Trading Glossary

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Calendar effect

The tendency of stocks to perform differently at different times, including such anomalies as the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.

Call

An option that gives the right to buy the underlying futures contract.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.

Call money rate

Also called the broker loan rate, the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge. Buying on margin.

Call option

Also called a call, an option that grants the buyer the right to purchase the underlying from the writer.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be called.

Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Capitalization method

A method of constructing a replicating portfolio in which the manager purchases a number of the largest-capitalized names in the index stock in proportion to their capitalization.

Capitalization ratios

Also called financial leverage ratios, ratios that compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. These ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.

Capitalized

Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives greater than one year.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Car

A loose quantity term sometimes used to describe a contract, e.g., "a car of bellies". Derived from the fact that quantities of the product specified in a contract used to correspond closely to the capacity of a railroad car.

Carryin

Is the amount of inventory or supply which is brought into a new crop year or season.

Carryout or Carryover

Grain and oilseed commodities not consumed during the marketing year and remaining in storage at year's end. These stocks are "carried over" into the next marketing year and added to the stocks produced during that crop year.

Cash commodity

The actual physical commodity as distinguished from a futures contract.

Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality investment media such as Treasury bills and bankers acceptances.

Cash flow per share

Earnings after taxes plus depreciation, on a per share basis. A measure of a firm's financial strength.

Cash markets

Also called spot markets, markets that involve the immediate delivery of a security or instrument. Related: Derivative markets

Cash settlement contracts

Futures contracts, such as stock index futures, which settle for cash, not involving the delivery of the underlying.

Certificate of deposit (CD)

Also called a time deposit, a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited at the issuing depository institution. A CD bears a maturity date and a specified interest rate, and can be issued in any denomination.

CFTC

The Commodity Futures Trading Commission, the federal agency created by Congress to regulate futures trading. The Commodity Exchange Act of 1974 became effective April 21, 1975. Previously, futures trading had been regulated by the Commodity Exchange Authority of the USDA.

Characteristic line

The market model applied to a single security. The slope of the line is a security's beta.

Cheapest to deliver issue

The acceptable Treasury security with the highest implied repo rate, the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.

Clearinghouse

An adjunct to a futures exchange through which transactions executed on the floor of the exchange are settled using a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.

Clearing member

A member firm of the Clearing House. Each Clearing Member must also be a member of the exchange. Not all members of the Exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with and eventually settled through a Clearing Member.

Close, the

The period at the end of the trading session. Sometimes used to refer to closing price. Opening, the

Closed-end fund

An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Open-end fund.

Closing range

Also known as the range. The high and low prices, or bids and offers, recorded during the period designated as the official close. Related: Settlement price

Cluster analysis

A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings such as growth, cyclical, stable, and energy stocks.

Combination strategy

A strategy in which a put and a call on the same underlying stock with the same strike price and expiration are either both bought or both sold. Related: Straddle

Commercial paper

Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

Commission

Also known as round-turn. The one-time fee normally charged by a broker to a customer when a futures or options position is liquidated either by offset or delivery. Related: Offset, Delivery

Commission house

A firm which buys and sells futures contracts for customer accounts. Related: Futures commission merchant, Omnibus account

Commitment

A trader is said to have a commitment when he assumes the obligation to accept or make delivery on a futures contract. Related: Open interest

Common stock equivalent

A convertible security that is traded like an equity issue because the optioned common stock is trading high.

Common stock market

The market for trading equities, not including preferred stock.

Composite symbol

In the FutureSource datafeed, a symbol that covers both day and electronic trading. (More information.)

Consensus forecast

The mean of all financial analysts' forecasts for a company.

Contango

A market condition in which futures prices are higher in the distant delivery months.

Contract

A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Contract month

The month in which futures contracts may be satisfied by making or accepting a delivery. Related: Delivery month contrarians also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and P/E ratios and higher dividend yields, seeing value where others do not.

Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury bond futures contract.

Conversion ratio

The number of shares of common stock that the security holder will receive from exercising the call option of a convertible security.

Corporate bonds

Debt obligations issued by corporations.

Counterparties

The parties to an interest rate swap.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.

Coupon

The periodic interest payment made to the bondholders during the life of the bond.

Coupon rate

The rate of interest that, when multiplied by the par value, indicates the dollar value of the coupon payment.

Cover

The purchase of a contract to offset a previously established short position.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor owns in his or her portfolio. See covered or hedge option strategies.

Covered or hedge option strategies

Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies

Cross hedging

The practice of hedging with a futures contract that is different from the underlying being hedged.

Current ratio

The ratio of current assets to current liabilities.

Customized benchmarks

A benchmark that is designed to meet a client's requirements and long term objectives.