AMINISTRACIN DE REISGOS Y PRIDUCTOS DERIVADOSCRUZ HERNANDEZ ALFONSO IVAN 5CM1

GLOSARY
The closest month to expiration for a futures or option contract. 1 Front Month

Derivates

Market value

Options and other instrument whose value depends on an underlying security. For instance, the value of a call option on Cisco Systems (derivative) fluctuates with the price of Cisco Systems stock The price at which a security is trading and could presumably be purchased or sold. What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares. A securities firm or a registered investment advisor affiliated with a firm. Brokers are the link between investors and the stock market. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities but acts as an agent for the buyer and seller and charges a commission for these services. A market in which stock prices are rising A trust that usually generates cash flows from one business or operating company, unlike an investment fund, which generates income from a diversified pool or portfolio. The trust holds debt and equity interests of an operating business. Businesses that exhibit these characteristics may opt for a trust structure over a corporate structure to take advantage of tax efficiency. If a broker fails to deliver securities sold to another broker on the settlement date, the receiving broker may buy the securities at the current market price of the stock and charge the delivering broker the cost difference of such a purchase. An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase. To an economist, capital means machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets. All shares representing ownership of a company, including preferred and common shares. Settlement of an option contract not by delivery of the underlying shares, but by a cash payment of the difference between the strike or exercise price and the underlying settlement Price. An order to close out an existing open futures or options contract. The fee charged by an investment advisor or broker for buying or selling securities as an agent on behalf of a client. Products used for commerce that are traded on a separate, authorized commodities exchange. Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges. The maximum price advance or decline permitted for a futures contract in one trading session compared to the previous day's settlement price. An order that is valid only for the day it is entered. If the order is still outstanding when the market closes, it will be purged overnight. Profits derived as a proportion of and directly attributable to cost or 'book value' of an asset, liability or activity, net of depreciation. In simple terms this the profit made from an investment. The 'investment' could be the value of a whole business (in which case the value is generally regarded as the company's total assets minus intangible assets, such as goodwill, trademarks, etc and liabilities, such as debt. N.B. A company's book value might be higher or lower than its market value); or the investment could relate to a part of a business, a new product, a new factory, a new piece of plant, or any activity or asset with a cost attached to it.

Broker or Brokerage Firm

5 6

Bull Market Business Trust

Buy-In

Call Option

Capital

10 11

Capital Stock Cash Settlement

12 13

Closing Transaction Commission

14

Commodities

15

Daily Price Limit

16

Day Order

17

Return on investment (ROI)

18

Futures Contracts to buy or sell securities at a future date.

19

Guaranteed Investment Certificate (GIC)

A deposit instrument most commonly available from trust companies or banks requiring a minimum investment at a predetermined rate of interest for a stated term, such as one or five years. GICs are generally non-redeemable and non-transferable before maturity.

20

Initial Public Offering (IPO)

A company's first issue of shares to the general public.

21 22

Time Value Investment Counsellor Investment Dealer

The difference between an option's premium and its intrinsic value A specialist in the investment industry paid by fee to provide advice and research to investors with large accounts. Securities firms that employ investment advisors to work with retail and institutional clients. Investment dealers have underwriting, trading and research departments.

23

24

Option

The right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, and a call option gives the holder the right to buy the security. All options of the same type, either calls or puts, that have the same underlying security, A set pattern of months when a class of options expires. The buyer of an option contract who has the right to exercise the option during its lifetime. An individual option contract for a given security. A call or put contract. The seller of an option contract who may be required to deliver (call option) or to purchase (put option) the underlying interest covered by the option, before the contract expires. Holdings of securities by an individual or institution. A portfolio may include various types of securities representing different companies and industry sectors. The maximum number of futures or options contracts any individual or group of people acting together may hold at one time. An option contract's Price. Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options. Futures contracts which have a stock index as the underlying interest.

25 26 27 28 29 30

Option Class Option Cycle Option Holder Option Series Option Type Option Writer

31

Portfolio

32

Position Limit

33 34

Premium Securities

35

Stock Index Futures

36

Investment Advisor Underlying Interest

A person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. The specific security, commodity, index or financial instrument that an option or futures contract is traded.

37

38

Volatility

A statistical measure of changes in price over a period of time

39

Warrant

A security giving the holder the right to purchase securities at a stipulated price within a specified time limit. Exercise of the warrant is solely at the discretion of the holder. Warrants are not exercisable after the expiry date. A warrant is often issued in conjunction with another security as part of a financing. A warrant may be traded as a listed security or it may be held privately.

40

Writer

The seller of an option. The writer has an obligation associated with the contract to either purchase or sell a specified number of shares at the strike price on or before expiry. Options that can be exercised any time during their lifetime. These are also known as open options

41

American-Style Options

42

Assignment

The notification to the seller of an option by the clearing corporation that the buyer of the option is enforcing the terms of the option's contract.

43

Bear Market

A market in which stock prices are falling.

44

Bull Market

A period when most stocks are increasing in value.

45

Cash Flow

After tax income minus preferred dividends and general partner distributions plus depreciation, depletion, and amortization.

46 Return on capital employed (ROCE)

. A fundamental financial performance measure. A percentage figure representing profit before interest against the money that is invested in the business. (profit before interest and tax, divided by capital employed, x 100 to produce percentage figure.) An IPO trading below its issue price in the aftermarket. Trade price of the days first transaction. A long-term put or call option (as long as three years. .A measure of a mutual fund or stocks historical volatility

47 48 49 50

Fallen Angel Open LEAP Standard Deviation

GLOSARY
1 Return on investment (ROI) Profits derived as a proportion of and directly attributable to cost or 'book value' of an asset, liability or activity, net of depreciation. In simple terms this the profit made from an investment. The 'investment' could be the value of a whole business (in which case the value is generally regarded as the company's total assets minus intangible assets, such as goodwill, trademarks, etc and liabilities, such as debt. N.B. A company's book value might be higher or lower than its market value); or the investment could relate to a part of a business, a new product, a new factory, a new piece of plant, or any activity or asset with a cost attached to it. The main point is that the term seeks to define the profit made from a business investment or business decision. Bear in mind that costs and profits can be ongoing and accumulating for several years, which needs to be taken into account when arriving at the correct figures.

Return on capital employed (ROCE)

A fundamental financial performance measure. A percentage figure representing profit before interest against the money that is invested in the business. (profit before interest and tax, divided by capital employed, x 100 to produce percentage figure.) The price at which a security is trading and could presumably be purchased or sold. What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares. A securities firm or a registered investment advisor affiliated with a firm. Brokers are the link between investors and the stock market. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities but acts as an agent for the buyer and seller and charges a commission for these services. A market in which stock prices are rising A trust that usually generates cash flows from one business or operating company, unlike an investment fund, which generates income from a diversified pool or portfolio. The trust holds debt and equity interests of an operating business. Businesses that exhibit these characteristics may opt for a trust structure over a corporate structure to take advantage of tax efficiency. If a broker fails to deliver securities sold to another broker on the settlement date, the receiving broker may buy the securities at the current market price of the stock and charge the delivering broker the cost difference of such a purchase. An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase. To an economist, capital means machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets.

Market value

Broker or Brokerage Firm

5 6

Bull Market Business Trust

Buy-In

Call Option

Capital

10

Capital Stock

All shares representing ownership of a company, including preferred and common shares. Settlement of an option contract not by delivery of the underlying shares, but by a cash payment of the difference between the strike or exercise price and the underlying settlement Price. An order to close out an existing open futures or options contract. The fee charged by an investment advisor or broker for buying or selling securities as an agent on behalf of a client. Products used for commerce that are traded on a separate, authorized commodities exchange. Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges. The maximum price advance or decline permitted for a futures contract in one trading session compared to the previous day's settlement price. An order that is valid only for the day it is entered. If the order is still outstanding when the market closes, it will be purged overnight. The closest month to expiration for a futures or option contract. Contracts to buy or sell securities at a future date.

11

Cash Settlement

12 13

Closing Transaction Commission

14

Commodities

15

Daily Price Limit

16

Day Order

17 18

Front Month Futures

19

Guaranteed Investment Certificate (GIC)

A deposit instrument most commonly available from trust companies or banks requiring a minimum investment at a predetermined rate of interest for a stated term, such as one or five years. GICs are generally non-redeemable and nontransferable before maturity.

20

Initial Public Offering (IPO)

A company's first issue of shares to the general public.

21

Investment Advisor

A person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. A specialist in the investment industry paid by fee to provide advice and research to investors with large accounts. Securities firms that employ investment advisors to work with retail and institutional clients. Investment dealers have underwriting, trading and research departments.

22

Investment Counsellor Investment Dealer

23

24

Option

The right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, and a call option gives the holder the right to buy the security. All options of the same type, either calls or puts, that have the same underlying security, A set pattern of months when a class of options expires. The buyer of an option contract who has the right to exercise the option during its lifetime. An individual option contract for a given security. A call or put contract. The seller of an option contract who may be required to deliver (call option) or to purchase (put option) the underlying interest covered by the option, before the contract expires. Holdings of securities by an individual or institution. A portfolio may include various types of securities representing different companies and industry sectors. The maximum number of futures or options contracts any individual or group of people acting together may hold at one time. An option contract's Price. Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options. Futures contracts which have a stock index as the underlying interest.

25

Option Class

26 27

Option Cycle Option Holder

28 29 30

Option Series Option Type Option Writer

31

Portfolio

32

Position Limit

33 34

Premium Securities

35

Stock Index Futures

36 37

Time Value Underlying Interest

The difference between an option's premium and its intrinsic value The specific security, commodity, index or financial instrument that an option or futures contract is traded.

38

Volatility

A statistical measure of changes in price over a period of time

39

Warrant

A security giving the holder the right to purchase securities at a stipulated price within a specified time limit. Exercise of the warrant is solely at the discretion of the holder. Warrants are not exercisable after the expiry date. A warrant is often issued in conjunction with another security as part of a financing. A warrant may

be traded as a listed security or it may be held privately.

40

Writer

The seller of an option. The writer has an obligation associated with the contract to either purchase or sell a specified number of shares at the strike price on or before expiry. Options that can be exercised any time during their lifetime. These are also known as open options

41

American-Style Options

42

Assignment

The notification to the seller of an option by the clearing corporation that the buyer of the option is enforcing the terms of the option's contract.

43

Bear Market

A market in which stock prices are falling.

44

Bull Market

A period when most stocks are increasing in value.

45

Cash Flow

After tax income minus preferred dividends and general partner distributions plus depreciation, depletion, and amortization.

46

Derivatives

Options and other instrument whose value depends on an underlying security. For instance, the value of a call option on Cisco Systems (derivative) fluctuates with the price of Cisco Systems stock.

47 48 49 50

Fallen Angel Open LEAP Standard Deviation

An IPO trading below its issue price in the aftermarket. Trade price of the days first transaction. A long-term put or call option (as long as three years. .A measure of a mutual fund or stocks historical volatility