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Glossary

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At-The-Money
When the strike price of an option equals the current futures price
Basis
The local cash market price minus the price of the nearby futures contract. When the basis becomes more positive a negative basis increases towards 0 or becomes more positive, or a positive basis becomes more positive. When cash price increases relative to futures price. When the basis becomes less positive a positive basis decreases toward 0 or becomes negative, or a negative basis becomes more negative. When cash price decreases relative to futures price
Basis Contract
A forward contract in which the cash price is based on the basis relating to a specified futures contract
Bear
A person who expects prices to fall. A falling market.
Bull
A person who expects prices to rise. A rising market.
Call Option
An option granting the right to buy a futures contract at the stated strike price prior to the expiration of the option.
Carryover
Last year's ending stocks of a storable commodity.
Clearing House
An adjunct to a futures exchange responsible for clearing trades and for the day-to-day settlement.
Commission
A fee charged by your broker for making trades for you.
Commodities Futures Trading Commission (CFTC)
An independent federal body that oversees all futures trading in the United States.
Deferred Pricing Agreement
A cash sale in which you deliver the commodity and agree with the buyer to price it at a later time.
Exchange
A not-for-profit organization that formulates rules for trading of commodity futures contracts, provides a place to trade, and supervises trading practices.
Ending Stocks
The amount of a storable commodity remaining at the end of a year.
Exercise an Option
Exchange the option for the underlying futures contract.
Floor Broker
A member who executes orders on the floor of the exchange for the account of one or more clearing members.
Forward Contract
A private agreement between buyer and seller for the future delivery of a specified quantity and quality of a commodity at an agreed price.
Full Service Broker
A broker who places trades for customers and offers advice and information.
Fundamental Analysis
The study of supply and demand information (including government policy) to help project futures prices.
Futures Contract
A standardized agreement, traded on a commodity exchange, to buy or sell a commodity at a date in the future. Specifies the commodity, quantity, quality, and delivery point, and delivery date, or cash settlement.
Hedger
A person who uses futures to offset price risk when he intends to sell or buy the actual commodity.
Hedging
Selling or buying futures as a temporary substitute for selling or buying the actual commodity.
Initial Margin
An initial deposit of funds with your broker which acts as a guarantee of the fulfillment of the contract.
In-The-Money
When an option has intrinsic value.
Put: Strike price > futures price
Call: Strike price futures price
Intrinsic Value
The relationship of an option's strike price to the current futures price.
Put: Strike price - futures price
Call: Futures price - strike price
Limit Order
An order to sell or buy at a certain price or better.
Long Cash
You own and plan to sell a commodity
Long Futures
A purchased futures contract
Long Hedge
Buying futures as a substitute for buying a commodity, and later selling back futures and buying the commodity in the cash market. It locks in a buying price and protects against price increase.
Maintenance Margin
A sum of money, usually smaller than the initial margin, which must be on deposit with your broker at all times while you hold a position in the market.
Margin Call
An additional sum of money to be deposited in your account when the balance falls below the maintenance margin level, to bring it up to the initial margin level.
Market Order
An order to buy or sell as soon as possible at the best possible price.
National Futures Association (NFA)
A self-regulatory organization for the commodity futures industry comprised of firms and individuals that conduct futures business with the public. Overseen by the CFTC
Open Interest
The number of outstanding contracts at the end of the day's trading - that is the number that have not been offset.
Option
The right, but not the obligation, to sell or to buy a futures contract at a specified price within a specific time.
Option Buyer
A person who buys an option and pays the premium
Option Seller
A person who sells an option and receives the premium
Out-Of-The-Money
When an option has no intrinsic value and the strike price and futures price are not equal.
Put: Strike price < futures price.
Call: Strike price> futures price
Premium
The market-determined price paid for an option by the buyer: the seller receives the premium.
Pure Hedger
A person who places a hedge to lock in a price for his commodity. He offsets the hedge and transacts in the cash market simultaneously.
Put Option
An option granting the right to sell a futures contract at the stated strike price prior to the expiration of the option.
Short Hedge
Selling futures as a substitute for selling a commodity, and later buying back futures and selling the commodity in the cash market. It locks in a selling price and protects against price decline.
Short Futures
A sold futures contract.
Speculator
A person who tries to make money buying and selling futures and options without intending to buy or sell the actual commodities.
Stop Order
An order that becomes a market order when the market reaches a stated price. A sell stop must be below the market; a buy stop must be above the market.
Stop Close Only Order
A stop order that is executed only during the close of trading.
Storage Gain
The selling price received after storage minus the previous harvest market price.
Strike Price
The price at which the futures contract underlying an option is to be bought or sold upon exercise.
Target Price
An expected selling or buying price. For long and short hedges with futures the target price is futures price plus expected basis.
For options:
Put: Futures - premium + expected basis
Call: Futures + premium + expected basis
Technical Analysis
The study of price patterns to help project futures prices.
Time Value
The amount buyers are willing to pay for the option in anticipation that, over time, change in the futures price will cause the option to increase in value.
Volume
The number of contracts traded during a given day.