37 lines
2.5 KiB
Plaintext
37 lines
2.5 KiB
Plaintext
972 Glossary
|
||
In-the-Money: a term describing any option that has intrinsic value. A call option is
|
||
in-the-money if the underlying security is higher than the striking price of the call.
|
||
A put option is in-the-money if the security is below the striking price. See also
|
||
Intrinsic Value, Out-of-the-Money.
|
||
Intramarket Spread: a futures spread in which futures contracts are spread against
|
||
other futures contracts in the same market; example, buy May soybeans, sell
|
||
March soybeans.
|
||
Intrinsic Value: the value of an option if it were to expire immediately with the
|
||
underlying stock at its current price; the amount by which an option is in-the
|
||
money. For call options, this is the difference between the stock price and the
|
||
striking price, if that difference is a positive number, or zero otherwise. For put
|
||
options it is the difference between the striking price and the stock price, if that
|
||
difference is positive, and zero otherwise. See also In-the-Money, Parity, Time
|
||
Value Premium.
|
||
Last Trading Day: the third Friday of the expiration month. Options cease trading
|
||
at 3:00 P.M. Eastern Time on the last trading day.
|
||
LEAPS: Long-term Equity Anticipation Securities. These are long-term listed
|
||
options, currently having maturities as long as two and one-half years.
|
||
Leg: a risk-oriented method of establishing a two-sided position. Rather than enter
|
||
ing into a simultaneous transaction to establish the position (a spread, for exam
|
||
ple), the trader first executes one side of the position, hoping to execute the other
|
||
side at a later time and a better price. The risk materializes from the fact that a
|
||
better price may never be available, and a worse price must eventually be accept
|
||
ed.
|
||
Letter of Guarantee: a letter from a bank to a brokerage firm stating that a cus
|
||
tomer (who has written a call option) does indeed own the underlying stock and
|
||
the bank will guarantee delivery if the call is assigned. Thus, the call can be con
|
||
sidered covered. Not all brokerage firms accept letters of guarantee.
|
||
Leverage: in investments, the attainment of greater percentage profit and risk
|
||
potential. A call holder has leverage with respect to a stockholder-the former will
|
||
have greater percentage profits and losses than the latter, for the same movement
|
||
in the underlying stock.
|
||
Limit: see Trading Limit.
|
||
Limit Order: an order to buy or sell securities at a specified price (the limit). A limit
|
||
order may also be placed "with discretion" -a fixed; usually small, amount such as
|
||
1/s or ¼ of a point. In this case, the floor broker executing the order may use his |