- American-style option
An option contract that may be exercised at any time before it expires.
The quoted price at which a customer can buy. Also referred to as the "offer," "ask price," or "ask rate."
The quoted price where a customer can sell. Also known as the "bid price," or "bid rate."
- Bid/Ask Spread
The point difference between the bid and ask (offer) price.
A call option gives the option buyer the right to purchase a particular commodity at a stated exchange rate. Risk is limited to the investment made, which is premium and all fees paid.
A broad definition of a derivative is a substance that can be made from another substance. For example, orange juice is a derivative of an orange. One definition of a financial derivative is having a value from an underlying variable asset. By way of example, a share of common stock is a derivative of an existing company, such as McDonald's Corp. Simply said, when you buy a share of McDonald's Corp, you are buying a derivative of McDonald the company.
Style Option An option contract that can be exercised only on or near its expiration date.
This is the last day on which an option may either be exercised or offset.
The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as "gearing."
See Security Deposit.
- Open Position
Any transaction that has not been closed out by a corresponding opposite transaction.
The price an option buyer pays for the option, not including commissions.
A put option gives the option buyer the right to sell a particular commodity at a stated exchange rate. Risk is limited to the investment made, which is premium and all fees paid.
- Security Deposit
The amount of money needed to open or maintain a position. Also known as "margin."
The actual delivery of currencies made on the maturity date of a trade.
The point or pip difference between the ask and bid price of the option.
- Strike Price
The exchange rate at which the buyer of a call has the right to purchase a specific commodity or at which the buyer of a put has the right to sell a specific commodity. Also known as the 'exercise price'.