Finance Dictionary E – H

What does Early Exercise mean?

If you exercise a U.S-style option before its expiration date, you are carrying out an early exercise.


What does Exercise mean?

In finance, exercise is the process where a call option is used to buy the underlying asset or a put option is used to sell the underlying asset.


What does Exercise Limit mean?

In finance, the exercise limit stipulates the maximum number of option contracts that once investor can exercise over a specified period of time.


What does Exercise Notice mean?

In finance, an exercise notice is a written notice delivered to a clearinghouse in which you give notice of your intent to make or take delivery of an underlying asset.


What does Exercise Price mean?

In finance, the exercise price is the price for which the underlying asset may be purchased under a call contract or sold under a put contract.


What does Expiration mean?

When a an option, future or similar contract is no longer in effect, it has expired. The expiration date is the date when this happens.


What does Financial Futures mean?

Financial futures are futures where the underlying asset is financial, e.g. bonds or a currency.


What does Foreign Currency Futures mean?

A foreign currency future is a future where the underlying asset is a foreign currency.


What does Forward Contract mean?

A forward contract is a contract between two parties that has agreed to exchange an underlying asset at a set price on a set date in the future.

The party which is contractually obliged to sell the asset assumes a short position, while the party which is contractually obliged to purchase the asset assumes a long position.

The set price is called delivery price.


What does Gamma mean?

Gamma is the third letter in the Greek alphabet. In finance, gamma is the rate of change for delta with respect to the underlying asset’s price. Gamma is the firs derivative of delta and is commonly used to gauge the price movement of an option in relation to how much in or out of the money it is.

An option which is deep in the money or deep out of the money will have a small gamma. An option which is near the money or at the money will have a large gamma.

Traders following a delta-hedge strategy will seek to reduce gamma in order to maintain their hedge over a wider price range. However, by reducing gamma you are also reducing alpha.


What does CME Globex mean?

CME Globex is an international electronic and automated market for future contracts. Globex is operated by the Chicago Mercantile Exchange (CME). Unlike a traditional market, Globex is open almost around the clock.

When Globex was introduced in 1992, it was the first global electronic trading platform for futures contracts. In October 2004, transaction # 1 billion took place. Today, CME Globex is an extremely important part of the Chicago Mercantile Exchange.


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

This is an order that will remain in effect until it is canceled manually. This sets it apart from orders such as the day order (which is canceled automatically if it isn’t filled by the end of the day).


What does Hedge mean?

In finance, a hedge is an investment position held specifically to offset potential losses or gains that may be incurred by a companion investment. By hedging, the investor hopes to diminish or completely offset a loss incurred by the companion investment. An investor can for instance opt to hedge itself against potential losses incurred by changes in the value of a precious metal or a foreign currency, or against a changing interest rate.

Many different financial instruments can be used for hedging, including stocks, futures contracts, forward contracts, swaps and options.


What does Hedge Ratio mean?

The term hedge ratio can mean two different things.

  1. A hedge ratio is a ratio comparing the value of the hedged position with the size of the entire position. (Hedged position = position protected via hedge.)

Example: You hold $2 million in foreign equity. This exposes you to a currency risk, since the value of the foreign currency may change in relation to other currencies. If you hedge $500,000 worth of the equity, your hedge ratio is 0.25 since 500,000 / 2,000,000 = 0.25. With this hedge ratio, 25% of your equity position is protected from the currency risk.

  1. A hedge ratio is a ratio comparing the value of purchased or sold future contracts to the value of the hedged cash commodity.


What does Hedger mean?

A hedger is a person, company or other entity that carries out hedging. A common type of hedger is the hedge fund, a fund engaged in hedged transactions and/or hedged investment strategies.


What does Historical Volatility mean?

Historical volatility (hv) is the realized volatility of a financial instrument over a given time period. Historical volatility is usually expressed as average deviation from the average price of a financial instrument during the given time period.

Investors will often compare historical volatility to implied volatility in an effort to determine if a financial instrument is over-valued or under-valued.


What does Hypotekslån mean?

Hypotekslån is a Swedish term sometimes used in other parts of Europe. A hypotekslån is a secured loan.  This type of loan is commonly used for property transactions.  You can read more about this type of loan by visiting hypotekslå