate or Cancel). An order requiring that all or part of the order be executed immediately after it has been brought to the market. Any portions not executed immediately are automatically cancelled. This is used for large orders where filling quickly can be difficult.
A limited risk, limited reward strategy with the same general profit graph as a butterfly, but created using a combination of puts AND calls (unlike the butterfly which is ALL puts or ALL calls). In this case, the body of the iron butterfly is created by a long (or short) straddle. The wings are created using a short (or long) strangle. To create an iron butterfly, if you sell the straddle, you buy the strangle and vice versa.
Joint Tenants in Common
Account ownership by two or more people in which, upon death of an owner, a proportional percentage of the account typically passes to his or her estate.
Joint Tenants with Rights of Survivorship
Account ownership by two or more people in which, upon death of an owner, the surviving account owners automatically retain ownership of the account.
A U.S. tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses also known as a self-employed pension.
An option activated only when the price of the option’s underlying instrument or market reaches a certain level above or below an agreed upon range.
An option that becomes worthless when the price of the option’s underlying instrument or market reaches a previously agreed upon point.
Long day. Watch for lows and/or support early in the session. The trading will often test the previous day’s low. If the price moves excessively below the lows, long trades should be scalps ONLY that are covered on the first rally. Successful tests of the low usually should be carried overnight. The market should close higher than the open and not make new lows in the afternoon.
Last Trading Day
Day on which trading ceases for the maturing (current) delivery month.
Long Day – watch for lows and/or support early in the session. The trading will often test the previous day’s low. If the price moves excessively below the lows, long trades should be scalps ONLY that are covered on the first rally. Successful tests of the low usually should be carried overnight. The market should close higher than the open and not make new lows in the afternoon.
Leading economic indicators
A composite of 11 economic measurements that tend to change in the economy as a whole. Leading indicators are believed to predict changes in the economy. The components are: average work week, unemployment claims, orders for consumer goods, slower deliveries, plant and equipment orders; building permits, durable order backlog, materials prices, stock prices, M2 money supply and consumer expectations.
Long-term Equity Anticipation Securities, or LEAPS®, are long-term stock or index options that expire more than 9 months in advance, and can last as long as 2 years. LEAPS trade like normal options but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stock.
Part of a larger position consisting of multiple options. By legging into a spread, a trader does part of the spread at one price and hopes the market will move so the rest of the spread can be completed at a better price.
Essentially, it allows an investor to establish a position in the marketplace by depositing funds that are less than the value of the contract. The use of borrowed assets by a business to enhance the return to the owner’s equity.
Life of Contract
Period between the beginning of trading in a particular futures contract or other derivative and the expiration of trading in the delivery month.
A price that has advanced or declined the limit permitted during one trading session as fixed by the rules of a contract market.
An order in which the customer sets a limit on either price or time of execution, or both, as contrasted with a market order, which implies that the order should be filled at the most favorable price as soon as possible.
A high volume trading environment in which buyers and sellers benefit from narrow bid-ask spreads. Under these conditions, large orders can be executed without significantly impacting the market price.
A measure of how quickly a security can be sold at a fair price and converted to cash. Illiquid securities are ones that don’t trade in high volume. For example, having too many shares of a stock that doesn’t trade frequently would make for a position that cannot necessarily be sold.
An exchange traded put or call contract issued by the OCC with standardized strike prices and expiration dates.
A sales commission paid when purchasing shares of a mutual fund (called a front-end load) or when redeeming shares of a mutual fund (called a back-end load). For example, if the fund has a front-end load of 5%, for every $100 you place into the fund, only $95 is invested, with $5 going to the salesperson and/or mutual fund company.
To own (buy) to a security, currency, futures contract, commodity, or derivative.
Buying futures contracts to protect against possible increased prices of commodities. See also Hedging.
An excess of assets (and/or forward purchase contracts) over liabilities (and/or forward sale contracts) in the same currency. A dealer’s position when the net of his or her purchases and sales leave him or her in a net-purchased position. See also short position and net position.
A unit of trading. In the futures market, one lot refers to one futures or options contract. In the forex market, one lot is equivalent to 100,000 units of a particular foreign currency.
The minimum value that you must keep in your account in order to continue to hold a position. The Maintenance Margin is typically less than the Initial Margin, and also differs by contract. If your account falls below the Maintenance Margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the full Initial Margin level (not to the Maintenance Margin level). Also known as the Maintenance Performance Bond. (See also Margin)
The money paid to the manager(s) of a mutual fund, annuity subaccount, or other type of professionally managed investment. Also called an advisory fee.
(1) In the futures industry, it is an amount of money deposited by both buyers and sellers of futures contracts to ensure performance against the contract. It is not a down payment. (2) In the stock market, the amount of cash that must be put up in a purchase of securities. If the margin requirement is 50%, the buyer must put up 50% of the purchase price; the buyer must borrow the rest.
A brokerage account allowing customers to buy securities and/or other financial instruments with money borrowed from the brokerage.
A call from a brokerage firm to a customer to bring margin deposits back up to minimum levels required by exchange regulations; similarly, a request by the clearinghouse to a clearing member firm to make additional deposits to bring clearing margins back to minimum levels required by clearinghouse rules. A demand upon an investor to put up more collateral for securities bought on credit.
Margin Equity Percentage
Calculates the value of your securities in relation to the money you have borrowed. Keep in mind, a negative margin balance does not necessarily indicate borrowed funds.
The simultaneous purchase and sale of the same security, futures, or other financial instrument in different markets to take advantage of a price disparity between the two markets.
Market If Touched Order
An order which becomes a market order if the specified price is reached.
Market Maker System
A competitive trading environment where floor traders create efficiency and liquidity by competing with each other to provide the best bids and offers.
Market On Close Order
A buy or sell order which is to be executed as a market order as close as possible to the end of the day.
An order to buy or sell futures contracts, stocks or other financial instrument which is to be filled at the best possible price and as soon as possible. A limit order, in contrast, may specify requirements for price or time of execution.
An order issued by a customer allowing the floor broker to use his or her best judgment regarding the price and timing of the trade.
The process of valuing an account at the end of the day based on the settlement prices of the securities.
(1) A broker-dealer in which at least one of the principal officers is a member of the New York Stock Exchange, another exchange, a self-regulatory organization, or a clearing corporation. (2) A member of the National Futures Association.
Market Inversion Index. A very short term momentum indicator. This indicator is used to determine which side of the market to be on for the close and early session the following day. When the MII flips from, for instance, long to short on the market close, a trader should go short with the intent of covering the short either in globex or early in the next day’s session. This is a short term indicator for aggressive traders.
Money Market Funds
A type of mutual fund contains securities such as T-bills and commercial paper. Most of these funds invest in short-term debt instruments with no longer than a 90 day duration.
Money Purchase Plan
A Trust in which a defined portion or percentage of the account is distributed to the trustee(s) on a defined basis whether the account is profitable or not.
A number of mortgages bundled together into a single security to be sold.
A mathematical procedure to smooth or eliminate the fluctuations in data. Moving averages emphasize the direction of a trend, confirm trend reversals, and smooth out price and volume fluctuations or “noise” that can confuse interpretation of the market.
A bond that is issued by a state or local government. Historically, the interest paid on these bonds has been exempt from federal, state and local taxes in the state of issuance.
Municipal Securities Rulemaking Board (MSRB)
An independent self-regulatory organization in charge of establishing rules and regulations in trading of municipal securities.
An open-end investment company that invests the money of thousands of people in a number of securities to achieve a specific objective over time.
Mutual Fund Category
A number of mutual funds specialized to a certain type of investment objective, carrying similar levels of risks and returns.
Mutual Fund Exchange
Switching on mutual fund investment from one fund to a different fund within the same mutual fund family.
Mutual Fund Family
A group of mutual funds managed by a single company.
Options that are sold on securities when the seller does not actually own shares of the underlying securities or options.
Narrow-Based Index Futures
Also called industry-sector futures and exchange-traded baskets. Like a stock index future, except targeted to a specific group of stocks, such as the auto, airline or telecom industries.
A computerized system that stores and displays up-to-the-second price quotations for securities traded over the counter.
National Best Bid or Offer
A term applying to the SEC requirement that brokers make their best effort to offer customers the best available ask price when they buy securities and the best available bid price when they sell securities.
National Futures Association (NFA)
The industry-wide self-regulatory organization of the futures industry.
The nearest delivery months of a futures or forward market.
Nearby Delivery (Month)
The futures contract delivery month closest to maturity.
Net asset value (NAV)
The price of each share of a mutual fund. It is calculated by subtracting the fund’s liabilities from its total assets, and dividing that figure by the number of shares outstanding. The NAV is the amount of money that an investor would receive for each share if the mutual fund sold all of its assets, paid off all of its outstanding debts, and distributed the proceeds to shareholders.
Gross income minus total expenses gives you net income. You’ll find this information on the income statement.
Gross, or total, investment minus depreciation.
(1) A financial institution has a position in foreign currency when its assets, including future contracts to purchase, and liabilities, including future contracts to sell, in that currency are not equal. An excess of assets over liabilities is called a net «long» position and liabilities in excess of assets result in a net «short» position. A long net position in a currency which is depreciating results in a loss, because with each day, that position (asset) is convertible into fewer units of local currency. A short position in a currency which is appreciating represents a loss, because with each day, satisfaction of that position (liability) costs more units of local currency. (2) The difference between the open long (buy) contracts and the open short (sell) contracts held by any one entity in any one futures contract month or in all months combined.
The bottom line. This is how much money the company made in profits. It can also refer to net profit margin, which is a percentage telling you how many cents on each dollar is pure profit.
Net profit margin
Net income as a percentage of sales. You get this by dividing net income by sales. Since it’s a percentage, it tells you how many cents on each dollar of sales is pure profit.
New York Stock Exchange (NYSE)
The oldest and largest stock exchange in the United States.
Price and volume fluctuations that can confuse interpretation of market direction. Used in the context of general equities. Stock market activity caused by program trades, dividend rolls, and other phenomena not reflective of general sentiment. Antithesis of real.
A mutual fund that does not charge a sales commission.
Declared price for a futures or forward market used in place of a closing price when no recent trading has taken place in that particular delivery month. Typically it is an average of the bid and asked prices.
An account transfer that is done manually because the delivering firm is not a member of the ACAT system, or you are requesting a partial transfer, which requires a manual process. When the transfer is done manually the request is physically forwarded to the delivering firm and upon their receipt they have up to 30 business days to act on it.
A security, such as a note or bond, that cannot be called prior to its maturity.
An option that has an underlying security other than stock—e.g., futures, commodities.
An order submitted to a brokerage firm with the understanding that it will use its best efforts to execute the order according to the customer’s instructions, but the broker may not be held responsible or liable for any lost profits, trading losses, or damages resulting from the manner in which the order is handled. Broker accepts contingent orders strictly on a “Not Held” basis.
Daily range is narrower than the preceding three days. Volatility has contracted.
Daily range is narrower that the preceding six days. Volatility has contracted.
Near-Term (Near-Term S or R)
New York Mercantile Exchange.
The overbought/oversold sentiment indicator as described by George Angell. This is a daily indicator of the overbought/oversold nature of the market used to determine if a trader should be a buyer or seller during the session.
Daily range outside the prior day’s range.
An indication of willingness to sell at a given price, also referred to as an ask, or asking price. The opposite of bid.
The liquidation of a purchase of futures, forward or other financial instrument through the sale of an equal number of the same delivery months, or the covering of a short sale of futures forward, or other financial instrument through the purchase of an equal number of the same delivery month. Either action transfers the obligation to make or take delivery of the actual financial instrument to someone else.
An account carried by one futures commission merchant or financial institution with another where the transactions of two or more persons are combined, rather than designated separately, and the identity of the individual accounts is not disclosed.
One Cancels Other (OCO)
A qualifier used when multiple orders are entered and the execution of one order cancels a second or alternate order. For example, with OCO you can place two orders linked to each other, allowing you to place a stop loss order on the same option.
The period at the beginning of a trading session during which all transactions are considered made “at the open”.
The total number of futures contracts or market position of a given commodity which have not yet been offset or fulfilled by delivery of the actual; the total number of open transactions where each transaction has a buyer and a seller.
Method of public auction for making bids and offers in the trading pits or rings of commodity exchanges.
The term used to describe the pit-trading environment in which market makers compete for trades.
Open Trade Equity
The unrealized gain or loss on open positions.
A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell.
The range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range.
A trade that creates a new position or adds to an existing one. The new position can consist of either short or long options or stock.
An agreement that represents the right to buy or sell a specified amount of an underlying security, a stock, bond, futures contract, etc. at a specified price within a specified time. The purchaser acquires a right, and the seller assumes an obligation. Stock options are traded on several exchanges, including the Chicago Board of Options Exchange, the American Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange and the New York Stock Exchange; futures options are traded on all U.S. futures exchanges; over-the-counter options are traded with a wide variety of financial institutions.
The party who pays a premium to obtain the rights under an option.
A way of quoting options prices through a list of all of the options for a given security, including the various strike prices, expiration dates, and whether they are calls or puts.
Option Clearing Corporation (OCC)
The firm responsible for issuing and standardizing all exchange traded options. The OCC, which serves as an intermediary between buyers and sellers, guarantees that all option contracts are honored and executed according to their terms.
The right, but not the obligation, to buy or sell a specific quantity of an underlying instrument on or before a specific date in the future. The seller of the option has the obligation to sell the underlying instrument (in the case of a put option) or buy it from the option buyer (in the case of a call option) at the exercise price if the option is exercised.
The period between the option start date and the expiry date of an option contract.
The money, securities, or property the buyer pays to the writer (grantor) for granting an option contract, thus conveying the rights of the option to the buyer.
The balance you must maintain based upon the risk of the options positions in your account. Please review our margin guidelines for more information.
The party who is obligated to perform if an option is exercised by the option buyer.
The handling of a customer order by a broker, including receiving the order verbally or in writing from the customer, transmitting it to the trading floor of the exchange where the transaction takes place, and returning confirmation (fill price) of the completed order to the customer.
Order to buy
An instruction sent by a client, or his authorized representative, to buy a given quantity of an identified financial instrument under specified conditions.
Order to sell
An instruction sent by a client, or his authorized representative, to sell a given quantity of an identified financial instrument under specified conditions.
See Limit Order, Market Order, Stop Order.
Original Issue Discount (OID)
An original issue discount bond is a bond issued at a price below par value. A zero-coupon bond is an example of an OID.
Original Margin (Initial Margin)
The term applied to the initial deposit of margin money required of clearing member firms by clearinghouse rules.
Out of the Money
A call option with a strike price higher, or a put option with a strike price lower than the current market value of the underlying asset. A put option is out of the money when the price of the underlying is above the option’s exercise price. An option contract is out-of-the-money when there is no benefit to be derived from exercising the option immediately.
Over-the-Counter Market (OTC)
A market where products such as foreign currencies are bought and sold by telephone and other electronic means of communication rather than on a designated futures exchange.
Price/earnings ratio, using earnings estimates for the next four quarters.
Pacific Exchange PCX
Located in San Francisco, an exchange that trades equities and options.
Another term for Spread Trading but more specifically to securities (stocks in particular) rather than commodities. Commonly refers to buying one stock and selling another related stock against it. An example would be spreading Coke SSF against Pepsi SSF. See also Spread Trade.
The term used to describe an in-the-money option with a price that is the same as its intrinsic value. For example, with a stock at $50, a 40 call trading at $10 would be trading at parity because its price does not include any extrinsic or time value. In contrast, a 40 call trading at 10.25 would not be considered at parity because it includes a .25 of time value.
A partial fill is when part of a limit order has been filled. A partial fill may be completed in the same day and then subsequently cancelled or the remainder may be filled. A day limit order that is partially filled will have the remainder cancelled at the end of the day if it has not been entirely filled. A partial fill on a GTC order may be carried over to the next market day until it is cancelled or filled in its entirety.
A form of business organization in which two or more individuals or entities manage a business and are equally and personally liable for its debts and liabilities.
The daily and interday market pattern as described in Toby Crabel’s book, “Day Trading with Short Term Price patterns and Opening Range Breakout.”
Low is below the low of the preceding and following day.
Prior day high.
Prior day low.
A stock’s price/earnings ratio divided by its year-over-year earnings growth rate.
The current market costs and any potential margin requirements, based on real-time data, for the orders you have open. This sum includes OCO («one cancels other») orders; it does not include open contingent orders.
Performance Bond (Margin)
Funds that must be deposited as a performance bond 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. (See also Initial Margin and Maintenance Margin).
Philadelphia Stock Exchange (PHLX)
The Philadelphia Stock Exchange (PHLX) was founded in 1790. The PHLX trades stocks, equity options, index options and currencies.
The transfer of the underlying commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a physical commodity. Some futures contracts, such as stock index contracts, are cash settled.
When an underlying security settles at the option’s strike price. The risk results from short option holders not knowing if they will be assigned.
Slang forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001. See also Points.
A specially constructed arena on the trading floor of some exchanges where trading is conducted by open outcry. On other exchanges, the term “ring” designates the trading area.
Price level established as being significant by market’s failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
The minimum fluctuation in prices or options premiums. Also called ticks.
A market commitment. For example, a buyer of futures contracts is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.
The maximum number of futures contracts that one can hold in certain regulated commodities, according to the provisions of the CFTC.
A trader who either buys or sells financial instruments and holds them for an extended period of time, as distinguished from the day trader, who will normally initiate and liquidate positions within a single trading session.
The extent to which an option price exceeds its intrinsic value. 2) the total price of an option including both intrinsic and extrinsic or time value.
Maximum price advance or decline from the previous day settlement price permitted for a futures in one trading session by the rules of the exchange.
Price to Book Ratio
A stock’s capitalization divided by its book value.
Price to Cash Flow Ratio
A stock’s capitalization divided by its cash flow for the latest fiscal year.
Price to Sales Ratio
A stock’s capitalization divided by its sales over the trailing 12 months.
Price-to-earnings ratio (P/E)
The share price of a stock, divided by its per-share earnings over the past year.
In cases where the same contract is traded on multiple exchanges, the exchange that handles the most volume is considered the primary market. This can change day to day.
Profit Sharing Plan Trust
A Trust in which a defined portion or percentage of the account profits are shared with the trustee(s) on a defined basis.
High is above the high of the preceding and following day.
Purchase and Sale Statement (P&S)
A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been liquidated or offset. The statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction. Sometimes combined with a Confirmation Statement.
An option that gives the option buyer the right, but not the obligation, to sell the underlying financial instrument at a particular price on or before a particular date. e.g., the right but not an obligation to sell foreign currency at a certain rate.
The selling of a put(s) at a lower strike price to pay for a put(s) at a higher strike.
A ratio of the trading volume of put options to call options. It is used to gauge investor sentiment. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market.
The practice of using accrued paper profits to margin additional trades.
The actual price or the bid or ask price of a security, commodity, futures, option, currency or other financial instrument at a particular time. Often called quote.
First Resistance Level
An upward movement of prices.
The difference between the high and low price during a given period, a single trading session, a week, a month, etc.
Ratio Calendar Spread
A strategy in which more options are bought or sold at one expiration than another.
1) Any option strategy in which the number of contracts purchased is greater or less than the number sold. 2) a strategy in which the number of options traded against a stock are not in a 1:1 proportion with the stock.
A partially covered position in which the options sold represent more shares than are covered by the corresponding stock position (e.g., long 100 shares of stock, short 2 out-of-the-money calls). If the stock price rises and the options are assigned, this person will have to turn over 200 shares at the strike price. However, since the person only has 100 shares, the potential loss on the position is unlimited because one of the calls is uncovered.
Realized Profit & Losses
The profit or loss that results from closing a position.
Fee levied for selling shares of your index fund. Usually a fixed percentage of the total value of your fund.
The retiring of a bond by issuing a new bond.
Registered Commodity Representative (RCR)
See Broker or Associated Person (AP).
A stock/option strategy designed to compensate for a losing long stock position. In this case, an in-the-money call is purchased and two out-of-the-money calls are sold. The credit received effectively lowers the break-even point of the stock thereby covering some of the unrealized losses.
Sizes of futures positions set by the exchange and/or by the CFTC at or above which commodity traders must make daily reports to the exchange and/or the CFTC as to the size of the position by commodity, by delivery month, and according to the purpose of trading, i.e., speculative or hedging.
In specific circumstances, some contract markets permit holders of futures contracts who have received a delivery notice through the clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the delivery notice.
A reversal within a major price trend.
A municipal bond issued to finance a specific public works project and is supported by the revenues of that project.
The Greek letter representing the expected change in an option’s price given a 1% move in interest rates.
A strategy in which the trader closes one position and immediately opens another position at a different strike or expiration.
Moving all or a portion of tax-deferred retirement plan savings into another plan (e.g., moving 401(k) assets into an IRA).
A traditional individual retirement account holding money from a qualified plan, such as a 401(k).
A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005). Contributions are subject to taxes. However, withdrawals, subject to certain rules, are tax exempt.
A round turn counts both the buy and the sell of a trade as one event. In a typical exchange volume measurement, a one-contract trade between a buyer and seller would be counted as one round turn. From the customer’s perspective, a round turn represents two filled orders from his or her brokerage firm — one to take a position and one to offset that position (i.e., same customer, different trades). See also side.
Sell day. Exit longs by selling into strength. A dow open signals a sell on the first rally.
First Support Level
Used in the context of general equities. Order to buy (sell) a security which specifies the total amount to be bought (sold) and the amount to be bought (sold) at successively decreasing (increasing) price intervals; often done in order to average the price.
A floor trader who profits from the spread between the bid and the offer as well as from short-term price fluctuations.
Sell Day – Exit longs by selling into strength. A down open signals a sell on the first rally
SEC (Securities and Exchange Commission)
The federal agency charged with protecting investors and maintaining the integrity of the securities markets.
A market that provides liquidity for previously listed securities.
Assets such as shares of stock, bonds, or any kind of financial asset that can be traded.
Securities Investor Protection Corporation (SIPC)
The SIPC maintains a special reserve fund authorized by Congress to help investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. SIPC either acts as trustee or works with an independent court-appointed trustee in a fraud case to recover funds. The statute that created SIPC rules provides that customers of a failed brokerage firm receive all non-negotiable securities that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash.
See Single Stock Futures.
A special account used to hold and segregate customer’s assets from those of the broker and/or clearing firm.
To convey ownership of a security or other asset for money or value.
Sell Limit order
An order to a broker to sell a specified quantity of a security at or above a specified price (called the limit price).
Sell To Close
An order entered to close a long position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a «buy to open» order is always used to open a long position.
Sell To Open
An order entered to establish a new short position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a «buy to close» order is always used to close a short position.
Selling futures contracts to protect against possible decreased prices of the underlying cash market which will be sold in the future.
Simplified Employee Pension Plan IRA. A retirement plan for self-employed people or owners of small companies which allows them to defer taxes on investments intended for retirement.
(1) The closing price, or a price within the range of closing prices, which is used as the official price in determining net gains or losses at the close of each trading session. (2) Payment of any amount of money under a contract.
One who has sold a cash commodity, a commodity futures contract or other financial instrument; a long, in contrast, is one who has bought a cash commodity or futures contract.
Trades that reverse, or close out, short-sale positions.
Selling futures to protect against possible decreasing prices of an underlying cash market. See also Hedging.
A situation in which a lack of supply and excess demand in a traded stock forces the price upward.
Single-Stock Futures (SSF)
SSF are an agreement between two parties that commits one party to buy a stock and one party to sell a stock at a given price and on a specified date. They are similar to existing futures contracts for gold, crude oil, bonds, and stock indices. Unlike actual stock, there is no ownership or voting rights contained in a SSF. (See also Universal Stock Futures)
The difference between estimated transaction costs and the amount actually paid.
One who attempts to anticipate price changes and make profits through the sale and/or purchase of financial instrument. A speculator with a forecast of advancing prices hopes to profit by buying futures contracts and then liquidating at a higher price. A speculator with a forecast of declining prices hopes to profit by selling then buying at a lower price in the future.
Price moves below PB and wide spread reversal occurs with (1) a close above the previous two closes, (2) the close is above PB, (3) the close is above the open and mid-range for the day and (4) the daily range is greater than prior day’s range.
Market for the immediate delivery of the product and immediate payment. May also refer to the nearest delivery month of a futures contract.
Spread (or Straddle)
(1) The purchase of one futures or forward delivery month against the sale of another futures or forward delivery month of the same commodity. The purchase of one delivery month of one futures or forward against the sale of the same delivery month of a different futures or forward. The purchase of one future or forward in one market against the sale of that future or forward in another market, to take advantage of and profit from the distortions from the normal price relationships that sometimes occur. (2) In a quotation, the difference between the bid and the ask prices of a market (3)The difference between two or more prices.
The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset. Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.
Short sale day. Watch for highs first with resistance at prior day’s high. If the price moves excessively above the previous day’s high, short trades should be scalps only that are covered on the first pullback. On a flat to down open, short the first rally up to the previous day’s high. The market should not make new highs in the afternoon.
An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish an index.
Stock Index Futures
Futures contracts on a stock index, such as the Standard & Poor’s 500 or the Dow Jones Industrial Average. Stock index futures contracts are a derivative of the underlying index, and are cash-settled.
Stop Close Only
A stop order that can be executed, if possible, only during the closing period of the market.
Stop Limit Order
An order to buy or sell a certain quantity of a certain security at a specified price or better, but only after a specified price has been reached. Essentially a combination of a stop order and a limit order.
A risk management technique used to close out a losing position at a given point. A stop loss order is placed at the given point.
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. Sometimes referred to as a stop loss order.
An option position in which a call and a put with the same strike price and expiration are both bought (long straddle) or sold (short straddle). A long straddle has unlimited profit potential given a large move up or down. A short straddle has limited profit (if the stock remains stable) and unlimited risk (if the stock moves significantly in either direction.
An option spread strategy involving a long put and a long call or a short put and a short call with different strikes but the same expiration. The most common strangles involve out-of-the-money options.
A specified price at which an investor can buy or sell an option’s underlying financial instrument. The exchange rate, interest rate, or market price that is guaranteed by an option transaction.
Abbreviation for Support Level
A price level at which a declining market has stopped falling. Once this level is reached, the market trades sideways for a period of time or rebounds. It is the opposite of a resistance price range.
Synthetic long call
A long put and a long position in the underlying stock.
Synthetic long put
A long call and a short position in the underlying stock.
Synthetic long stock
A short put option and a long call option with the same strike and expiration.
Also known as an equivalent position. By using a combination of options or options and stock, traders can create positions that have the same risk/reward characteristics of option only or stock only positions. The following summarizes the most common synthetic positions.
Synthetic short call
A short put and a short position in the underlying stock.
Synthetic short put
A short call and a long position in the underlying stock.
Synthetic short stock
A long put option and a short call option with the same strike and expiration.
Market risk due to price fluctuations which cannot be eliminated by diversification.
Trend day. A relatively wide range day with the open and close near the intraday extremes.
An approach to analysis of futures markets which examines patterns of price change, rates of change, and changes in volume of trading, open interest and other statistical indicators. See also Charting.
A term that refers to the analytical tools used by traders to manage risk. These include: Delta, Gamma, Theta, Vega and Rho.
The fair value of an option as predicted by a mathematical formula such as Black-Scholes. This takes into account the following factors: strike price, the current price of the underlying, interest rates, time remaining until expiration, dividends (if any), and volatility.
The Greek letter representing the change in an option’s value given a one-unit (day) change in time
A minimum upward or downward movement in the price of a security, futures or other financial instrument.
The cumulative tick on the NYSE.
The tick on the Dow Jones Industrials Average (Maximum +30, Minimum –30).
The way in which an option naturally loses value as time passes.
Also known as a horizontal or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price. For example, if you bought the July 45 call and sold the June 45 call, you’d be long the calendar.
Any amount by which an option premium exceeds the option’s intrinsic value.
An established set of price boundaries with a high and a low price within which a market will spend a marked period of time.
A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005). Earnings are tax-deferred until withdrawals begin. Eligible withdrawals may begin at age 59 1/2 or later, a 10% penalty will apply for non-qualified withdrawals made prior to age 59 1/2. Eligible withdrawals will be taxed at the current tax rate.
Trailing (Stop) Trigger
The price at which a trailing stop will activate.
A «trailing stop» order is a stop order that moves along with a favorable movement in a security. Trailing sell stop orders will move upward a defined distance as long as the security moves upward. Trailing buy stop orders will move downward a defined distance as long as the security moves downward.
The fees related to initiating and maintaining a position. These include commissions, margin fees, and exchange fees.
Where new issues of Treasury bills, notes and bonds can be sold to the investing public.
Treasury Bills (T-Bills)
Obligations issued by the department of the Treasury maturing in 13, 26 or 52 weeks.
Treasury Bond (T-Bond)
A long term government debt security with maturity of 10 to 30 years.
Treasury Note (T-Note)
A medium term government debt security with maturity of 1 to 10 years.
The general direction, either upward or downward, in which prices have been moving.
In charting, 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.”
Used in the context of general equities. Short term trading index which shows a minute-by-minute correlation of the ratio of advances to declines to the ratio of advancing volume to declining volume. Depicts whether changes in the relationship of advances and declines are taking place faster or slower than changes in the general volume movement of the market, <1 indicates a bull market, = 1 neutral, and > 1 bear market. (See also A/D)
Slang for the quarterly expiration of stock-index futures, stock-index options and options on individual stocks. Trading associated with the expirations inflates stock market volume and can cause volatility in prices. Occurs on the third Friday of March, June, September and December.
A legal arrangement in which an individual (Trustor) gives fiduciary control of the account to a person or institution (Trustee) for the benefit of their estate or beneficiaries. A trust can include a variety of entities.
Type of Options
There are two option types: puts and calls.
Also known as a naked option. A short position, not protected by offsetting options, in which the writer of the options lacks the stock or collateral that would be required upon assignment. For example, a naked call writer doesn’t own the stock that would have to be sold at the strike price if the calls were exercised. Similarly, a naked put writer doesn’t have the full amount in the account to buy the underlying shares at the strike price in the event of an exercise. For obvious reasons, naked option writing is a risky strategy.
Underlying Futures Contract
The specific futures contract that the option conveys the right to buy (in the case of a call) or sell (in the case of a put).
The stock, commodity, or other financial instrument on which an option contract is based.
Unit Investment Trust (UIT)
An SEC-registered investment company which purchases a fixed, unmanaged portfolio of income-producing securities and then sells shares in the trust to investors. The major difference between a Unit investment Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all.
Universal Stock Futures
Same as Single-Stock Futures, but used to refer to those contracts that trade on the LIFFE. See also, Single-Stock Futures.
Price moves above PT and wide spread reversal occurs with (1) a close below previous two closes, (2) the close is below PT, (3) the close is below open and mid-range for the day and (4) the daily range is greater than the prior day’s range.
In 1993, the U.S. Securities and Exchange Commission approved a new section of the Uniform Practice Code (UPC) requiring FINRA members to close out short sales in NASDAQ® securities that meet a certain clearing short position threshold. Both NASDAQ National Market® and NASDAQ Small Cap Market securities can be restricted under UPC 11830. Under the rules, the short seller’s broker/dealer must close out short sale of specific securities 10 days after normal settlement date if delivery of security has not accrued and the transaction is not exempt. Securities subject to close-out requirement are those with an aggregate «clearing» short position of 10,000 shares or more that equals or exceeds one half of one percent of the total shares outstanding. The FINRA will identify these securities daily based on data from National Securities and Clearing Corporation and compile a «restricted list.» Any subsequent short-sale transaction in a security on the list that is not completed by delivery of shares within the prescribed time frames will be subject to mandatory close-out if a «fail-to-deliver» situation exists 10 days after normal settlement date. The rule applies to customer and proprietary short sales, but exempts «bona fide» market making activities and short sales that results in a «bona fide» fully hedged or arbitraged position. For more information, please see FINRA Notice to Members 93-53.
When the most recent trade for a particular instrument occurs at a higher price than the trade immediately preceding it.
The Greek letter representing the change in an option’s theoretical value given a 1% change in the volatility of the underlying.
Versus Purchase Notes
This note is used to specify the original shares of stock or a fund sold for tax recording purposes. In order to designate shares, please enter a note in the free text field (e.g. «Vs. 200sh. XYZ BOT 8/3/04»). The note will appear under the «Remarks» area of your confirmation.
A position in which the options bought and sold have the same expiration but different strike prices.
(1) A measure by which an exchange rate is expected to fluctuate over a given period. (2) A measure of a commodity’s tendency to move up and down in price based on its daily price history over a period of time.
A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
Daily range is wider than the preceding three days.
Daily range is wider than the preceding six days.
To sell an option in an opening transaction.
A person who has sold an option in an opening transaction and is now short a contract that may or may not be offset by stock or other options.
The percentage return on an investment.
Yield to Call (YTC)
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is only valid if the security is called prior to maturity.
Yield to Maturity (YTM)
The yield of a bond or note if you were to buy and hold the security until maturity. YTM takes into account interest rate, length of time to maturity, price paid and assumes all interest received over the life of the security can be reinvested at the original purchase yield.