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Published on 07-07-10 06:40 AM
American-style option: An option that may be exercised at any time prior to expiration.
Arbitrage: The practice of buying and selling the same futures contract simultaneously on two different exchanges to profit from a price spread.
Arbitration: A forum for the fair and impartial settlement of disputes that the parties involved are unable to resolve between themselves. The NFA’s arbitration program provides a forum for resolving futures-related disputes. The NASD handles stock-related complaints.
Assignment: Notice to an option writer that an option has been exercised by the option holder. This can happen at any time during the life of an option with American-style options and only at or near expiration for European-style options.
Associated person (AP or broker): An individual who solicits orders, customers, or customer funds on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor, or a commodity pool operator and who is registered with the Commodity Futures Trading Commission (CFTC) or the National Futures Association (NFA).
At-the-money: An option whose strike price is equal to the market value of the underlying futures contract. Can also refer to an order to buy a futures contract at the current bid-ask price (see Market order).
Automatic exercise: The exercise by the clearinghouse of an in-the-money option at expiration, unless the holder of the option submits specific instructions to the contrary.
Back spread: A spread in which more options are purchased than sold, with all options having the same underlying entity and expiring at the same time. Back spreads are usually delta-neutral.
Balloon option: Most often found in foreign exchange markets, these options provide for greater leverage to the holder. This is because the notional payments increase significantly after a set threshold is penetrated.
Bear market (bear/bearish): A market in which prices are declining. A market participant who believes that prices will move lower is called a “bear.” A news item is considered bearish if it is expected to produce lower prices.
Bear spread: Any spread in which a decline in the price of the underlying entity will increase the value of the spread.
Beta: A measure of how the options market correlates with the movement of the underlying market.
Bid: An offer to buy a specific quantity of a security or commodity at a stated price.
Board of trade (BOT): Any exchange or association of persons who are engaged in the business of buying or selling any commodity or receiving the same for sale on consignment. It usually means an exchange on which commodity futures and/or options are traded.
Box: A long call and a short put at one exercise price, and a short call and a long put at a different exercise price. All four options must have the same underlying entity and expire at the same time.
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