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A
Acquisition
A type of corporate action that occurs when one company purchases a majority stake in another company. Acquisitions can be paid for in cash, stock, or a combination of the two.
All-or-None (AON)
A Time in Force designation that is similar to Fill-or-Kill (FOC). The difference being that All-or-None (AON) designated orders do not require an immediate fill, but instead remain open until the market closes on the day they are entered. AON orders must be filled in their entirety, and can be cancelled at any point during the trading day.
American-Style Option
A type of option contract that can be exercised at any time during its life. The majority of exchange-traded options in the United States are American-Style.
Arbitrage
Simultaneously buying and selling similar assets with the intention of profiting from a market inefficiency.
Asset Class
Asset classes are groups of assets with similar financial characteristics that are subject to similar laws and regulations. The three main financial asset classes are equities (stocks), fixed income (bonds), and cash/cash equivalents (currency and money market instruments). Other asset classes include real estate, commodities, and fine art/collectibles.
Assigned
Being forced to fulfill the obligation of an option contract.
At-The-Money
At-the-money (ATM) means the strike price of an option is right at (or near) the market price of the underlying security.
Automatic Exercise
A procedure whereby the Options Clearing Corporation (OCC) attempts to protect the holders of certain in-the-money expiring options by automatically exercising the options on behalf of the owner. The OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and any index option that is $0.01 or more in-the-money. It’s important to keep in mind that a particular brokerage’s threshold for automatic exercise may or may not be the same as the OCC’s.
B
Back Month Contract
A term for a securities contract of any expiration month except the front month.
Backspread
A spread in which more options are purchased than sold.
Backwardation
Relating to futures, a theory that involves the price of futures and the time to expiration. All else being equal, the theory suggests that as a futures contract approaches expiration it will trade at a higher price compared to contracts further from expiration. For example, if the spot price of futures on crude oil is trading $50, while the futures on crude oil for delivery in six months is trading $40, that would be described as backwardation (downward sloping). The opposite phenomenon is referred to as contango.
Banker's Acceptances
A type of money market instrument, banker’s acceptances are short-term debt instruments used by companies that are guaranteed by a commercial bank.
Basis (Futures-Cash)
The term “basis” has several common uses related to trading. One popular usage refers to the cost of a security as it relates to tax reporting. Basis is also commonly used in the futures market, representing the difference between the cash price and the futures price of a commodity.
Basis Point
The term basis point in finance refers to a unit of measurement. One basis point is equivalent to 0.01%, or .0001. Basis points are often used when percentage differences less than 1% are referenced.
Bearish
A pessimistic outlook on the price of an asset. Traders who believe that an asset price will depreciate over time are said to be bearish.
Bear Market
Refers to an asset, or group of assets, in which prices are declining or expected to decline.
Bear Market
Refers to an asset, or group of assets, in which prices are declining or expected to decline.
Bear Spread
A spread that profits from a drop in the price of the underlying security.
B/A Spread
The difference between the bid and ask price of a security.
Beta
Beta measures how closely an individual stock tracks the movement of the broader market. Beta is often used to estimate the systematic risk of a security in comparison to the market as a whole. A beta of 1 indicates the movement of a security closely matches that of the broader market. A beta valued less than 1 theoretically indicates a security is less volatile than the broader market, and a beta valued above 1 theoretically indicates a security is more volatile than the broader market.
Beta Weight
Beta-weighting is a technique used to convert deltas from different financial instruments (stocks, options, etc...) into standard units. One purpose of beta-weighting is to allow for the a standardized approach to risk management of positions and portfolios. Click here to learn more.
Big Boy Iron Condor
The strikes are widened close to 1 standard deviation out to take additional risk and can act as a potential substitute for selling strangles. Click here to learn more.
