974 Glossary 
Monte Carlo Simulation: a model designed to simulate a real-world event that can­
not be approximated merely with a mathematical formula. The Monte Carlo sim­
ulation approximates such an event (the movement of the stock market, for exam­
ple) and then it is simulated a great number of times. The net result of all the sim­
ulations is then interpreted as the result, generally expressed as a probability of 
occurrence. For example, a Monte Carlo simulation can be used to determine how 
stocks might behave under certain stock price distributions that are different from 
the lognormal distribution. 
Naked Option: see Uncovered Option. 
Narrow-Based: Generally referring to an index, it indicates that the index is com­
posed of only a few stocks, generally in a specific industry group. Narrow-based 
indices are not subject to favorable treatment for naked option writers. See also 
Broad-Based. 
"Net" Order: see Contingent Order. 
Neutral: describing an opinion that is neither bearish or bullish. Neutral option 
strategies are generally designed to perform best if there is little nor no net change 
in the price of the underlying stock. See also Bearish, Bullish. 
Non-Equity Option: an option whose underlying entity is not common stock; typi­
cally refers to options on physical commodities, but may also be extended to 
include index options. 
"Not Held": see Market Not Held Order. 
Notice Period: the time during which the buyer of a futures contract can be called 
upon to accept delivery. Typically, the 3 to 6 weeks preceding the expiration of the 
contract. 
Open Interest: the net total of outstanding open contracts in a particular option 
series. An opening transaction increases the open interest, while any closing trans­
action reduces the open interest. 
Opening Transaction: a trade that adds to the net position of an investor. An open­
ing buy transaction adds more long securities to the account. An opening sell 
transaction adds more short securities. See also Closing Transaction. 
Option Pricing Curve: a graphical representation of the projected price of an 
option at a fixed point in time. It reflects the amount of time value premium in the 
option for various stock prices, as well. The curve is generated by using a mathe­
matical model. The delta ( or hedge ratio) is the slope of a tangent line to the curve 
at a fixed stock price. See also Delta, Hedge Ratio, Model.