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- Calendar effect
- The tendency of stocks to perform differently at different times,
including such anomalies as the January effect, month-of-the-year effect,
day-of-the- week effect, and holiday effect.
- Call
- An option that gives the right to buy the underlying futures contract.
call date A date before maturity, specified at issuance, when the issuer of
a bond may retire part of the bond for a specified call price.
- Call money rate
- Also called the broker loan rate, the interest rate that banks charge
brokers to finance margin loans to investors. The broker charges the
investor the call money rate plus a service charge.
- Buying on margin
- Call option
- Also called a call, an option that grants the buyer the right to purchase
the underlying from the writer.
- Call price
- The price, specified at issuance, at which the issuer of a bond may retire
part of the bond at a specified call date.
- Call protection
- A feature of some callable bonds that establishes an initial period when
the bonds may not be called.
- Call provision
- An embedded option granting a bond issuer the right to buy back all or
part of the issue prior to maturity.
- Call risk
- The combination of cash flow uncertainty and reinvestment risk introduced
by a call pro-vision.
- Call swaption
- A swaption in which the buyer has the right to enter into a swap as a
fixed-rate payer. The writer therefore becomes the fixed-rate
receiver/floating rate payer.
- Capital asset pricing model (CAPM)
- An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky securities.
The CAPM asserts that the only risk that is priced by rational investors is
systematic risk, because that risk cannot be eliminated by diversification.
The CAPM says that the expected return of a security or a portfolio is equal
to the rate on a risk free security plus a risk premium.
- Capital market
- The market for trading long-term debt instruments (those that mature in
more than one year).
- Capital market line (CML)
- The line defined by every combination of the risk-free asset and the
market portfolio.
- Capitalization method
- A method of constructing a replicating portfolio in which the manager
purchases a number of the largest-capitalized names in the index stock in
proportion to their capitalization.
- Capitalization ratios
- Also called financial leverage ratios, ratios that compare debt to total
capitalization and thus reflect the extent to which a corporation is trading
on its equity. These ratios can be interpreted only in the context of the
stability of industry and company earnings and cash flow.
- Capitalized
- Recorded in asset accounts and then depreciated or amortized, as is
appropriate for expenditures for items with useful lives greater than one
year.
- Car
- A loose quantity term sometimes used to describe a contract, e.g., "a
car of bellies". Derived from the fact that quantities of the product
specified in a contract used to correspond closely to the capacity of a
railroad car.
- Carry
- Related: Net financing cost
- Cash commodity
- The actual physical commodity as distinguished from a futures contract.
- Cash-equivalent items
- Temporary investments of currently excess cash in short- term,
high-quality investment media such as Treasury bills and bankers
acceptances.
- Cash flow matching
- Also called dedicating a portfolio, an alternative to multiperiod
immunization in which the manager matches the maturity of each element in
the liability stream, working backward from the last liability to assure all
required cash flows.
- Cash markets
- Also called spot markets, markets that involve the immediate delivery of a
security or instrument. Related: Derivative markets.
- Cash settlement contracts
- Futures contracts, such as stock index futures, which settle for cash, not
involving the delivery of the underlying.
- Cash-surrender value
- An amount the insurance company will pay if the policyholder ends a whole
life insurance policy.
- Certificate of deposit (CD)
- Also called a time deposit, a certificate issued by a bank or thrift that
indicates a specified sum of money has been deposited at the issuing
depository institution. A CD bears a maturity date and a specified interest
rate, and can be issued in any denomination.
- CFTC
- The Commodity Futures Trading Commission, the federal agency created by
Congress to regulate futures trading. The Commodity Exchange Act of 1974
became effective April 21, 1975. Previously, futures trading had been
regulated by the Commodity Exchange Authority of the USDA. characteristic
line The market model applied to a single security. The slope of the line is
a security's beta.
- Chartists
- Related: Technical analysts
- Cheapest to deliver issue
- The acceptable Treasury security with the highest implied repo rate, the
rate that a seller of a futures contract can earn by buying an issue and
then delivering it at the settlement date
- Chicago Mercantile Exchange (CME)
- A not-for-profit corporation owned by its members. Its primary functions
are to provide a location for trading futures and options, collect and
disseminate market information, maintain a clearing mechanism and to enforce
trading rules.
- Clean opinion
- An auditor's opinion reflecting an unqualified acceptance of a company's
financial statements.
- Clearinghouse
- An adjunct to a futures exchange through which transactions executed on
the floor of the exchange are settled using a process of matching purchases
and sales. A clearing organization is also charged with the proper conduct
of delivery procedures and the adequate financing of the entire operation.
- Clearing member
- A member firm of the Clearing House. Each Clearing Member must also be a
member of the exchange. Not all members of the Exchange, however, are
members of the clearing organization. All trades of a non-clearing member
must be registered with and eventually settled through a Clearing Member.
- Close, the
- The period at the end of the trading session. Sometimes used to refer to
closing price.
- Opening, the
- Closed-end fund
- An investment company that sells shares like any other corporation and
usually does not redeem its shares. A publicly traded fund sold on stock
exchanges or over the counter that may trade above or below its net asset
value.
- Open-end fund
- Closing range
- Also known as the range. The high and low prices, or bids and offers,
recorded during the period designated as the official close. Related: Settlement
price.
- Cluster analysis
- A statistical technique that identifies clusters of stocks whose returns
are highly correlated within each cluster and relatively uncorrelated
between clusters. Cluster analysis has identified groupings such as growth,
cyclical, stable, and energy stocks.
- Coefficient of determination
- A measure of the goodness of fit of the relationship between a dependent
and independent variable in a regression analysis-for instance, the
percentage of the variation in the return of an asset explained by the
market portfolio return.
- Collateral trust bonds
- A bond in which the issuer (often a holding company) grants investors a
lien on stocks, notes, bonds, or other financial asset as security. Compare
mortgage bond.
- Collateralized mortgage obligation (CMO)
- A security backed by a pool of pass- throughs, structured so that there
are several classes of bondholders with varying maturities, called tranches.
The principal payments from the underlying pool of pass- through securities
are used to retire the bonds on a priority basis as specified in the
prospectus. Related: Mortgage pass-through security
- Combination matching
- Also called horizon matching, a variation of multiperiod immunization and
cash flow matching in which a portfolio is created that is always duration
matched and also cash-matched in the first few years.
- Combination strategy
- A strategy in which a put and a call on the same underlying stock with the
same strike price and expiration are either both bought or both sold. Related:
Straddle
- Commercial paper
- Short-term unsecured promissory notes issued by a corporation. The
maturity of commercial paper is typically less than 270 days; the most
common maturity range is 30 to 50 days or less.
- Commission
- Also known as round-turn. The one-time fee normally charged by a broker to
a customer when a futures or options position is liquidated either by offset
or delivery. Related: Offset, Delivery
- Commission house
- A firm which buys and sells futures contracts for customer accounts. Related:
Futures commission merchant, Omnibus account
- Committee for Performance Presentation Standards (CPPS)
- A committee of the Association for Investment Management and Research (AIMR)
which sets professional standards for portfolio performance presentations.
- Commitment
- A trader is said to have a commitment when he assumes the obligation to
accept or make delivery on a futures contract. Related: Open interest
- Commodities Exchange Center (CEC)
- The location of five New York futures exchanges: Commodity Exchange, Inc.
(COMEX), the New York Mercantile Exchange (NYMEX), the New York Cotton
Exchange, the Coffee, Sugar and Cocoa Exchange (CSC), and the New York
Futures Exchange (NYFE). common size statement A statement in which all
items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement
items. For example, all items in each year's income statement could be
presented as a percentage of net sales.
- Common stock equivalent
- A convertible security that is traded like an equity issue because the
optioned common stock is trading high.
- Common stock market
- The market for trading equities, not including preferred stock.
- Company-specific risk
- Related: Unsystematic risk
- Consensus forecast
- The mean of all financial analysts' forecasts for a company.
- Constant-growth model
- Also called the Gordon-Shapiro model, an application of the dividend
discount model which assumes ( 1) a fixed growth rate for future dividends
and (2) a single discount rate.
- Contango
- A market condition in which futures prices are higher in the distant
delivery months.
- Contingent deferred sales charge (CDSC)
- The formal name for the load of a back- end load fund.
- Contingent immunization
- An arrangement in which the money manager pursues an active bond portfolio
strategy until an adverse investment experience drives the then- available
potential return down to the safety-net level. When that point is reached,
the money manager is obligated to pursue an immunization strategy to lock in
the safety- net level return.
- Contract
- A term of reference describing a unit of trading for a financial or
commodity future. Also, the actual bilateral agreement between the buyer and
seller of a transaction as defined by an exchange.
- Contract month
- The month in which futures contracts may be satisfied by making or
accepting a delivery. Related: Delivery month contrarians Also called
value managers, those who assemble portfolios with relatively lower betas,
lower price-book and P/E ratios and higher dividend yields, seeing value
where others do not.
- Convention statement
- An annual statement filed by a life insurance company in each state where
it does business in compliance with that state's regulations. The statement
and supporting documents show, among other things, the assets, liabilities,
and surplus of the reporting company.
- Conventional mortgage
- A loan based on the credit of the borrower and on the collateral for the
mortgage.
- Conventional pass-throughs
- Also called private-label pass-throughs, any mortgage pass-through
security not guaranteed by government agencies. Compare agency pass-throughs.
- Conversion factors
- Rules set by the Chicago Board of Trade for determining the invoice price
of each acceptable deliverable Treasury issue against the Treasury bond
futures contract.
- Conversion parity price.
- Related: Market conversion price
- Conversion ratio
- The number of shares of common stock that the security holder will receive
from exercising the call option of a convertible security.
- Conversion value
- Also called parity value, the value of a convertible security if it is
converted immediately.
- Convertible bonds
- Bonds that can be converted into common stock at the option of the holder.
- Convertible Eurobond
- A Eurobond that can be converted into another asset, often through
exercise of attached warrants.
- Convertible preferred stock
- Preferred stock that can be converted into common stock at the option of
the holder.
- Convertible security
- A security that can be converted into common stock at the option of the
security holder, including convertible bonds and convertible preferred
stock.
- Convex
- Bowed, as in the shape of a curve. Usually referring to the price/required
yield relationship for option-free bonds.
- Corporate bonds
- Debt obligations issued by corporations.
- Cost of carry
- Related: Net financing cost
- Counterparties
- The parties to an interest rate swap.
- Counterparty risk
- The risk that the other party to an agreement will default. In an options
contract, the risk to the option buyer that the option writer will not buy
or sell the underlying as agreed.
- Coupon
- The periodic interest payment made to the bondholders during the life of
the bond.
- Coupon rate
- The rate of interest that, when multiplied by the par value, indicates the
dollar value of the coupon payment.
- Cover
- The purchase of a contract to offset a previously established short
position.
- Coverage ratios
- Ratios used to test the adequacy of cash flows generated through earnings
for purposes of meeting debt and lease obligations, including the interest
coverage ratio and the fixed charge coverage ratio.
- Covered call writing strategy
- A strategy that involves writing a call option on securities that the
investor owns in his or her portfolio. See covered or hedge option
strategies.
- Covered or hedge option strategies
- Strategies that involve a position in an option as well as a position in
the underlying stock, designed so that one position will help offset any
unfavorable price movement in the other, including covered call writing and
protective put buying. Related: Naked strategies
- Credit analysis
- The process of analyzing information on companies and bond issues in order
to estimate the ability of the issuer to live up to its future contractual
obligations. Related: Default risk
- Credit risk
- Related: Default risk
- Credit spread
- Related: Quality spread
- Crediting rate
- The interest rate offered on an investment type insurance policy.
- Cross hedging
- The practice of hedging with a futures contract that is different from the
underlying being hedged.
- Cumulative preferred stock
- Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: Non-cumulative preferred stock
- Cumulative probability distribution
- A function that shows the probability that the random variable will attain
a value less than or equal to each value that the random variable can take
on.
- Currency risk.
- Related: Exchange rate risk
- Current assets
- Also called circulating assets, working assets, or working capital, assets
expected to be realized in cash or sold or consumed during the normal
operating cycle of the business.
- Current-coupon issues.
- Related: Benchmark issues
- Current ratio
- The ratio of current assets to current liabilities.
- Custodial fees
- Fees charged by an institution that holds securities in safekeeping for an
investor.
- Customized benchmarks
- A benchmark that is designed to meet a client's requirements and long term
objectives.
Options Glossary
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