The right to buy (or sell) and receive (or deliver) the underlying asset at the strike price that exists over time until the option expires

A risk that exists because the value of an item being hedged may not always keep the same price relationship to contracts purchased or sold in the futures markets

The price at which an open futures contract is settled in lieu of delivery or physical purchase

The back office that records, clears and settles contracts and acts as counterparty in futures trading

Closing out is termination of a contract.

The month in which deliveries are made or contracts terminated

The standard quantity of a good in a futures or options contract

In a forward market, the contracted party that exchanges one item for another for a predetermined price at a predetermined point in time. Ordinarily, both parties to the contract are bound by the contract.

Option writers' positions if they already own the securities that they have agreed to sell or have already sold short the securities that they have agreed to buy

Hedging with a traded futures contract whose characteristics do not exactly match those of the hedger's risk exposure

Margins called for daily after marking to market

Contracts in which the goods involved may be delivered or purchased

Electronic debt obligations, usually short term

An option that can be exercised only at expiry. The buyer of the option pays the seller (writer) a premium. The writer keeps the premium regardless whether the option is exercised. An option need not be exercised if it is not to the buyer's advantage to do so.

Option contracts that are custom designed for the parties concerned but still traded on an exchange

A contract that guarantees delivery of a certain amount of goods, such as foreign currency, for exchange into a specific amount of another currency, such as dollars, on a specific day in the future

In a forward contract, the price at which the purchaser will buy a specified amount of an asset from the seller at a fixed date sometime in the future

A contract to buy (or sell) a particular type of security or commodity from (or to) the futures exchange during a predetermined future time period

A place in which buyers and sellers can exchange futures contracts. The exchange keeps the books for buyers and sellers when contracts are initiated or liquidated.

Individuals or fi rms that engage in fi nancialmarket transactions to reduce price risk

A deposit of money or other valuable assets with a futures exchange to guarantee that buyers will keep their part of a bargain

A margin call made during the day rather than at the end of the day's trading

The value that could be realised by exercising an option immediately.

The last day on which trading occurs in a particular contract

An agreement to buy in the futures market

Contracts which are nondeliverable and are settled in cash

In futures markets, money posted to guarantee contracts will be honoured and to take account of gains or losses accruing from daily price movements

In futures markets, a requirement that gains or losses on futures positions be taken into account in determining the value of all contracts each day

Option writers' position if they do not own the securities that they have agreed to sell or have not sold short the securities that they have agreed to buy

The face value amount for which interest payment obligations are computed under a 'swap' agreement. Because the principal is never repaid, it is only 'notional' for the duration of the swap.

The process of setting up a contract with a new party, such as occurs when clearinghouses insert themselves between the buyer and seller of a futures contract

The price of the option

Maximum numbers of contracts that speculators may open on an exchange

Options that refer to noncontract months for the underlying futures contracts

In a forward contract, the future date on which the buyer pays the seller and the seller delivers the assets to the buyer

Futures that derive their value from averaging the prices of a 'basket' of underlying shares included in the share index

An agreement to sell in the futures market

Those who assume price risk in the expectation of earning a high return

The market in which securities are traded for immediate delivery and payment

An observed price at which current transactions take place

A position in options that combines two or more options (i.e. two or more calls or puts)

The price at which an option can be exercised

An exchange of assets or income streams for equivalent assets or income streams with slightly different characteristics

Individuals who buy or sell securities in the hope of profiting quickly from expected price movements

The seller of an option