Underlying Security

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Underlying security

Underlying security

Underlying Security

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Underlying Security

Definition of Underlying Security

The underlying security, or underlier, is a specific security, commodity, or other financial instrument that is represented by an options or derivative contract. The owner of the derivative has the right to buy or sell the underlying security at a predetermined strike price before options expiration.

Index options, index futures contracts, and even exchanged traded funds (ETFs) are exempt from this definition since the underlying security cannot be delivered; therefore, they are automatically settled in cash at expiration.

The price of the underlying is the most significant factor in determining the price of an option contract.

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide.

Underlying Security

Underlying Security
The security for which an option is written on and to be delivered in the event an option is exercised. For stock options, it is the shares of a specific company. []

Writing an option when the writer also own the Underlying security On a one to one ratio. A short Call is Covered if the underlying security is owned. A Short put is covered if the underlying security is also short in the account. []

Underlying Security
The security subject to being purchased or sold upon exercise of the option contract.
Undervalued
Describing a security that is trading at a lower price than it logically should. Usually determined by the use of a mathematical model. []

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to IBM options. Depositary receipts: The class, series and number of the foreign shares represented by the depositary receipt.

that is subject to being bought or sold upon exercise of the option.

: The security upon which a derivative (option, index, futures contract) or other security is based. Eg, an ASA option is based upon the price of ASA stock. The S&P 500 futures index is based upon the S&P 500 stock index.

– The equity (either stock, index or ETF) whose shares are represented by the option contract that has been sold or purchased.
Upside – The potential for prices to move up. Also the potential risk taken on a directional trade.

Any share approved by ASX under guidelines for listing equity options
Security code .

In options, a stock subject to purchase upon exercise of the option.
Uniform Gifts to Minors Acts .

price is propagated forward by repeating the up (u) and down (d) factors to the price. These factors are used to match the volatility of the security.
The 0 Max formula is applied at each S values at the final maturity date.

options can be:
Options on shares;
Options on bonds;
Options on interest rates;
Options on currencies .

The security on which options are being bought or sold. Underwriter (Investment Banker) In a municipal underwriting, a brokerage firm or bank that acts as a conduit by taking the new issue from the municipality and reselling it.

The stock, commodity, or other financial instrument on which an option contract is based. Unsettled Funds Funds that are not available to withdraw until specified settlement.

Options (also called contingent claims) are derivatives, so called because their value derives from other securities (called the

, or just underlying or underlier), which in the case of stock options are particular stocks.

options Uncovered put Uncovered Put writing Undecillion Under the belt Underbanked Underbooked Undercapitalized Underfunded pension plan Underinvestment problem Underlying Underlying asset Underlying debt Underlying futures contract

An option whose

is an index. An example would be the S&P 100 (OEX). A trader can buy index options and bet on the direction of the OEX.
FAQs: .

is a bet that the

will go down in value. This is equivalent of going short on the security.
Settlement Price
is the price at which the order to close the bet actually gets filled.

Naked Put The writer of a put option contract who is not short the

. Narrow Range Day A trading day with a smaller price range relative to the previous day’s price range. National Association of Investors Corporation Also known as the National Association of Investment Clubs.

[NYMEX] The receipt of an exercise notice by an options writer that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the

Embedded optionAn option that is part of the structure of a bond, as opposed to a bare option, which trades separately from any

. Emerging marketsThe financial markets of developing economies.

Index option An option whose

is a stock index. This includes options on the overall market (such as the S&P 100 Index options) as well as options on narrower-based industry groups. Index options are cash settlement options.

Derivative – A contract that changes in value in relation to the price movements of a related or

, future or other physical instrument. An Option is the most common derivative instrument.

A call option gives the owner the right, but not the obligation, to buy the

at a specific price (the “strike” or “exercise” price) on or before a specific date (the “expiration”).

Traders often check the CCI to see if there is divergence between it and its

. They also use it to detect overbought and oversold conditions. If the Dow is making new highs but the CCI is not, for example, then the Dow is likely to undergo a correction. The CCI usually ranges between +100 and -100.

Specific loans and bonds are typically quoted using a relationship to an index or an

Public SecuritiesPublic securities, or marketable securities, are investments that are openly or easily traded in a market. These securities are either equity or debt-based.

Thus, when the Wm%R is above -20, the

is considered oversold.

forms a lower high, but the Stochastic Oscillator forms a higher high. Even though the stock could not exceed its prior high, the higher high in the Stochastic Oscillator shows strengthening upside momentum. The next decline is then expected to result in a tradable bottom.

The owner of a call option has the right, but not the obligation, to purchase the

financial institutions create investment products, known generically as structured products, that trade on a stock exchange and link the return on an investor’s principal to the performance of an

, such as a stock or basket of stocks or to a derivative, such as a stock index.

The idea behind securing these securities is that the

Volatility: is the tendency of the

‘s market price to fluctuate either up or down. It reflects a price change’s magnitude; it does not imply a bias toward price movement in one direction or the other. Thus, it is a major factor in determining an option’s premium.

At-the-money: An option is at-the-money if the strike price of the option is equal to the market price of the

. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.
.

Day trading is the act of buying and selling either stocks or options on an

Options contracts give the holder the right, not obligation, to buy or sell the

at a selected strike price up to the expiration date.

An MACD divergence occurs when the MACD moves in the opposite direction relative to the price of the

. For example, a bullish divergence occurs if a security drops to an all-time low but the MACD prints at a higher low.

An associated term is Delta (the relative amount an option’s price will change if the

‘s price changes, hardly ever 1 for 1). Deep in-the-money options tend to have high Deltas, because almost all of the gain/loss in the security will be reflected in the option price.

Is span margin and exposure margin required to write an option when i have the

and write an ATM put option? I read that it requires 16% of the value to hedge in one of your replies to another questioner.

The combination of a call option with a strike price above the current price of the

Put options give the owner the right to sell a certain amount of an

at a fixed price within a specified time frame.

A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the

. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account.

Exercise Price – The price at which the option holder may buy or sell the

Gamma shows the anticipated change in Delta, given a one point increase in the

A form of option writing or selling in which the seller owns neither the

nor a different option on that same security with the same (or later) expiration date and higher striking price.

The beauty of this setup is not just that you are allowing an

’s volatility to establish support rather than trading off static price points that every other trader also can see, but these moves materialize as short bursts or snap-backs from an oversold condition.

A warrant which gives the warrant holder the right, but not the obligation, to buy the

at a predetermined price (the exercise or strike price), on (European style) or before (American style) a predetermined date (the expiry or maturity date).

If you are bullish and you believe the

will go higher, we have several strategies to take advantage of an upward move. If you are neutral and you believe the underlying will have a very narrow range, we have income generating strategies for that.

Moving averages lag the price of the

. This makes sense because they are based on past prices. Moving averages will not pick bottoms or tops. Instead, they will turn or be broken after the actual top or bottom has occurred. This is not necessarily a bad thing.

Put Options: If the strike price of the put option is less than the current market price of the

or asset, then that option is said to be out-of-the-money.

They are financial products that are known as market-linked investment based on a single

or a basket of securities. Standardization ensures that the end product is consistent.

When an option position is opened by selling an option, while simultaneously owning an equivalent position in the

The value of these financial instruments is determined by the

or asset, such as a stock or natural resource.

Futures contracts are purchased when the investor expects the price of the

to rise. This is known as going long.

A bar chart is the graphical representation of an

‘s price action. The bar contains the security’s open, high and low. A bar chart can be plotted on any time-frame (i.e. tick, minute, hourly, daily, weekly). The bar chart is the most popular of all plotting techniques in technical analysis.

Out-of-the-Money
An option is out-of-the-money if the price of the

Options of the same type with the same

.
CLEARING
The procedure were a clearing house or principle becomes the buyer and/or the seller, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

An option spread designed to be profitable if the

declines in price. A bearish debit spread involves purchasing a put and selling a further out-of-the money put. A bearish credit spread involves selling a call and buying a further out-of-the money call.

Call Option : An option where the buyer gets the right to buy the

at a specified future date.
Carry Forward : Settlement where positions are carried forward from one settlement to another settlement.
Cash Settlement : Payment for transactions done in one settlement on the due date.

A reverse split results in the reduction of outstanding shares and an increase in the price of the

. The holder of an option contract will have the same number of contracts with an increase in strike price based on the reverse split value.

This means MACD values are dependent on the price of the

. The MACD values for a $20 stocks may range from -1.5 to 1.5, while the MACD values for a $100 may range from -10 to +10. It is not possible to compare MACD values for a group of securities with varying prices.

An interesting phenomenon of the %R indicator is its uncanny ability to anticipate a reversal in the

‘s price. The indicator will almost always form a peak and turn down a few days before the security’s price peaks and turns down.

Long Synthetic behaves exactly the same as being long the

. You can use long synthetic’s when you want the same payoff characteristics as holding a stock or futures contract. It has the benefit of being much cheaper than buying stock outright.

Type of option (call or put option)

Strike price (the price at which you can exercise the option)
Unit of trade (the number of shares)
Expiration date (the last trading day for exercising your option) .

Call option is a contract gives the buyer of the options the right to buy the

at a particular price (i.e. strike price) on or before a certain date (i.e. expiration date).
The seller (or writer) is, in turn, obligated to sell the security should the buyer decides to exercise the option.

At the Money An option whose strike price is equal to the price of the

.
Average Directional Index (ADX) Part of the Directional Movement Indicator system developed by J. Welles Wilder, the ADX line is based on the spread between the +DI and -DI lines from that same system.

Definition
In-the-Money
A call option that has a strike price below the price of the

There are two types of divergences: positive and negative. In its most basic form, a positive divergence occurs when the indicator advances and the

In other words, by calculating the average value of a

or indicator, fluctuations are reduced in importance and what remains is a stronger indication of the trend of prices over the period being analyzed .

The options collar strategy is designed to limit the downside risk of a held

. It can be performed by holding a long position in a security, while simultaneously going long a Put and shorting a Call.
Category: A – G Glossary
Commercial Bank .

A contract that changes in value in relation to the price movements of an

, future or other physical instrument.
Descending Triangle →
A chart pattern formation that some traders use as indication of a downtrend continuation.

An option whose strike price is either above or below the current market price of the

. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also INTRINSIC VALUE; TIME VALUE .

Volatility – A measure of the amount by which an

is expected to fluctuate in a given period of time. Generally measured by the annual standard deviation of the daily price changes in the security, volatility is not equal to the Beta of the stock.

An option where the buyer gets the right to buy the

at a specified future date.
Capital Employed
Total liabilities and equity less non-interest bearing liabilities.

There are no one set figures to input and they may vary depending on the

. Traders must experiment with the settings on their chosen financial market to determine the best ones. One approach is to go back over past trends and check what setting would have produced the best results.

Class of Options: Options of the same type (put or call) on the same

.
Closed-end investment company: An investment company with a fixed number of shares that trade in the secondary market.
Closing purchase: A purchase of an option to eliminate or reduce a short options position.

Looking for divergences : A popular method of analyzing the CCI is to look for divergences in which the

is making new highs while the CCI is failing to surpass its previous highs. This classic divergence is usually followed by a correction in the security’s price.

A financial product that derives its value from an

. In the tax-exempt market, there are primary and secondary derivative products.
dirty price
Price of a bond including accrued interest. May also be called the all-in price.

For the mathematically inclined, implied volatility is the volatility of the price of the

, based on a specific option pricing model, that is implied by the current market price of the option.

Derivatives: options and other instrument whose value depends on an

. For instance, the value of a call option on Cisco Systems (derivative) fluctuates with the price of Cisco System’s stock.

can be bought with call warrants, while the put warrants gives one the right to sell.

VOLATILITY
A measure of the fluctuation in the market price of the

. Mathematically, volatility is the annualized standard deviation of returns.

RightLine’s Most Popular Articles .

Essentially, futures are contracts speculating on the price of an

. One party to the contract believes the value will go up and the other thinks it may go down.

Derivative – A security, like an option or future, whose value is derived
from another

.
Devaluation – A significant fall in the value of a currency, as compared to
gold or another country’s currency.

American Depository Share (ADS):
A share issued under deposit agreement that represents an

in the issuer’s home country. ADS is the actual share trading while ADR represents a bundle of ADSs.

A list of the investment’s holdings
The

– the ETF that Stash has renamed (more on this below) .

The price at which the holder can buy or sell the

from the writer of the option.
STRIPS .

The last day on which the holder of an option can exercise his right to buy or sell the

Naked Writer
A seller of an option contract who does not own a position in the

.
Net Change
The difference between the previous day’s closing price and the last traded price.

Derivatives are financial products, such as futures contracts, options, and mortgage-backed securities. Most of derivatives’ value is based on the value of an

, commodity, or other financial instrument.

A stock derivative is any financial instrument which has a value that is dependent on the price of the underlying stock. Futures and options are the main types of derivatives on stocks. The

may be a stock index or an individual firm’s stock, e.g. single-stock futures.

By creating an average of prices, that “moves” with the addition of new data, the price action on the security being analyzed is “smoothed”. In other words, by calculating the average value of a

Strike price Price at which an option holder can exercise the option and purchase the

One method of measuring volatility is by finding the standard deviation of the

. However, the standard deviation cannot always explain the volatility that is implied by an option’s price. Many times the price of an option will reflect more volatility than that measured by the standard deviation.

OBV adds a period’s volume when the close is up and subtracts the period’s volume when the close is down. A cumulative total results in the OBV line, which is then compared with the price chart of the

or index to look for divergences and confirmation.

OBV is an indicator that adds a period’s volume to a cumulative total when the close is up and subtracts the period’s volume from the cumulative total when the close is down. The cumulative total is plotted as the OBV line. This line can then be compared with the price chart of the

Bollinger Bands allow you to visually identify these periods: tight bands indicate low volatility and wide bands indicate high volatility. Volatility can be important for options players, as well, because an option price depends on the volatility of the

and the lower the volatility of a stock is, .

OBV is a simple indicator that adds a period’s volume when the close is up and subtracts the period’s volume when the close is down. A cumulative total of the volume additions and subtractions forms the OBV line. OBV line can then be compared with the price chart of the

to look for divergence or .

Options Options are a contract that give the buyer the right, not the obligation to buy or sell the

at a specified price (Strike Price) at a specified date.

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