Centralized securities trading markets where securities are bought and sold in an orderly manner through security brokers. Securities, including equities, bonds, options, closed-end funds, and futures, are traded based on bid and offer prices.
A call is a financial term used in various contexts, including banking, bonds, and options, signifying the right or action to demand repayment, redeem or buy securities under specific conditions.
Understand the various means used by companies to raise finance including shares, debentures, loans, options, and warrants, and the important distinctions and regulations that govern them.
A check box is a small square in a dialog box that can be clicked with the mouse to turn an option on (checked) or off (unchecked). Check boxes are used for options that are not mutually exclusive.
The Chicago Mercantile Exchange (CME) is one of the largest and most diverse financial exchanges in the world, allowing for the trading of futures and options across a wide array of asset classes, including agriculture, energy, metals, and financial instruments.
A Daily Trading Limit is the maximum amount by which the price of a commodity or option is allowed to rise or fall in a single trading day. This mechanism is used to curb excessive volatility and protect investors.
A financial instrument that derives its value from the performance of an underlying asset, commodity, currency, economic variable, or financial instrument. Derivatives can be used for hedging, speculation, or arbitrage purposes.
Diluted Earnings Per Share (EPS) is a metric that evaluates a company's earnings performance for each outstanding share, considering the worst-case scenario of dilution from convertible securities, options, and warrants.
An equity instrument is any financial instrument that signifies ownership interest in an entity, such as stocks, options, or warrants.
The process of making use of a right available in a contract; commonly used in context with options and convertible securities.
Expiration refers to the date on which a contract, agreement, license, magazine subscription, or similar arrangement ceases to be effective. In the context of financial options, it is the last day on which an option can be exercised.
Fully Diluted Earnings Per Share (EPS) for a company that takes into account not only the number of shares in issue but also those that may be issued as a result of such factors as convertible loans, options, or warrants. International Accounting Standard 33 requires that diluted earnings per share be disclosed on the face of the profit and loss account as well as basic earnings per share. The US equivalent is primary earnings per share.
A futures contract is a standardized legal agreement to buy or sell a particular commodity, currency, or financial instrument at a predetermined price at a specified time in the future. Unlike options, futures contracts entail a mandatory obligation to execute the transaction.
A hedge is a financial transaction designed to mitigate the risk of other financial exposures by balancing potential losses with gains in other financial instruments.
An action taken to reduce or eliminate the risk involved in having an open position in a financial, commodity, or currency market.
An exchange in London where financial futures and options products are traded. Known for its influential role in the global financial markets.
The London Metal Exchange (LME) is the world's largest non-ferrous metals exchange, trading in options and futures contracts in metals such as copper, aluminium, nickel, zinc, and lead, and is regulated by the UK Financial Conduct Authority.
A naked position, also known as an uncovered or open position, refers to the practice of entering into a derivatives contract—such as options or futures—without holding the underlying asset involved in the contract.
Netting is the process of offsetting matching sales and purchases against each other, particularly in the context of futures, options, and forward foreign exchange. It helps firms manage risks such as exchange-rate exposure and is often facilitated by a clearing house.
In various contexts such as accounting, banking, printing, and securities, the term 'offset' refers to actions or functions intended to counterbalance or neutralize other actions or amounts. It is used differently across diverse fields, reflecting its versatile nature.
Plain vanilla refers to financial instruments in their simplest, most straightforward form without any exotic features or complexities.
Portfolio insurance, also known as portfolio protection, involves using financial futures and options markets to safeguard a portfolio's value against market downturns.
STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds created by separating the interest and principal components of a bond or note and selling them individually.
A swaption is an option that grants the holder the right, but not the obligation, to enter into an interest rate swap agreement. It is a useful financial instrument for managing interest rate risk.
Target price refers to the projected price level of a financial security, as projected by an analyst or determined by an acquirer in various financial and business contexts.
In finance, an underlying asset is the security, index, or other financial instrument that the value of a derivative is based on. Understanding the nature of the underlying asset is crucial for evaluating and managing the risk associated with derivatives.
An underlying futures contract is the specific futures contract that serves as the basis for an option on that future. For example, an option on a U.S. Treasury bond futures contract at the Chicago Board of Trade (CBOT) would have the Treasury bond futures contract as its underlying future.
An underlying security refers to the financial instrument (like stocks, bonds, commodities, or indexes) on which derivatives such as options, futures, or other securities are based. It is the asset that must be delivered when specific financial contracts, like put options or call options, are exercised.
A writer in the context of finance is a person who sells option contracts, including both put and call options, in various financial markets.
