Glossary of investment and trading terms by Foresight Investment.

What does Arbitrage mean?

A transaction in which an investor holds a basket of financial contracts which cost nothing to hold, involve no risk and result in a profit. An arbitrage transaction is based on the assumption that an asset, or derivative of an asset, trades at two different prices. The investor sells the high priced asset and buys the low priced asset.

What does Arbitrageur mean?

An individual who engages in arbitrage transactions.

What does Asset Manager mean?

an individual who manages the assets of a third party.

What does Beta mean?

A measure of the responsiveness of the return (or price) of a security to changes in a broader market index.

What does Circuit Breaker mean?

A provision in the operation of an exchange designed to limit the length of the trading period, limit the maximum price change during a given period, or correct an order imbalance.

What does 50-Point Collar mean?

Slows down computer-aided trading - by forcing trades to go against the tide of price changes - whenever the Dow Jones Industrial Average rises or falls by 50 points.

What does 100-Point Sidecar mean?

Program trades are denied whenever the S&P 500 stock index declines by 12 points, or about 100 Dow points.

What does Trading Halts mean?

Exchange is shut down for one hour whenever the Dow falls 350 points, or for two hours when a 550 point drop is occurs.

What does Clearing House mean?

An affiliate of a futures or options exchange which matches and guarantees trades whilst acting as a counter party to every trade.

What does Closing Price mean?

The officially designated period at the end of the trading session during when all transactions are considered to be made. The closing price is the price of the transaction at the close.

What does Closing Range mean?

The price range is the high and low prices at which transactions occurred on the close.

What does Contract Month mean?

The month in which futures contracts may be implemented by making or taking delivery.

What does Convergence mean?

The move to equality of spot/cash and futures prices as the delivery date approaches.

What does Daily Price Limits mean?

The maximum and minimum prices at which a futures contract can trade. These limits are established by the clearinghouse and are calculated in relation to the previous day's settlement price.

What does Daily Settlement mean?

The process in a futures market in which the daily price changes are paid by the parties incurring losses to the parties making profits. The profits and losses are generally settled through a clearing house.

What does Day Order mean?

An order to purchase or sell a position that is automatically canceled if not filled by the end of the day.

What does Day Trader mean?

A trader who closes out all positions by the end of the trading session.

What does Deferred Futures mean?

The more distant delivery months in which futures trading takes place.

What does Deferred Strike Option mean?

An option in which the exercise price is established at a future date based on a pre-determined formula.

What does Delivery mean?

The process in which a futures contract can be terminated at the expiration of the contract through the sales of the underlying by the seller (short position holder) to the buyer (long position holder).

What does Delivery Day mean?

The date on which the underlying is delivered to terminate a futures contract.

What does Delivery Month mean?

The calendar month in which delivery can be made of a futures contract.

What does Delivery Notice mean?

The written notice given by a seller indicating his intention to make delivery against an open contract.

What does Delivery Price mean?

The price fixed by the clearinghouse at which deliveries on futures contracts are invoiced.

What does Delta mean?

The mathematical relationship between the change in value of an option and the change in market price of the underlying. Delta increases as the value of the market price of the underlying rises relative to the strike price of the option. An out-of-the-money option has a delta near zero, while a significantly in the money option has a delta near one.

What does Delta Hedge mean?

An options hedge in which the number of contracts is based on the reciprocal of the option delta.

What does Delta Neutral mean?

An option position in which the delta is zero.

What does Derivatives mean?

Financial instruments or arrangements that derive their value from an underlying asset.

What does Dynamic Hedge mean?

A hedging strategy in which an asset is hedged by selling futures in such as manner that the position is adjusted frequently to take into consideration changes in basis between the prices of futures contract and asset being hedged.

What does Early Exercise mean?

Exercise of an option before its expiration date. (u.s. style options).

What does Exercise mean?

The process by which a call option is used to buy or a put option used to sell the underlying on option expiry.

What does Exercise Limit mean?

The maximum number of option contracts that one investor can exercise over a specific period.

What does Exercise Notice mean?

A notice in writing delivered to a clearinghouse giving notice of intent to make or take delivery of the underlying.

What does Exercise Price mean?

The price that the underlying may be bought or sold for under a call or put contract.

What does Expiration mean?

A date after which an option or futures contract no longer is in effect.

What does Fair Value mean?

The value of an option derived from an option pricing model.

What does Financial Futures mean?

A futures contact on a financial underlying asset such as a bonds or currencies.

What does Foreign Currency Futures mean?

A futures contact on a foreign currency.

What does Forward Contract mean?

A contractual agreement between two parties to exchange an underlying asset at a set price on a set date in the future.

What does Front Month mean?

the most actively traded futures delivery month.

What does Gamma mean?

The rate at which the delta of an option moves up or down in response to changes in the price of the underlying. Gamma is positive for calls and negative for puts.

What does Globex mean?

An international electronic / automated market for trading futures contracts operated by the Chicago Mercantile Exchange.

What does Good Till Cancelled (G.T.C.) Order mean?

An order that remains valid until manually cancelled.

What does Hedge mean?

A transaction in which a participant seeks to offset a perceived price change on an asset owned or owed using an offsetting futures or forward contract.

What does Hedge Ratio mean?

The ratio of options or futures contracts needed to achieve a desired relationship between the price change of any assets owned or owed in the spot or cash market with hedging contracts in the futures or forward market.

What does Hedged Portfolio mean?

A portfolio being hedged.

What does Hedger mean?

An individual who hedges.

What does Historical Volatility mean?

The standard deviation of an underlying assets volatility using historical data.

What does Implied Delta mean?

Delta of an option calculated using an option pricing model using the option's implied volatility as the model's input.

What does Implied Volatility mean?

The underlying price volatility at which the option's fair value equals its market value.

What does Initial Margin mean?

The minimum amount of money that must be in an investment account on the day the transaction takes place. On futures contracts, the initial margin must be met on any day in which the opening balance starts off below the maintenance margin requirement.

What does Intrinsic Value mean?

The profit, if any, from the assumed exercise of an option at its current price.

What does Limit Down mean?

An situation in which the futures price moves down to the lower daily price limit.

What does Limit Move mean?

A situation in which a futures price hits the upper or lower daily price limit.

What does Limit Order mean?

An order to purchase or sell a security, option, or futures contract that specifies the maximum price to pay or the minimum price to receive.

What does Limit Up mean?

A situation in which the futures price moves up to the upper daily limit.

What does Long mean?

A position in the cash or futures market in which the investor owns or has contracted to own the underlying.

What does Long Hedge mean?

A hedge involving a short position in the spot market and a long position in the futures market.

What does Maintenance Margin mean?

The minimum amount of money that must be kept in a margin account on any day other than the day of the transaction to maintain an open position.

What does Margin mean?

Funds kept on account with a clearinghouse or in trust for the purpose of covering losses on positions in the cash or futures market.

What does Margin Call mean?

A request from a broker or clearinghouse for additional funds to cover losses on an outstanding open futures position.

What does Mark To Market mean?

To debit or credit on a periodic basis the market value of positions / contracts held.

What does Market On Close (M.O.C.) Order mean?

An order to purchase or sell securities, options, or futures that requests the broker to execute the transaction at a price as close as possible to the closing price.

What does Naked Call mean?

An option written by an investor (a seller) who does not own the underlying.

What does Offsetting Order mean?

A futures or option transaction that is the exact opposite of a previously established long or short position.

What does Open Interest mean?

The number of futures or options contracts that have been established that have not yet been offset or exercised.

What does Open Outcry mean?

The execution process used on an exchange in which bids and offers are indicated by humans communicating by voice and hand signals.

What does Option mean?

A financial contract giving the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in a case of a put option) a fixed amount of a given asset at a specific price within or by a specified time period.

What does Option Premium mean?

The price of an option.

What does OTC (Over The Counter) Derivatives mean?

Derivatives that are transacted through dealers and not through organised exchanges. Example Forex.

What does Physical Delivery mean?

Settlement of a contract by the delivery or receipt of the underlying.

What does Pit mean?

An area on the trading floor of some exchanges to facilitate communication of traders in futures and options markets.

What does Position mean?

The holding of a long or short contact (open position) in a market.

What does Position Day mean?

The first day of a three day sequence leading to delivery in which the holder of a short position notifies the clearinghouse of the intention to make delivery two business days later.

What does Position Limit mean?

The maximum number of options or futures contracts that any one investor can hold.

What does Position Trader mean?

A futures trader who normally holds open positions for periods longer than one day.

What does Price Sensitivity Hedge Ratio mean?

The number of futures contracts used in a hedge that leaves the value of a portfolio unaffected by a change in a variable such as interest rates.

What does Put mean?

An option to sell an underlying asset, usually at a specified price on or before a specified date.

What does Put - Call Parity mean?

The relationship between the price of a put and call on the same underlying asset with the same strike price can be calculated if the theoretical value of the put or call is known.

What does Settlement Price mean?

The official price calculated by the clearinghouse at the end of each day for use in the daily settlement.

What does Short mean?

the holding a short position. A short position involves an investor who has sold a futures contract or owes the asset to someone for future delivery.

What does Short Hedge mean?

A hedge transaction involving a long position in the spot market and a short position in the futures market.

What does Short Sale mean?

A transaction in which securities are borrowed from a broker and sold and later repurchased to be paid back.

What does Speculator mean?

An investor who buys or sells contracts in hope of profiting from a perceived price changes.

What does Spot Market mean?

The market for assets that involves immediate sale and settlement.

What does Spot Price mean?

The price of an asset on the spot market.

What does Spread (Bid - Offer) mean?

The difference in price/points between the Bid (buyers) and Offer (sellers) on a quote.

What does Spread (Bear -Call) mean?

The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price.

What does Spread (Bear - Put) mean?

The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price.

What does Spread (Bull - Call) mean?

The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price.

What does Spread (Bull - Put) mean?

The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price.

What does Spread (Calendar) mean?

An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. term Also known as a horizontal spread.

What does Spread (Options or Futures) mean?

An option or futures transaction consisting of a long position in one contract and a short position in another similar contract.

What does Spread Delta mean?

A measure of the sensitivity of a spread to a change in the price of the underlying.

What does Stock Index Future mean?

A future on an stock index.

What does Straddle mean?

An option transaction that involves a long position in a put and a call and with the same exercise price and expiration.

What does Strangle mean?

A long put at one exercise price and a long call at a higher exercise price.

What does Strap mean?

An option transaction involving a long position in two calls and one put, or two calls for every put, with the same exercise price and expiration.

What does Strike Price mean?

Exercise price or the price at which an option is deemed at the money.

What does Strip mean?

An option transaction that involves a long position in two puts and one call, or two puts for every call, with the same exercise price and expiration.

What does Swaps mean?

A forward contractual agreement to exchange one type of cash flow or asset for another, according to predetermined rules.

What does Synthetics mean?

A customised hybrid instrument created by blending an underlying bond or note with a futures contact or option. Synthetics are typically used to change the effective yield or maturity of bonds or notes.

What does Synthetic call mean?

A combination of a long put and long assets, futures, or currency that replicates the price behavior of a call.

What does Synthetic futures mean?

A combination of a long call and a short put that replicates the price behavior of a long futures contract.

What does Synthetic put mean?

An combination of a long call and short asset, currency, or futures that replicates the price behavior of a put.

What does Theta mean?

The rate at which the price of an option changes because of the passage of time. This is also known as time value decay.

What does Tick mean?

The minimum permissible price fluctuation established by an organized market.

What does Time Value Decay mean?

The rate at which the price of an option changes because of the passage of time. This is also known as theta.

What does Traded Options mean?

Option contracts traded on the floor of an exchange.

What does Uncovered Call mean?

An option strategy in which the writer of the option does not own the underlying.

What does Underlying mean?

The asset on which a futures or option is written.

What does Warrant mean?

A security convertible into a specified number of shares of stock, a call option.

What does Writer mean?

The person or institution that sells an option.

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Foresight Investment. is a dynamic company with its foundations built upon a team of highly experienced and innovative traders. Our aim is to develop trading strategies for today's markets that are both lucrative and transparent.