Uncovered Options Trading System
Sample Grade is usually the lowest quality of a commodity, too low to be acceptable for delivery in satisfaction of futures contracts.
To purchase or sell a scale down means to buy or sell at regular price intervals in a declining market. To buy or sell on scale up means to buy or sell at regular price intervals as the market advances.
Scalper (also referred to as Day trader or Position Trader) is a trader who trades for small, short-term profits during the course of a trading session, holding the positions for only a short time during a trading session, rarely carrying a position overnight. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, e.g., to buy at the bid and sell at the offer or ask price, with the intent of capturing the spread between the two, thus creating market liquidity.
Seasonality Claims are misleading sales pitches that one can earn large profits with little risk based on predictable seasonal changes in supply or demand, published reports or other well-known events.
Seat is an instrument granting trading privileges on an exchange. A seat may also represent an ownership interest in the exchange.
Securities and Exchange Commission (SEC) is the Federal regulatory agency established in 1934 to administer Federal securities laws.
Generally, Security is a transferable instrument representing an ownership interest in a corporation (equity security or stock) or the debt of a corporation, municipality, or sovereign. Other forms of debt such as mortgages can be converted into securities. Certain derivatives on securities (e.g., options on equity securities) are also considered securities for the purposes of the securities laws. Security futures products are considered to be both securities and futures products. Futures contracts on broad-based securities indexes are not considered securities.
Security Future is a contract for the sale or future delivery of a single security or of a narrow-based security index.
Security Futures Product is a security future or any put, call, straddle, option, or privilege on any security future.
Segregated Account (also referred to as Customer Segregated Funds) is a special account used to hold and separate customers' assets for trading on futures exchanges from those of the broker or firm.
Self-Regulatory Organizations (SRO) are Exchanges and registered futures associations that enforce minimum financial and sales practice requirements for their members.
Seller's call, also referred to as call purchase, is the same as the buyer's call except that the seller has the right to determine the time to fix the price.
Seller's Market (in opposite to Buyer's Market) is aA condition of the market in which there is a scarcity of goods available and hence sellers can obtain better conditions of sale or higher prices.
Seller's Option is the right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.
Selling Hedge (or Short Hedge) is selling futures contracts to protect against possible decreased prices of commodities. See Hedging.
Series of Options are Options of the same type (i.e., either puts or calls, but not both), covering the same underlying futures contract or other underlying instrument, having the same strike price and expiration date.
Settlement is the act of fulfilling the delivery requirements of the futures contract.
Settlement Price (also referred to as Closing Price) is the last price paid for a futures contract on any trading day. Settlement prices are used to determine open trade equity, margin calls and invoice prices for deliveries. Settlement price at which the clearing organization clears all trades and settles all accounts between clearing members of each contract month. The term also refers to a price established by the exchange to even up positions which may not be able to be liquidated in regular trading.
Shipping Certificate is a negotiable instrument used by several futures exchanges as the futures delivery instrument for several commodities (e.g., soybean meal, plywood, and white wheat). The shipping certificate is issued by exchange-approved facilities and represents a commitment by the facility to deliver the commodity to the holder of the certificate under the terms specified therein. Unlike an issuer of a warehouse receipt, who has physical product in store, the issuer of a shipping certificate may honor its obligation from current production or through-put as well as from inventories.
Shock Absorber is a temporary restriction in the trading of certain stock index futures contracts that becomes effective following a significant intraday decrease in stock index futures prices. Designed to provide an adjustment period to digest new market information, the restriction bars trading below a specified price level. Shock absorbers are generally market specific and at tighter levels than circuit breakers.
Short (shorting) is the selling side of an open futures contract.
Short Selling is selling a futures contract or other instrument with the idea of delivering on it or offsetting it at a later date.
Short the Basis the purchase of futures as a hedge against a commitment to sell in the cash or spot markets.
Short Trader (opposite to long trader) is one who has sold futures contracts or plans to purchase a cash commodity.
Single Stock Future is a futures contract on a single stock. Single stock futures were illegal in the U.S. prior to the passage of the Commodity Futures Modernization Act.
Small Traders are traders who hold or control positions in futures or options that are below the reporting level specified by the exchange or the Commodity Futures Trading Commission (CFTC).
Soft is a description of a price that is gradually weakening. The "Soft" term may also refers to certain "soft" commodities such as sugar, cocoa, and coffee.
When liquidation of a weakly-held position has been completed, and offerings become scarce, the market is said to be sold out.
As developed by the Chicago Mercantile Exchange (CME), SPAN (Standard Portfolio Analysis of Risk) is the industry standard for calculating performance bond requirements (margins) on the basis of overall portfolio risk. SPAN calculates risk for all enterprise levels on derivative and non-derivative instruments at numerous exchanges and clearing organizations worldwide.
Specialist System is a type of trading commonly used for the exchange trading of securities in which one individual or firm acts as a market-maker in a particular security, with the obligation to provide fair and orderly trading in that security by offsetting temporary imbalances in supply and demand by trading for the specialist's own account.
Speculative Bubble is a rapid run-up in prices caused by excessive buying that is unrelated to any of the basic, underlying factors affecting the supply or demand for a commodity or other asset. Speculative bubbles are usually associated with a "bandwagon" effect in which speculators rush to buy the commodity (in the case of futures, "to take positions") before the price trend ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse.
Speculative Position Limit is the maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined that may be held or controlled by one person (other than a person eligible for a hedge exemption) as prescribed by an exchange and/or by the Commodity Futures Trading Commission (CFTC).
Speculator is a market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. In commodity futures, Speculator is an individual who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.
Split Close is a condition that refers to price differences in transactions at the close of any market session.
Spot usually refers to a cash market for a physical commodity where the parties generally expect immediate delivery of the actual commodity.
Spot Commodity is the actual commodity as distinguished from a futures contract. In some cases, the "Spot Commodity" term is used to refer to cash commodities available for immediate delivery.
Spot Month (also called Current Delivery Month) is the futures contract that matures and becomes deliverable during the present month.
Spot Price is the price at which a physical commodity for immediate delivery is selling at a given time and place. See Cash Price.
Spread (Also referred to as Straddle) is the purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.
A spread is the simultaneous purchase and sale of the same or similar commodity, in different or the same contract months. Spread trading is usually considered to be a lower risk strategy than an outright long or short futures position, and therefore margin requirements are usually less.
Not only can spreads be utilized in futures markets, but options provide even more opportunities for successful spread trading. With so many variables including strike prices, trading months, and different markets available, the permutations and combinations of option strategies are tremendous.
Some of the advantages of spreads are:
- require smaller margin deposits;
- lower risk
- seasonal patterns exist among spread relationships.
Spreading is referred to the buying and selling of two different delivery months or related commodities in the expectation that a profit will be made when the position is offset.
Squeeze is a market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.
Stop Limit Order is a stop limit order is an order that goes into force as soon as there is a trade at the specified price. The order, however, can only be filled at the stop limit price or better.
Stop Order (sometimes referred to as stop loss order) is an order that becomes a market order when a particular price level is reached. A sell stop is placed below the market, a buy stop is placed above the market.
Stop-Close-Only Order is a stop order that can be executed, if possible, only during the closing period of the market. See also Market-on-Close Order.
Straddle ( also referred to as Spread) is an option position consisting of the purchase of put and call options having the same expiration date and strike price.
Strangle is an option position consisting of the purchase of put and call options having the same expiration date, but different strike prices.
Strategy-Based Margining is a method for setting margin requirements whereby the potential for gains on one position in a portfolio to offset losses on another position is taken into account only if the portfolio implements one of a designated set of recognized trading strategies as set out in the rules of an exchange or clearing organization.
Street Book is a daily record kept by futures commission merchants and clearing members showing details of each futures and option transaction, including date, price, quantity, market, commodity, future, strike price, option type, and the person for whom the trade was made.
Strike Price (Exercise Price) is the price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer. Strike Price is the price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.
STRIPS (Separate Trading of Registered Interest and Principal Securities) is a book-entry system operated by the Federal Reserve permitting separate trading and ownership of the principal and coupon portions of selected Treasury securities. It allows the creation of zero coupon Treasury securities from designated whole bonds.
The "Strong Hands" term usually means that the party receiving the delivery notice probably will take delivery and retain ownership of the commodity (when used in connection with delivery of commodities on futures contracts). When "Strong Hands" term is used in connection with futures positions, it usually means positions held by trade interests or well-financed speculators.
In technical analysis, Support is a price area where new buying is likely to come in and stem any decline. Support is opposite to resistance that defines the price area at the top of an up-trend trend.
In general, the exchange of one asset or liability for a similar asset or liability for the purpose of lengthening or shortening maturities, or raising or lowering coupon rates, to maximize revenue or minimize financing costs. Swap may entail selling one securities issue and buying another in foreign currency; it may entail buying a currency on the spot market and simultaneously selling it forward. Swaps also may involve exchanging income flows; for example, exchanging the fixed rate coupon stream of a bond for a variable rate payment stream, or vice versa, while not swapping the principal component of the bond. Swaps are generally traded over-the-counter.
Swaption is an option to enter into a swap -i.e., the right, but not the obligation, to enter into a specified type of swap at a specified future date.
Switch is a process of offsetting a position in one delivery month of a commodity and simultaneous initiation of a similar position in another delivery month of the same commodity, a tactic referred to as "rolling forward."
Synthetic Futures is a position created by combining call and put options. A synthetic long futures position is created by combining a long call option and a short put option for the same expiration date and the same strike price. A synthetic short futures contract is created by combining a long put and a short call with the same expiration date and the same strike price.
Systematic Risk is market risk due to factors that cannot be eliminated by diversification.
Systemic Risk is the risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A's default in X market may affect Intermediary B's ability to fulfill its obligations in Markets X, Y, and Z.
Taker is the buyer of an option contract.
Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.