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Futures Terms |
| Browse our glossary of terms by using the Alphabet below. You may also search the glossary by using the search box in the right column. | |
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| Term | Definition |
|---|---|
| Alpha Management | An investment strategy designed to capture the expected excess return of a security relative to a portfolio or index. The Alpha is often further defined as the premium an investment will generate, above a specific index, portfolio, or benchmark. |
| Arbitrage | The simultaneous purchase and sale of equivalent assets in different markets to profit from an expected convergence between them. In theory, two equivalent assets should have almost identical present value of their future cash flows. An arbitrage opportunity exists when the net present value of two equivalent assets are not equal. Arbitrageurs will purchase the “cheap” asset, and sell or short the "expensive" asset. Profit is achieved when the market recognizes the imbalance, the prices come in line, and the arbitrageur unwinds the positions. |
| Basis | The difference between the price of the stock and that of the future. For Single Stock Futures, the basis is a function of, among others, the interest rates and the expected value of future dividends. |
| Bid-Ask Spread | The price difference between the highest standing offer to buy and the lowest standing offer to sell. |
| Broker Loan | The interest rate charged by broker/dealers for margin and short stock positions. |
| Call Option | The buyer of a call option has the right, but not the obligation, to buy an underlying asset at a specified “strike” price on (in the case of a "European"-style exercise) or by (in the case of an "American"-style exercise) a specified expiration date. The buyer pays the seller a “premium,” and may profit if the price of the underlying asset is at a level above the strike price plus the premium paid, by the call’s expiration date. The seller of a call option receives and keeps the premium, but may have to sell the stock if the buyer "exercises" the option. Buyers and sellers of call options may offset their position. |
| Carry Curve | The state wherein futures prices trade at a price over that of the stock. |
| Cash Settlement | The tender or receipt of money in lieu of the the contract's underlying commodity to fulfill the delivery requirements of the futures contract. NQLX Single Stock Futures are physically delivered, and are not subject to a cash settlement. |
| Class of Options | A put or a call covering the same underlying futures contract or underlying physical commodity. |
| Clearing | The process of recognizing that a trade has occurred, and paying for and receiving payment for securities after they have been traded. The process of clearing is generally handled by a central entity, the "clearing house." NQLX Single Stock Futures are cleared by the Options Clearing Corporation. |
| Commodity Futures | The executive agency of the U.S. federal government responsible for regulating futures exchanges and the contracts trading thereon, and for enforcing the rules of fair practice and disclosure. |
| Commodity Futures Trading Commission | The executive agency of the U.S. federal government responsible for regulating futures exchanges and the contracts trading thereon, and for enforcing the rules of fair practice and disclosure. |
| Constructive Sale | An action taken that effectively creates a sale of an asset by creating a nearly equal and opposite cash flow. |
| Contract Market | Any board of trade (exchange) located in the United States which has been designated by the Commodity Futures Trading Commission to list a futures contract or commodity option for trading. |
| Contract Size | The number of shares of the underlying security represented by the futures contract. |
| Corporate Actions / Corporate Event | Changes in the structure of the corporate or in the price and/or quantity of a stock produced by a proactive measure of the issuing corporation. Such measures may include stock splits, stock consolidation, special dividends, and spin offs. |
| Delivery Month | The month during which a futures contract can be fulfilled. NQLX Single Stock Futures cease trading at the close of the market on the third Friday of the delivery month, and delivery occurs on the third business day following the last trading day. |
| Derivative Contract | A financial instrument whose value is linked to or determined by another security’s or index’ value. A Single Stock Future is a derivative contract, since its value is function of the price of the underlying asset. |
| Discount | A reduction in the expected price produced by factors such as higher interest rates or the use of the future as a hedging instrument. |
| Dividend | A payment made by a corporation to its shareholders. |
| Downtick | This state of when a security sells for less than its previous transaction price. A securities regulation, the “downtick rule,” currently prevents the short sale of stock on a downtick. |
| Exchange-traded option; put option; call | Options (subject to certain exceptions) give an option purchaser the right to buy in the case of a call option, or to sell in the case of a put option, a futures contract or the physical commodity underlying the option at the stated strike price prior to the expiration date of the option. Each exchange-traded option is distinguished by the underlying futures contract or underlying physical commodity, strike price, expiration date, and whether the option is a put or a call. |
| Exdividend | The day on which a dividend paying stock trades without the right to receive the dividend. |
| Expiration | The last day a contract, whether a future or option, can trade prior to final settlement. In reality, future contracts do not "expire"; a position (long or short) in a futures contract must either be offset by assuming an inverse position in the same contract, or go through the delivery process. |
| Fair Value | The state wherein the basis between the stock and the future is trading at its expected level. |
| Forward | An privately negotiated agreement to complete a transaction at a time in the future, at a price negotiated now. |
| Forward Curve | The price of a series of futures contracts over a number of delivery months. |
| Future Value of Expected Dividend | The value of the dividend after it is reinvested between receipt and the expiration of the future. The future value of the dividend is a function of time and of the level of interest rates. |
| Futures | A future contract is an obligation to purchase or sell a fixed underlying asset or cash-equivalent thereof, at a fixed time and location. The obligation to purchase (or take delivery) is called a "long" position, while the obligation to sell (or make delivery) is called a "short" position. Futures are standardized contracts, allowing for ease of buying and selling on a central organized marketplace. |
| Grantor, writer, seller | An individual who sells an option. Such a person is said to have a short position. |