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basics of forex basics
of options glossary
of forex glossary
of options glossary
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general currency option glossary A B C D E F G H I J K L M N O P Q R S T U V W X Y Z American option - an option
that may be exercised at any time At-the-money spot - an option with an exercise
price equal to the currency spot rate At-the-money forward - an option with an
exercise price equal to the currency forward rate Assignment - notification to the option
writer requiring him to fulfill his contractual obligations
to buy or sell the currency Bear spread - an option
strategy designed to allow the trader to participate, with
limited profit and limited risk, in the decline of a currency
Bull spread - an option strategy designed
to allow the trader to participate, with limited risk and
limited return, in the rise of a currency Break-even point - the foreign exchange
rate or currency futures price at which a strategy neither
makes nor loses money Butterfly spread - a combination of a bull
spread and a bear spread; the strategy normally gives a maximum
return and maximum loss Call option - an option
that gives the holder the right to buy, and the writer the
obligation to sell, a predetermined amount of a currency to
a predetermined date at a predetermined exchange rate Calendar spread - a strategy involving the
buying and selling of options with different expiration dates Combination - a strategy involving the buying
of call and put options with different strikes but with the
same expiration dates Conversion arbitrage - a riskless strategy
involving the buying of a currency and the simultaneous buying
of a put and writing of a call option, both normally European-style
and of the same strikes and expiration Clearinghouse - an organization which matches
and guarantees option trades on an exchange Credit premium - the premium received when
an option is written Covered write - a strategy involving the
buying of a currency and the writing of a call option, or
the selling of a currency and the writing of a put option Debit premium - the premium
paid when an option is purchased Delta - the ratio by which the price of
the option moves relative to the underlying spot or futures
contract Downside protection - for covered calls
the 'cushion' against loss provided by the option premium
received Early exercise - the exercise
of an option before its expiration date European option - an option which may only
be exercised on the expiration day Exercise – the process by which the
holder of an option elects to take delivery of (call) or deliver
(put) a currency according to the contract terms Exercise price - the price at which the
option holder has the right to buy or sell the underlying
currency or currency futures contract Expiration date - the last day on which
a holder of an option can exercise Expiration time - in the over-the-counter
market, the latest time an option may be exercised is usually
3pm London time or 10am New York time, or 3pm Tokyo time,
on that particular day Gamma - the change in the
delta for a unit change in the spot price Hedge ratio - the ratio
of options to buy or sell against a spot position in order
to create a riskless hedge Implied volatility - the
expected standard deviation of percentage price changes Intrinsic value - the value of an option,
were it to be exercised immediately In-the-money - an option that has intrinsic
value. For a call, the strike is below the spot rate. For
a put, the strike is above the spot rate Leg - one component of a
multiple option strategy Mark to market - daily adjustment
of an account to reflect accrued profits and losses Naked position - a short
option position which is not covered by the underlying currency
or with another option Out-of-the-money - an option
with no intrinsic value. For a call, the strike is above the
spot rate and for a put the strike is below the spot rate
Over-the-counter market - customized option
market usually traded directly between banks and their customers
or with other banks Premium - the amount of
money paid by a buyer and received by a seller for an option
Put option - an option giving the holder
the right to sell and the writer the obligation to buy, a
predetermined amount of currency to a predetermined date at
a predetermined exchange rate Settlement date - two business
days following exercise. It is the day on which the currencies
involved in the option transaction are exchanged Spread - strategy involving the simultaneous
buying and selling of options on the same currency Straddle - strategy involving the buying
of call and put options with the same strikes and maturity Strangle - strategy involving the buying
of call and put options with different strikes but with the
same expiration dates Strike - the price at which the option holder
has the right to buy or sell the underlying currency or currency
futures contract Theta - the change in the
premium for a unit change in time Time value - the amount by which an option
premium exceeds its intrinsic or in-the-money value Volatility - the standard
deviation of percentage price changes Vega - the change in the premium for a unit
change in implied volatility Writer - one who sells an
option
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