ASK or OFFER PRICE

The lowest price any potential seller is willing to accept for a particular option.

AT-THE-MARKET or MARKET ORDER

An order to purchase(or to sell) at the best available price. At-the-market orders must be executed immediately and accordingly take precedence over all other orders.

AT-THE-MONEY

An option when the underlying instrument sells at the same price as the exercise price of the option

BEAR SPREAD

For detailed information please refer to the
Futures and Options Strategy Guide.

BEARISH

An outlook anticipating lower prices in the underlying instrument.

BEARISH SPREAD

An option spread designed to be profitable if the underlying instrument declines in price. A bearish spread might consist of purchasing an"in-the-money" put and writing an"out-of-the-money" put.

BID PRICE

The highest price any potential buyer is willing to pay for a particular option

BID/ASK QUOTE

The latest available bid and offer (ask) price for a particular option series.

BID/ASK SPREAD

The difference in price between the latest available bid and offering quotations for a particular option series.

BULL SPREAD

For detailed information please refer to the
Futures and Options Strategy Guide.

BULLISH

An outlook anticipating higher prices in the underlying instrument.

BULLISH SPREAD

An option spread designed to be profitable if the underlying instrument rises in price. A bullish spread might consist of purchasing an "in-the-money" call and writing an "out-of-the money" call.

CALENDAR - SPREAD "TIME SPREAD"

An option spread consisting of the purchase of an option and the simultaneous sale of a different option on the same instrument with a nearer expiration date. The purpose of a calendar spread is to profit from the accelerated loss in time value of the option that is written relative to the option that is purchased. Calendar spreading is often a neutral strategy, but it can also be bullish or bearish, depending upon the options involved

CALL

An option contract that entitles the holder to buy a futures contract of an underlying common instrument at a stated price (the "striking price")on or before a fixed expiration date.

CALL RATIO BACKSPREAD

For detailed information please refer to the
Futures and Options Strategy Guide.

CALLED AWAY

The process whereby a call option writer is obligated to surrender the underlying instrument (futures contract) to the option buyer at a price equal to the striking price of the call written.

CASH SETTLEMENT OPTION

An option through which exercise is accomplished by a payment in cash, rather than by the delivery of the underlying futures contract or instrument. The amount of cash settlement is determined by the difference between the option striking price and the price of the underlying instrument.

CLASS OF OPTIONS

A group of puts or a group of calls on the same underlying instrument.

CLOSING PRICE

The price of a instrument (or option) at the last transaction of the day.

CLOSING PURCHASE

A transaction in which a speculator who had previously written an option intends to liquidate the position as a writer by buying, in a closing purchase transaction, an option having the same terms as the option previously written.

CLOSING SALE

A transaction in which a speculator who had previously purchased an option intends to liquidate the position as a holder by selling in a closing sale transaction an option having the same terms as the option previously purchased.

CONVERSION REVERSAL (BOX SPREAD)

For detailed information please refer to the
Futures and Options Strategy Guide.

COVERED WRITING

A form of option writing in which the writer (hedger) owns a quantity of the underlying instrument equivalent to the number of option contracts written. It is less risky than outright long instrument positions with commensurately lower margin requirements.

DAY ORDER

A limit order entered through a broker which, if not executed on the day it is entered, is automatically canceled at the close of business on that day.

DELTA - "NEUTRAL HEDGE RATIO"

Percentage of the price movement in the underlying instrument that will be translated into price movement in a particular option series. For example, a delta of 50% indicates that the option will move up or down by about half of the movement in the underlying instrument. As a general rule, the delta for a call option increases. as the instrument price rises, and decreases as the instrument price declines.

DISCOUNT BROKER

A broker whose commission rates are lower than full service brokers. Discounters usually provide little in additional services beyond trade execution.

DIVERSIFICATION

An investing or trading strategy in which positions are maintained in a variety of underlying instruments, for the purpose of reducing risk and increasing bottom-line profits.

DIVERSIFICATION METHOD

An option trading strategy consisting of the purchase of broad spectrum of non-correlated instruments (for options - calls and puts) in order to insulate a portfolio from the impact of a single event effecting a group of correlated markets, i.e. a major rise in interest rates.

EXECUTION

The actual completion of a buy or sell order on the exchange floor.

EXERCISE

The procedure whereby the holder of an option notifies appropriate exchange (through the holder's broker) that he wishes to purchase the underlying instrument (in the case of a call) or deliver the underlying instrument (in the case of a put) at the exercise price.

EXERCISE PRICE"STRIKE PRICE".

The price per contract at which the holder of an option can purchase (in the case of call options), or sell (in the case of put options), the underlying instrument upon exercise.

EXPIRATION DATE

The last day on which the option may be exercised.

FULL-SERVICE BROKER

A broker that provides investment research, information and advice, as well as all services in connection with the purchase and sale of futures and options contracts. Full Service Brokers usually charge commission rates that are higher than discount broker's rates without discounts.

GOOD-TILL- CANCELED ORDER (GTC ORDER)

A limit order entered through a broker, which remains on the books of the FCM's exchange trading floor desk until it is executed, the series expires or the order is canceled by the originator of the order.

IN-THE-MONEY

An option is in-the-money when it has intrinsic value. A call is in-the-money when the market price of the underlying instrument is greater than the option's exercise price. A put is in-the-money when the market price of the underlying instrument is lower than the option's exercise price.

INDEX OPTION

An option whose underlying instrument an index. This includes options on the overall instrument market(such as the S&P 500 Index options) as well as options on commodity based index groups. Index options are cash settlement options.

INTRINSIC VALUE

The excess of the market price of the underlying instrument over the striking price of the option for a call, or the excess of the striking price of the option over the market price of the underlying instrument for a put.

LAST SALE PRICE

The price of an instrument (or option) at the latest transaction consummated.

LIMIT ORDER

An order to purchase at or below (or to sell at or above) a specified price (the "limit price"). Limit orders can be executed only when the limit price is consistent with the bid/asked quotation at any point subsequent to the entering of the order. Limit orders are either "good-till-canceled" or "day orders".

LIMITED RISK

An investment where the possible loss cannot exceed a pre-determined amount. For option purchases, this amount is initial cost of options plus associated transaction fees.

LIQUID (OR LIQUIDITY)

The ease in which a purchase or sale can be made without disrupting existing market prices.

LONG BUTTERFLY

For detailed information please refer to the
Futures and Options Strategy Guide.

LONG CALL

For detailed information please refer to the
Futures and Options Strategy Guide.

LONG PUT

For detailed information please refer to the
Futures and Options Strategy Guide.

LONG STRADDLE

For detailed information please refer to the
Futures and Options Strategy Guide.

LONG STRANGLE

For detailed information please refer to the
Futures and Options Strategy Guide.

LONGER-TERM OPTION

An option contract having more than a few months until expiration.

MARKET ORDER or AT-THE-MONEY ORDER

An order to purchase (or to sell) at the best available price. Market orders must be executed immediately and therefore take precedence over all other orders.

NEUTRAL HEDGE RATIO (DELTA)

The percentage of the price movement in the underlying instrument that will be translated into price movement in a particular option series. For example, a neutral hedge ratio of 50% indicates that the option will move up or down by about half of the movement in the underlying instrument. As a general rule, the neutral hedge ratio for a call option increases as the instrument price rises, and decreases as the instrument price declines.

NEUTRAL SPREAD

An option spread created to profit from a narrow movement of the underlying instrument in either direction Neutral spreads are most often calendar spreads.

OFFER or ASKING PRICE

The lowest price any potential seller is willing to accept for a particular option.

OPEN INTEREST

The number of outstanding option contracts in the exchange market or in a particular option class or series.

OPENING PRICE

The price of a instrument (or option) at the first transaction of the day

OPENING PURCHASE

A transaction in which a speculator becomes the holder of an option.

OPENING SALE

A transaction in which a speculator becomes the writer of an option.

OPTION (FUTURES)

A contract that entitles the holder the right to buy or sell, but not the obligation to buy or sell, a futures contract (underlying instrument) at a predetermined price (the "striking price") on or before a fixed expiration date.

OPTION SPREAD

A position that results from the purchase of an option and the simultaneous sale (or "write") of a different option on the same instrument.

OPTION WRITING "NAKED WRITING"

The result of selling options in an opening transaction.

OPTIONS and FUTURES EXCHANGE

Any or all of the following U.S. marketplaces (Exchanges) where option and futures contracts are traded. Chicago Board of Trade (CBT), Chicago Mercantile Exchange (CME), Coffee, Sugar and Cocoa Exchange (CSC), Commodity Exchange Inc. (COMEX), Kansas City Board of Trade (KCBT), Mid-America Commodity Exchange (MID-AM), Minneapolis Grain Exchange (MGE), New York City Cotton Exchange, (NYCE), New York Futures Exchange (NYFE), New York Mercantile Exchange (NYMEX).

ORDER

An instruction to purchase or sell an option, first transmitted to a brokerage office and then submitted to the exchange floor for execution.

OUT-OF-THE-MONEY

An option with no interest value. A call is out-of-the-money when the exercise price is higher than the market price of the underlying instrument. A put is out-of-the-money when the exercise price is lower than the market price of the underlying instrument. The entire premium of an out-of-the-money option is due to its time value.

PREMIUM

The price paid by a buyer to the seller of an option. It is quoted on a per share basis. The premium will usually exceed the intrinsic value of the option because of the time value involved.

PUT

An option contract that entitles the holder to sell a futures contract of an underlying common instrument at a stated price (the "striking price")on or before a fixed expiration date.

PUT RATIO BACKSPREEAD

For detailed information please refer to the
Futures and Options Strategy Guide.

RATIO CALL SPREAD

For detailed information please refer to the
Futures and Options Strategy Guide.

RATIO PUT SPREAD

For detailed information please refer to the
Futures and Options Strategy Guide.

RETURN IF CALLED

The percentage gain that a covered writer would achieve if the underlying futures contract (instrument) is called away. The components of this return are: the original option premium plus any appreciation to the price. This is the maximum return achievable by a covered writer.

RISK/REWARD ANALYSIS

The analysis of risk being reduced and reward (or profits) being increased, thereby maximizing the Risk/Reward Ratio.

ROLLING OUT

Substituting an option of the same class and striking price, but with a later expiration.

ROLLING UP

Substituting an option of the same class and expiration, but with a higher striking price (a lower striking price in the case of puts).

SERIES

Options of the same class having the same exercise price and expiration time.

SHORT-LIFE OPTION

An option contract having from several weeks to a few months until expiration.

SHORT BUTTERFLY

For detailed information please refer to the
Futures and Options Strategy Guide.

SHORT CALL

For detailed information please refer to the
Futures and Options Strategy Guide.

SHORT PUT

For detailed information please refer to the
Futures and Options Strategy Guide.

SHORT STRADDLE

For detailed information please refer to the
Futures and Options Strategy Guide.

SHORT STRANGLE

For detailed information please refer to the
Futures and Options Strategy Guide.

STRADDLE

The purchase or sale of an equivalent number of puts and calls on a given underlying instrument with the same exercise price and expiration date. The straddle purchaser seeks to profit from relatively large movements in the price of the underlying instrument, regardless of direction.

STRANGLE

The purchase or sale of an equivalent number of puts and calls on a given underlying instrument, with the same expiration date but different exercise prices. The strangle purchaser seeks to profit from large movements in price of the underlying instrument, regardless of direction.

STRIKE PRICE or EXERCISE PRICE

The price per share at which the holder of an option can purchase (in the case of call options), or sell (in the case of put options), the underlying instrument upon exercise.

SYNTHETIC LONG FUTURES (SPLIT STRIKE)

For detailed information please refer to the
Futures and Options Strategy Guide.

SYNTHETIC SHORT FUTURES (SPLIT STRIKE)

For detailed information please refer to the
Futures and Options Strategy Guide.

TARGET EXIT POINT

The predetermined price at which option holdings would be sold at an achievable profit. It is a key component of an overall strategy using risk-reward analysis and money management techniques.

TIME PREMIUM or TIME VALUE

The portion of the premium that reflects the remaining life of an option. It can also be measured as the amount over the option's intrinsic value

TIME SPREAD or CALENDAR SPREAD

An option spread consisting of the purchase of an option and the simultaneous sale of a different option on the same instrument with a nearer expiration date. The purpose of a time spread is to profit from the accelerated loss in time value of the option that is written, relative to the option that is purchased. Time spreading is often a neutral strategy, but it can also be bullish or bearish, depending upon the options involved.

TRADING FLOOR

The physical location at the futures and options exchange where contracts actually are bought and sold.

TRUNCATED RISK

The ability of an investment to resist additional loss. Truncated risk is of particular relevance to options. For example, one cannot lose more than the premium paid for on an option. Profits, however, are theoretically unlimited on an option and are equal to the intrinsic value of the option less the premium paid (assuming there is no longer any time value remaining).

UNDERLYING INSTRUMENT

The instrument (underlying futures contract) which would be delivered, if the option was exercised.

VOICE CONTACT

A direct telephone connection between a broker and the trading floor.

VOLUME

For options, the number of contracts that have been traded within a specific time period, usually a day or a week.

WRITING

A form of option writing in which the writer (using calls as our example) owns neither the underlying instrument nor a different option on that same instrument with the same (or later) expiration date and lower striking price.