Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/68

Click to flip

68 Cards in this Set

  • Front
  • Back
All or None (AON)
An order which must be filled in its entirety or not at all
American Option
An option which can be exercised at any time prior to expiration
Arbitrage
The purchase and sale of the same product in different markets to take advantage of a price disparity between the two markets
Asian Option
Average price option
Assignment
The process by which the seller of an option is notified of the buyer's intention to exercise
At-the-Money
An option whose exercise price is equal to the current price of the underlying contract.
Automatic Exercise
The exercise by the clearing house of an in-the-money option at expiration, unless the holder of the option submits specific instructions to the contrary.
Average Price Option
An option whose value at expiration is determined by the average price of the underlying instrument over some period of time.
Backspread
A spread, usually delta neutral, where more options are purchased than sold, and where all options have the same underlying contract and expire at the same time.
Backwardation
A futures market where the more distant delivery months trade at a discount to the nearterm delivery months.
Barrier Option
An option which will either become effective or cease to exist if the underlying instrument trades at some predetermined price prior to expiration.
Bear Spread
Any spread which will theoretically increase in value with a decline in the price of the underlying contract.
Box
A long call and short put at one exercise price, together with a short call and long put at a different exercise price. All options must have the same underlying contract and expire at the same time.
Bull Spread
Any spread which will theoretically increase in value with a rise in the price of the underlying contract.
Butterfly
The sale (purchase) of two options with the same exercise price, together with the purchase (sale) of one option with a lower exercise price and one option with a higher exercise price. All options must be of the same type, have th same underlying contract, and expire at the same time, and there must be an equal increment between exercise prices.
Buy/Write
The purchase of an underlying contract together with the sale of a call option on that contract.
Cabinet Bid
On some exchanges, a bid smaller than the minimum increment permissible between traders desiring to close out positions in vary far out-of-the-money options.
Calendar Spread
A time spread.
Call Option
A contract between a buyer and a seller whereby the buyer acquires the right, but not the obligation, to purchase a specified underlying contract at a fixed price on or before a specified date. The seller of the call option assumes the obligation of delivering the underlying contract should the buyer wish to exercise his option.
Cap
A contract between a borrower and a lender of floating rate funds, whereby the borrower is assured of paying no more than some maximum interest rate for borrowed funds. This is analogous to a call option where the underlying instrument is an interest rate on borrowed funds.
Chooser Option
A straddle where the owner must decide by some predetermined date whether to keep either the call or the put.
Christmas Tree
A spread involving three exercise prices. One or more calls (puts) are purchased at the lowest (highest) exercise price and one or more calls (puts) are sold at each of the higher (lower) exercise prices. All options must expire at the same time, be of the same type, and have the same underlying contract.
Class
All options of the same type with the same expiration date and same underlying instrument.
Clearing House
The organization which guarantees the integrity of all trades made on an exchange.
Clearing Member
A member firm of an exchange which is authorized by the clearing house to process trades for its customers, and which guarantees, through the collection of margin and variation monies, the integrity of its customers' trades.
Collar
A contract between a borrower and a lender of floating rate funds, whereby the borrower is assured of paying no more than some maximum interest rate for borrowed funds, an whereby the lender is assured of reciving no less than some minimum interest rate on loaned funds. This is analogous to an option fence where the underlying instrument is an interest rate on borrowed funds.
Combination
A two-sided option spread which does not fall into any well defined category of spreads. Most commonly it is used to refer to a long call and short put, or short call and long put, which together make up a synthetic position in the underlying contract.
Compound Option
An option to purchase an option
Condor
The sale (purchase) of two options with different exercise prices, together with the purchase (sale) of one option with a lower exercise price and one option with a higher exercise price. All options must be of the same type, have the same underlying contract, and expire at the same time, and there must be an equal increment between exercise price.
Contango
A futures market where the more distant delivery months trade at a premium to the nearterm delivery months.
Contingency Order
An order which becomes effective only upon the fulfillment of some predetermined condition(s) in the marketplace.
Conversion
A long underlying position together with a short call and long put, where both options have the same exercise price and expire at the same time.
Covered Write
The sale of a call (put) option against an existing long (short) position in the underlying contract.
Cylinder
A fence or collar.
Deferred Start Option
A forward start option.
Delta
The sensitivity of an option's theoretical value to a change in the price of the underlying contract.
Delta Neutral
A position where the sum total of all the positive and negative deltas adds up to approximately zero.
Diagonal Spread
A long call (put) at one exercise price and expiration date, together with a short call (put) at a different exercise price and expiration date. All options must have the same underlying stock or commodity. This is simply a time spread using different exercise prices.
Elasticity
The percent change in an option's value for a given percent change in the value of the underlying instrument. Sometimes referred to as the leverage value.
Elasticity=underlying pirce/theoretical value (times) the delta
Exchange Option
An option to exchange one aset for another asset.
Ex-dividend
The day on which a dividend paying stock is trading without the right to receive the dividend.
Exercise
The process by which the holder of an option notifies the seller of his intention to take delivery of the underlying contract, in the case of a call, or to make delivery of the underlying contract, in the case of a put, at the specified exercise price.
Exercise Price
The price at which the underlying contract will be delivered in the event an option is exercised.
Expiration (Expiry)
The date and time after which an option may no longer be exercised.
European Option
An option which may only be exercised at expiration.
Extrinsic Option
Time Value.
Fair Value
Theoretical Value.
Fence
A long (short) underlying position, together with a long (short) out-of-the-money put and a short (long) out-of-the-money call. All options must expire at the same time.
Fill or Kill (FOK)
An order which will automatically be cancelled unless it can be executed immediately and in its entirety.
Flex Option
An exchange-traded option where the buyer and the seller are permitted to negotiate the exact terms of the option contract. Typically, this includes the exercise price, the expiration date, and the terms of exercise (either European or American).
Floor
A contract between a borrower and a lender of floating rate funds, whereby the lender is assured of receiving no less than some minimum interest rate for loaned funds. This is analogous to a put option where the underlying instrument is an interest rate on loaned funds.
Forward Contract
A contract between a buyer and a seller whereby the buyer is obligated to take delivery and the seller is obligated to make delivery of a fixed amount of a commodity at a predetermined price on a specified future date. Payment in full is due at the time of delivery.
Forward Price
Taking into consideration all carrying costs on a contract, the pirce at which a contract would have to be trading on some future date such that a trade made at today's price would just break even.
Forward Start Option
An option whose exercise price will be equal to the price of the underlying instrument on some predetermined date.
Fugit
The expected amount of time remaining to optimum early exercise of an American option.
Futures Contract
A contract, usually exchange-traded, between a buyer and a seller whereby the buyer is obligated to take delivery and the seller is obligated to make delivery of a fixed amount of a commodity at a predetermined price on some future date. All profits and losses are realized immediately, and result in a cash credit or debit based on daily changes in the settlement price on the contract.
Futures-Type Settlement
A settlement procedure used by commodity exchanges whereby an initial margin desposit is made, but under which no immediate cash payment is made by the buyer to the seller. Cash settlement takes place at the end of each trading day based on the difference between the current day's settlement price and the previous day's settlement price or the original trade price.
Gamma
The sensitivity of an option's delta to a change in the price of the underlying contract.
Good 'til Cancelled (GTC)
An order to be held by a broker until it can either be executed or is cancelled by the customer.
Guts
A strangle where both the call and the put are in-the-money.
Haircut
On equity option exchanges, money deposited by a trader with the clearing house to ensure the integrity of his trades. This is simular to a margin requirement on a commodity exchange.
Hedge Ratio
Delta.
Hedger
A trader who enters the market with the specific intent of protecting an existing position in an underlying contract.
Horizontal Spread
A time spread.
Immediate or Cancel (IOC)
An order which will automatically be cancelled if it is not filled immediately. An IOC order need not be filled in its entirety.
Implied Volatility
Assuming all other inputs are known, the volatility which would have to be input into a theoretical pricing model in order to yield a theoretical value identical to the price of the option in the marketplace.
In-Option
A type of barrier option which becomes effective only if the underlying instrument trades at some predetermined price prior to expiration.
In-Price
The price at which the underlying instrument must trade before an in-option becomes effective.