Option trading glossary A – C

Asset Manager

An asset manager manages the assets of a third party.

Bear spread

This is an options strategy where the investor simultaneously purchases and sells identical or closely related futures contracts; the contracts all have the same expiration date but the strike prices are different.

The aim of this strategy is to make a profit when the market value of the underlying decreases.

Beta (finance)

The second letter in the Greek alphabet is named beta. In finance, it is used as a symbol denoting investment portfolio risk.

Investment portfolio risk is conventionally calculated as the covariance of the portfolio’s returns with its benchmark’s returns, divided by the variance of the benchmark’s returns.

Example: The beta of this investment portfolio is 2.4. This means that for each 1% change in the value of the benchmark, the value of the investment portfolio will change by 2.4%.

Bull spread

This is an options strategy where the investor simultaneously writes and buys identical or closely related call options, but where the written call option has a higher strike price than the purchased call option.

The aim of this strategy is to make a profit when the market value of the underlying goes up somewhat.

Clearinghouse

In finance, a clearinghouse provides clearing and settlement services for financial commodities derivatives and securities transactions. It is a financial institution that works with clearing participants which are clearing firms.

Using clearinghouses is popular since they absorb or lower the risk of one or more clearing participants not honouring their obligations. Each clearing participant must deposit collateral with the clearinghouse. This is known as a margin deposit. If a clearing participant fails to honour its obligation, money from the margin deposit can be used to cover the discrepancy.

Many (but not all) clearinghouses have a guarantee fund that will cover losses caused by a defaulting clearing participant if the margin deposit isn’t large enough to cover the loss.

A clearinghouse will also lower risk by monitoring the credit worthiness of the clearing participants.

Closing price

The price of a security at the close (of the market) is called closing price. Stock exchanges always publish the closing price for everything that is traded on the exchange. The close is the officially designated end of the trading day.

Since many securities are traded over-the-counter after hours, the closing price doesn’t necessarily represent the most up-to-date valuation of a security. The closing price is still useful to know, since the volume of over-the-counter trade tends to be much smaller than that of the exchange trade.

Closing range

The closing range for a security is the band of prices within which that security was traded right before the close of the market. In a stable market, the closing range for a security can be expected to be narrow.

CME Globex

CME Globex is a large international electronic and automated market for futures contracts. When Globex was launched in 1992, it was the very first global electronic trading platform for futures contracts.

CME Globex is a part of the Chicago Mercantile Exchange (CME).

CME Globex is open for trading almost around the clock.

Contract month

In the futures market, the contract month is the month when the contract can be implemented (making or taking delivery). A futures contract expires in the contract month.

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