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American-style Option: An option contract that may be exercised at any time between the date of purchase and the expiration date.

Arbitrage: Taking advantage of unjustified differences in the prices of various financial instruments in order to make a risk-free profit.

Ask: The price that the market participants are willing to receive.

Assign: To make an option seller perform his obligation to assume a short futures position (as a seller of a call option) or a long futures position (as a seller of a put option).

At-the-money: Option whose exercise price is the same as the market price of the underlying asset.

Bear: Someone who thinks market prices will decline.

Bid: The price that the market participants are willing to pay.

Bull: Someone who thinks market prices will rise.

Call: An option contract granting the purchaser the right to buy the underlying instruments at the agreed strike price. A call obliges the seller to sell the underlying instrument at the agreed strike price, if the option is assigned to him.

Cash settlement: Settlement of a contract by payment or receipt of a settlement amount instead of the physical delivery of the underlying asset.

Clear: The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing member.

Clearing house: The body responsible for the registration of transactions and for guaranteeing to its members the full performance of operations and commitments.

Closing: Conducting a transaction, which offsets the original trade and liquidates an existing position.

Contract unit: The number of units of the underlying instrument on which the contract bears, i.e. contract size. This may vary according to the underlying on which the contract bears.

Customer margin: Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations.

Daily trading limit: The maximum price range set by the exchange cash day for a contract.

European-style options: an option that can be exercised by the buyer only on the contract expiration date.

Exercise: a decision, reserved for the option holder, to request execution of the contract.

Expiration cycle: An expiration cycle relates to the dates on which options on a particular underlying security expire.

Expiration date: the date on which the option contract expires.

Expiration time: The time of day by which all exercise notices must be received on the expiration date.

Hedge: A conservative strategy used to limit investment loss by effecting a transaction, which offsets an existing position.

Holder: The party who purchased an option.

In-the-money: a call is said to be "in-the-money" when the value of the underlying instrument is greater than the option strike price. A put is "in-the-money" when its strike price is greater than the value of the underlying instrument.

Intrinsic value: The intrinsic value of an option is the difference between the actual price of the underlying security and the strike price of the option. The intrinsic value of an option reflects the effective financial advantage that would result from the immediate exercise of that option.

Limit order: An order in which the customer sets a limit on the price and/or time of execution.

Limit price: Limitation of the scale of a price fluctuation.

Liquidity: Market situation in which quick purchase or sale of a security is possible without causing substantial changes in prices.

Long position: An investor’s position where the number of contracts bought exceeds the number of contracts sold. He is a net holder.

Lots: Number of contract you want to buy or sell

Maintenance: A set minimum margin that a customer must maintain in his margin account.

Mark-To-Market: Valuation of a financial instrument according to the current trading value (price) on the exchange.

Maximum price fluctuation (futures): The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules.

Open outcry: Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.

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

Option: A contract that conveys the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.

Original margin: The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial margin.

Out-of-the-money: a call is "out-of-the-money" when the value of the underlying instrument is less than the option strike price. A put is "out-of-the-money" when its strike price is less than the value of the underlying instrument.

Pit: The area on the trading floor where futures and options contracts are bought and sold.

Position limit: Limitation of the maximum size of a position in futures or options, which may be held by an individual or a group.

Premium: The price of an option–the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.

Put: an option contract granting the purchaser the right to sell the underlying instruments at the agreed strike price. A put obliges the seller to purchase the underlying instrument at the agreed strike price, if the option is assigned to him.

Short position: An investor’s position where the number of contracts sold exceeds the number of contracts bought. The person is a net seller.

Stop order (Stop): An order to buy or sell at the market when and if a specified price is reached.

Spot: Refers to the underlying market price.

Strike price or exercise price: the price at which the option holder may purchase (in case of call) or sell (in case of put) the underlying instrument.

Tick: Smallest increment of price movement possible in trading a given contract.

Time value: It is determined by the remaining lifespan of the option, the volatility and the cost of refinancing the underlying asset (interest rates).

Time value = option price - intrinsic value

Underlying asset, underlying instrument: The instrument (shares, bonds, stock index…) that can be purchased (in case of call) or sold (in case of a put) by a buyer who exercises his option.

Volatility: It is a measure for the fluctuation range of the underlying price. The greater the volatility, the higher the option price.

• The historic volatility is based on past data. It is often expressed as a percentage and computed as the annualized standard deviation of the percentage change in daily price.

• The implied volatility corresponds with the expectation of the market participants about the future volatility of the underlying which is reflected in the current option price.

Writer: The seller of an option contract.