Glossary 2 Flashcards
Acceptable Institution (AI)
An institution that completes a Letter of Undertaking when opening an option account rather than an Options Trading Agreement
All or none order (AON)
An order where the total number of shares or contracts must be executed at the same price at the same time; partial fills are not allowed
American-style option
An option that can be exercised at any time up to the expiration of the option
Approved participant
A firm that is allowed to trade on the Bourse de Montr?al
Arbitrage
Academic or pure arbitrage refers to the simultaneous purchase and sale of instruments that are perfect equivalents, hoping to take advantage of pricing discrepancies between them to earn a risk-free profit; most real world arbitrage is not pure and there is usually some element of risk involved
At-the-money
An option (both calls and puts) whose exercise price is the same as the market price of the underlying asset
Bear call spread
The simultaneous purchase of a call option and sale of a call option with a lower exercise price on the same underlying asset and with the same expiration for a net credit
Bear put spread
The simultaneous purchase of a put option and sale of a put option with a lower exercise price on the same underlying asset and with the same expiration for a net debit
Bearish strategy
Any strategy that has the opportunity to profit from a downward move in the price of the underlying asset
Beta
A measure of the responsiveness (sensitivity) of a security or portfolio to the market as a whole
Black-Scholes option pricing model
A pricing model developed by Fisher Black and Myron Scholes for European options that incorporates the following factors: time to expiration, price of the underlying, strike price, volatility of the underlying asset, and the risk-free rate of interest
The book
A facility where off-market limit orders are placed and subsequently executed when matched
Bucketing
Confirmation of a trade where no trade has actually been executed
Bull call spread
The simultaneous purchase of a call option and sale of a call option with a higher exercise price on the same underlying asset and with the same expiration for a net debit
Bull put spread
The simultaneous purchase of a put option and sale of a put option with a higher exercise price on the same underlying asset and with the same expiration for a net credit
Bullish strategy
Any strategy that offers the opportunity to profit from an upward move in the price of the underlying asset
Buy-in
An instruction issued by the receiving clearing member to CDCC because of non-delivery of the underlying interest by the deadline time on the exercise settlement date
Calculated theoretical opening (CTO) price
On the Bourse de Montr?al, the opening price of an option series that matches the greatest number of contracts based on orders in the book
calendar spread
see Time spread
Canadian Derivatives Clearing Corporation (CDCC)
The Canadian clearing corporation for options, futures, and futures options
Clearing corporation
A service organization established for the clearance, issuance, settlement and guarantee of exchange-traded derivatives
Closing transaction
An options transaction that offsets an existing position and eliminates any right or obligations conferred by the original position
Combination
The purchase or sale of both calls and puts having different strike prices and the same expiration dates (also known as a strangle)
Contingent order
Two or more orders that are related and are to be executed simultaneously
Conversion
A long underlying position combined with a short call and a long put
Covered call
A short call combined with: i) a corresponding quantity of the underlying interest, or ii) a security convertible into at least an equivalent quantity of the underlying interest, or iii) an equivalent number of calls on the same underlying interest with an expiration equal to or longer than that of the written call
Covered put
A short put combined with: i) a short position in an equivalent amount of the underlying interest, or ii) a long position in an equivalent number of puts on the same underlying interest with an expiration equal to or longer than that of the written put
Covered put sale
The simultaneous sale of a put option and the short sale of an equivalent number of the underlying security
Delta
The amount an option?s price is expected to change given a one-unit change in the price of the underlying interest
Delta hedging
Implementation of a delta neutral strategy
Delta neutral
A position where the sum of the individual components? deltas is zero
Diagonal spread
A long call (put) and short call (put) with different exercise prices and expiration dates
Discretionary account
see Simple discretionary account
European-style option
An option that can only be exercised at expiration
?Ex-? date
Trading without dividends or rights; with a three-day settlement period, the ?ex-? date is two days prior to the record date
Exercise limit
The limit imposed by an option exchange on the aggregate number of options of the same class that can be exercised by any one person, or group acting in concert, within a specified time frame