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| agreement between buyer and seller to commit transaction in future at negotiated price |
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| buyer and seller contract of commodity or financial instrument. organized through futures exchange |
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| price negotiated which the underlying commodity will be delivered and paid a futures contract |
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| benefits from price increases and loses from price decreases |
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| benefits from price decreases and loses from price increases |
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| takes the risk of loss for the chance for profit |
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| transfer price risk by taking futures position opposite exisiting position |
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| commodity or financial instrument which futures contract is based |
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| adding short futures to long position in underlying asset |
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| futures position that is equal, but opposite, the position in the underlying asset |
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| long position to short position in the underlying asset |
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| deposit in futures to cover potential losses from outstanding futures position |
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| amount required when futures contract is first bought or sold |
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| gains and losses on outstanding futures are recognized daily |
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| min margin level required in futures account at all times |
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| closes out previously established future by taking the opposite position |
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| spot price, price of commodity quoted for current delivery |
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| spot market, market which commodities are traded for immediate delivery |
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| earning risk free profits from an unusual difference between cash and futures prices |
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| difference between cash price and futures price for commodity (basis= cash price- futures price) |
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| future price is greater than the cash price, basis is negative |
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| future price is less than the cash price, basis is positive |
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| relationship between spot prices and futures prices holds in absence of abitrage |
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| strategy monitoring future price on stock index and level of the underlying index to exploit deviations |
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| relative prices for financial assets, computer submission orders to exploit arbitrage |
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| hedging position on a related, but not identical, commodity |
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| cheapest to deliver option |
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| seller's option to deliver cheapest instrument when contract allows several instruments |
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| security value derived from value of another security, options are example |
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| holder right, to buy underlying asset at strike price |
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| holder right to sell underlying asset at a given strike price |
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| exercise price, price option holder pays to buy or receives to sell shares |
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| option exercised any time before expiration |
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| option exercised only at experation |
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| option contract list in particular security arrayed by strike price and maturity |
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| options clearing coporation |
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| private agency, guarantees terms of options will be fulfilled |
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| option on stock market index, sp 500 sp 100 dow lones |
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| option settled by cash from writer to holder |
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| payoff an option holder receives assuming the underlying stock price remains unchanged from its current value |
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| call option intrinsic value |
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| maximum stock price minus the strike price or zero |
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| put option intrinsic value |
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| maximum strike price minus the stock price or zero |
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| difference between the price of an option and its intrinsic value |
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| option with positive intrinsic value |
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| option with a strike price exactly equal to the un derlying price |
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| option that would not yield positive payoff if the stock price remained unchanged until experation |
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| taking the sellers side of an option contract |
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| one who has the obligation to sell stock at the options strike price |
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| obligation to buy stock at the options strike price |
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| strategy buying a put option on a stock already owned. protects against decline in value |
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| strategy of selling a call option on stock already owned |
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| option trading strategy involving two or more call options or two or more put options |
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| option trading strategy involving two or more call and put options |
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| no arbitrage relationship between put and call prices options with same strike price and expiration date |
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| shortened way of saying "time to maturity" |
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| implied standard deviation |
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Definition
| estimate of stock price volatillity obtined from an option price |
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Term
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Definition
| another term for implied standard deviation |
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