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Futures and Options Glossary

 August 09, 2007 12:21 AM


Actual - The physical commodity.

Afloat - Physical commodities onvessels.

Arbitrage - The simultaneouspurchase of one commodity, future or option, against the sale ofanother in order to profit from distortions from usual pricerelationships. Variations include simultaneous purchase and saleof different delivery months of same commodity, future or option;of the same commodity, future or option and delivery month on twodifferent exchanges; and the purchase of one commodity, future oroption against the sale of another commodity, future or option.See also "Spread."

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Basis - The difference between acash price at a specific location and the price of a particularfutures contract.

Bid - An offer to buy a specificquantity of a commodity, future or option at a stated price.

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Buy Hedge - (Long Hedge) - Buyingfutures contracts/call options or selling put options to protectagainst possible increased cost of physical commodities that willbe bought in the future. See also "Hedge."

Call Option - An option that givesthe buyer the right to be long the underlying futures contract ata specific price (strike price) on or before the expirationdate. Call option buyers are not obligated to be long; they havethe right to be long. See also "Put Option" and"Strike Price."

Carry - Cost of warehousing thephysical commodity, generally including interest, insurance, andstorage. See also "Full Carry."

Carryover - Grain and oilseedcommodities not consumed during the marketing year and remain instorage (called ending stocks). Ending stocks are then added orcarried over to the next marketing year.

Cash Commodity - The physicalcommodity, also known as actual.

Certified Stock - Stocks of aphysical commodity that have been inspected and found to be of aquality that is deliverable against futures contracts, stored atthe delivery points which are designated as regular or acceptablepoints for delivery by the commodity exchange.

Charting - See "TechnicalAnalysis."

C. I. F. - Cost of insurance &freight paid to port of destination.

Clearinghouse - An agency connectedwith a commodity exchange or a separate corporation with theresponsibility of reconciling all trading accounts and clearingtrades, managing the delivery process and keeping accuraterecords of customers accounts. They are also responsible forcollecting and maintaining margin monies. See also "FuturesCommission Merchant."

Closing Range - The range of pricesat which transactions took place at the closing of the market.

Commercials - Cash grain firms,exporters, or processors.

Commodity Credit Corporation (CCC) -A wholly government-owned corporation established in 1933 toassist U.S. agriculture. The major operations of the CCC areprice-support programs in which it purchases excess supplies ofcommodities, and provides assistance in foreign exports ofagricultural commodities.

Commodity Futures Trading Commission(CFTC) - A federal regulatory agency charged and empoweredunder the Commodity Futures Trading Commission Act of 1974 withregulation of futures trading in all commodities. The commissionis comprised of five commissioners, one of whom is designated aschairman, all appointed by the president subject to senateconfirmation, and is independent of all cabinet departments.

Contract Grades - Standards orgrades of commodities listed in the rules of the exchanges thatmust be met when delivering cash commodities against futurescontracts. Grades are often accompanied by a schedule ofdiscounts and premiums allowable for delivery of commodities oflesser or greater quality than the contract grade.

Cross Hedge - Hedging a physicalcommodity using related futures or options contracts to managerisk. An example would be to use corn futures to hedge grainsorghum (milo).

Crush - A process that can convertone physical commodity into by-products that are also representedby futures contracts such soybeans to soybean meal and soybeanoil. Can also mean the purchase soybean futures and the sale ofsoybean meal and soybean oil futures. Similar to the"Crack" which is involves crude oil, gasoline, andheating oil.

Day Order - A buy or sell order thatis valid for a particular trading session or typically duringtrading for one day. Automatically expires on the day it wasplaced, at the end of trading, if not filled.

Day Trades - futures and optionstrades that are established and then liquidated by the close oftrading, on the same day.

Deferred Futures - The particularfutures contracts currently trading that expire during the mostdistant months as contrasted to the spot or delivery month.

Delivery - The transfer of thephysical commodity from the seller of the futures contract to thebuyer of the futures contract as specified in the futurescontract. Hence each contract or exchange has its own rules fordelivery process. Can also mean the cash settlement of thosecontracts, which are not actually delivered upon. See also"Tender."

Delivery Grade - See "ContractGrade."

Delivery Month - A particular monthin which the futures contract specifies delivery may occur.Sometimes called the contract month or spot month.

Delivery Notice - Notice from theclearing house of a seller's intention to deliver the physicalcommodity against his short futures positions; precedes and isdistinct from the warehouse receipt or shipping certificate,which is the instrument of transfer of ownership. Also see"Notice of Intention to Deliver" &"Tender."

Delivery Points - Those locationsand facilities designated by a commodity exchange at which stocksof a commodity may be delivered in fulfillment of a contract,under procedures established by the exchange.

EFP - Exchange for Physicals - Thisis an exchange of the physical commodity for a monetarysettlement.

Expiration Date - The day or datethat a futures' option expires. Specifically it is the last daythat the particular option can be exercised. See also "LastTrading Day."

Fast Market - A characteristic of amarket in which open outcry trades executed surpass the pitrecorders' ability to record all trades for a given deliverymonth or months. Generally occurs when volume is very large for aparticular month(s).

Fill or Kill Order - A limit orderfor futures or options that is to be filled immediately enteringthe pit and canceled if the broker is unable to fill it at once.

First Notice Day - The first day onwhich "Notices of Intent to Deliver" the physicalcommodity can be made by the seller to the clearinghouse and bythe clearinghouse to a buyer.

F.O.B. - Free on board; withoutcharge to the buyer for goods placed on board a carrier at thepoint of shipment.

Forward Contract - A cashtransaction where the seller agrees to deliver a specificquantity and quality of goods to a specific place sometime in thefuture with prices established according to the contract. Thiscould be the day of the contract or even the day of delivery.Since these contracts are not standardized, specifications arespecific to each particular contract.

Forward Price - Refers to sales intothe future of a physical commodity by the use of forwardcontracting or futures and options hedging. It is a marketingtool for grain buyers and sellers.

Free Supply (or Free Stocks) -Stocks of a physical commodity which are available for commercialsale, as distinguished from government-owned or-controlledstocks.

Full Carry - A situation in thefutures market when the price difference between delivery monthsreflects the cost of interest, insurance and storage.

Fundamentals - Conditions that couldaffect the price movement of futures and options.


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