Glossary
Cable
Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
Calendar spread
An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Horizontal spread
Call option
An option contract that gives the owner the right to buy the underlying security at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying stock if the option is assigned.
Canadian Ivey Purchasing Managers (CIPM) Index
A monthly gauge of Canadian business sentiment issued by the Richard Ivey Business School.
Candlestick Chart
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Carry / carrying cost
The interest expense on money borrowed to finance a securities position.
Carry Trade
Refers to the simultaneous selling of a currency with a low interest rate, while purchasing currencies with higher interest rates. Examples are the JPY crosses such as GBP/JPY and NZD/JPY.
Cash Market
The market in the actual financial instrument on which a futures or options contract is based.
Cash settlement amount
The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised. See also Exercise settlement amount
CBOE
The Chicago Board Options Exchange.
Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
Chartist
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Class of options
A term referring to all options of the same type -- either calls or puts -- covering the same underlying stock.
Clearing
The procedure by which an organization acts as an intermediary and assumes the role of a buyer and seller for transactions in order to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets, as parties can make transfers to the clearing corporation, rather than to each individual party with whom they have transacted.
Close / Close Position
A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved. When a position is completely closed, it is considered “squared”.
Closing price
The final price of a security at which a transaction was made. See also Settlement price
Closing transaction
A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.
Collar
A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence
Collateral
Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.
Commission
A transaction fee charged by a broker.
Confirmation
A document exchanged by counterparts to a transaction that states the terms of said transaction.
Combination
A trading position involving out-of-the-money puts and calls on a one-to-one basis. The puts and calls have different strike prices, but the same expiration and underlying stock. A long combination is when both options are owned, and a short combination is when both options are written. Example: a long combination might be buying 1 XYZ May 60 call, and buying 1 XYZ May 55 put.
Condor spread
A strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a 'flat-top butterfly.'
Construction Spending
Measures the amount of spending towards new construction, released monthly by the U.S. Department of Commerce's Census Bureau.
Contagion
The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.
Contingency order
An order to execute a transaction in one security that depends on the price of another security. An example might be: 'Sell the XYZ May 60 call at 2, contingent upon XYZ stock being at or below $59 1/2.'
Contract size
The amount of the underlying asset covered by the option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend, or otherwise special by the listing exchange
Conversion
An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly riskless profit. For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call, and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called 'conversion arbitrage.' See also Reversal / reverse conversion
Counterparty
The other party that participates in a financial transaction. Every transaction must have a counterparty in order for the transaction to go through. More specifically, every buyer of an asset must be paired up with a seller that is willing to sell and vice versa.
Country Risk
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cover
To close out an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing short position for either a profit or loss.
Covered call / covered call writing
An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite
Covered combination
A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and writing 1 XYZ May 55 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.
Covered option
An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also Uncovered call option writing and Uncovered put option writing
Covered put / Covered cash-secured put
Cash secured put is an option strategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned).
Covered straddle
An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.
Credit
Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.
Credit spread
A spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.
Cross Currency Pairs
A pair of currencies that does not include the U.S. dollar. For example: EUR/JPY or GBP/CHF.
Currency symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
Currency
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Pair
The two currencies that make up a foreign exchange rate. For Example, EUR/USD
Currency Risk
The probability of an adverse change in exchange rates.
Current Account
The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically is the key component to the current account.
Curvature
A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta
Cycle
The expiration dates applicable to the different series of options. Traditionally, there were three cycles:
| Cycle | Available expiration months | |
| January | January / April / July / October | |
| February | February / May / August / November | |
| March | March / June / September / December |
Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April, and July. After the January expiration, the months outstanding will be February, March, April and July.