Glossary C

Cabinet or "Cab" Trade

An option trade at a "cabinet price", which is equal to one dollar. Generally, cabinet trades only occur at very far out-of-the-money options. Cabinet trades are not available at TD Ameritrade.

Calendar Spread (Time Spread)

An option position composed of either only calls or only puts, with the purchase or sale of an option with a nearby expiration offset by the purchase or sale of an option with the same strike price, but a more distant expiration. The options are on the same stock and have the same strike price. The quantity of long options and the quantity of short options net to zero. For example, long the AUG/NOV 65 call calendar spread is short 1 August 65 call and long 1 November 65 call.

Call Option

A call option gives the owner of the call the right, but not the obligation, to buy the underlying stock at the option's strike price. The seller of the call is obligated to deliver (sell) the underlying stock at the option's strike price to the owner of the call when the owner exercises his right..

Called Away

The term used when the seller of a call option is obligated to deliver the underlying stock to the buyer of the call at the strike price of the call option.

Call Writer

An investor who receives a premium for selling a call and takes on, for a specified time period, the obligation to sell the underlying security at a specified price at the call buyer's discretion.

Canceled Order

An order to buy or sell stock or options that is canceled before it has been executed. Generally, it is easier to cancel a limit order than a market order. A limit order can be canceled at any time as long as it has not been executed. Market orders can get executed so quickly that it is usually impossible to cancel them. TD Ameritrade will not accept an order cancellation for a market order.

Capital Gain or Capital Loss

An account in which all positions must be paid for in full. Naked short calls or short stocks are not allowed in a cash account.

Carry/Carrying Charge

Interest is charged on any money borrowed to finance a position of stocks or options. The interest cost of financing the position is known as the carry.

Cash Account

An account in which all positions must be paid for in full. Naked short calls or short stocks are not allowed in a cash account.

Cash Market

Generally referred to regarding futures markets, the cash market is where transactions are made in the commodity or instrument underlying the future. For example, there are cash markets in physical commodities such as grains and livestock, metals, and crude oil, financial instruments such as U.S. Treasury Bonds and Eurodollars, as well as foreign currencies such as the Japanese yen and the Canadian dollar. As it relates to futures on stock indices, the cash market is the aggregate market value of the stocks making up the stock index.

Cash Settled Option

An option that delivers a cash amount, as opposed to the underlying stock or futures contracts such as with options on stocks or futures, when exercised. The amount of cash delivered is determined by the difference between the option strike price and the value of the underlying index or security. In the U.S., stock index options on the OEX and SPX are cash settled options.

Chicago Board of Trade (CBOT)

Founded in 1848 with 82 original members, today the CBOT is the one of the largest futures and options exchanges in the world. It is known for its grain and U.S. Treasury Bond futures. Futures and futures options are traded at the CBOT.

Chicago Board of Options Exchange (CBOE)

The Chicago Board Options Exchange is currently (2000) the largest option exchange in the U.S. Formed in 1973, the CBOE pioneered "listed options" with standardized contracts. Equity and index options are traded at the CBOE.

Chicago Mercantile Exchange (CME)

Originally formed in 1874 as the Chicago Produce Exchange, where products such as butter, eggs, and poultry were traded, the CME is now one of the biggest futures and options exchanges in the world. The CME trades futures on stock indices, foreign currencies, livestock, and Eurodollars. Futures and futures options are traded at the CME.

Class of Options (Options Class)

Options of the same type either all calls or all puts on the same underlying security.

Clear/Clearing

The process by which orders are accounted for and matched, and funds transferred.

Clearing Broker-Dealer

A broker-dealer that clears its own trades as well as those of introducing brokers.

Clearing House

An agency connected with an exchange through which all stock and option transactions are reconciled, settled, guaranteed, and later either offset or fulfilled through delivery of the stock and through which payments are made. It may be a separate corporation, rather than a division of the exchange itself.

Clearing Member

Clearing members of U.S. exchanges accept responsibility for all trades cleared through them, and share secondary responsibility for the liquidity of the exchanges' clearing operation. Clearing members earn commissions for clearing their clients' trades. Clearing members must meet minimum capital requirements.

Client

Any person or entity that opens a trading account with a broker-dealer. The client may be classified in terms of account ownership, payment methods, trading authorization or types of securities traded.

Close (C), The

The time at which trading on a stock or option ends for the day. In reference to the O,H,L,C "C" represents the closing price of the regular trading session.

Closing Price

The price of a stock or option at the last transaction of the regular trading session.

Closing Purchase

A transaction in which a person who had initially sold short a stock or option exits or closes his short position by buying back the stock or option.

Closing Range

The range of high and low prices, or bid and ask prices, recorded during the close (the final closing minutes of the trading day).

Closing Transaction

A transaction in which a person who had initially bought or sold stock, futures or options exits or closes (liquidates) his position by selling his long stock, futures or options or buying back his short stock, futures or options.

Combo

Often another term for synthetic stock, a combo is an option position composed of calls and puts on the same stock, same expiration, and typically the same strike price. The quantity of long options and the quantity of short options nets to zero. Buying a combo is buying synthetic stock; selling a combo is selling synthetic stock. For example, a long 60 combo is long 1*60 call and short 1*60 put. Sometimes, combo is used to describe options at two different strikes, in which case it would not be synthetic stock. Please note that multiple-leg option strategies such as this can entail substantial transaction costs, including multiple commissions, which may impact any potential return.

Commission

The one-time fee charged by a broker to a client when the client’s stock or option trade is executed through the brokerage firm.

Condor Spread

An option position composed of either all calls or all puts (with the exception of an iron condor), with long options and short options at four different strikes. The options are all on the same stock and of the same expiration, with the quantity of long options and the quantity of short options netting to zero. Generally, the strikes are equidistant from each other, but if the strikes are not equidistant, the spread is called a pterodactyl. For example, a long 50/55/60/65 call condor is long 1*50 call, short 1*55 call, short 1*60 call, and long 1*65 call. In a long (short) condor the highest and lowest strikes are both long (short) while the two middle strikes are both short (long). Please note that multiple-leg option strategies such as this can entail substantial transaction costs, including multiple commissions, which may impact any potential return.

Confirmation Statement

After a stock or options transaction has taken place, the brokerage firm must issue a statement to the client. The statement contains the name of the underlying stock, the number of shares or option contracts bought or sold and the prices at which the transactions occurred.

Contingency Order

When you place a stock or options order you can choose to place contingencies on that order, meaning that the order will be filled only when a specific event has occurred. For example, a contingency order might be, "Buy 10 XYZ 80 calls at the market if XYZ stock trades above 75".

Contango

The inverse of backwardation. When the futures price is above the spot price at expiration.

Contract

The basic unit of trading for options. An option, whether it's a put or a call, is an agreement between two parties (the buyer and the seller) to abide by the terms of the option contract as defined by an exchange.

Contract Month

Generally used to describe the month in which an option contract expires.

Contract Size

The number of shares of the underlying stock that an options contract would deliver if exercised. Contract sizes for equity options in the U.S. are generally 100 shares, unless the contract size has been adjusted for a split, merger, or spin-off. For example, if you are long 1 XYZ 50 call with a contract size of 100 and you exercise that call, you will get 100 shares of XYZ for a price of $50 per share. TD Ameritrade incorporates the contract size in the calculation of your delta and gamma.

Correction

A temporary reversal of direction of the overall trend of a particular stock or the market in general.

Cost Basis

The original price paid for a stock or option, plus any commissions or fees. It is used to determine capital gains or losses when the stock or option is sold.

Cover

Frequently used to describe the purchase of an option or stock to exit or close an existing short position.

Covered Write or Covered Call or Put/Covered Call or Put Writing (Selling)

An option strategy composed of a short call option and long stock, or a short put option and short stock. For example, selling (writing) 2 XYZ calls while owning 200 shares of XYZ stock is a covered call position.

Covered Writer (Seller)

Someone who sells or "writes" an option is considered to have a "covered" position when the seller of the option holds a position in the underlying stock that offsets the risk of the short option. For example, a short put option is covered by a short position in the underlying stock, and a short call option is covered by a long position in the underlying stock. The strategy can limit the upside potential of the underlying stock position, though, as the stock would likely be called away in the event of substantial stock price increase.

Credit

An increase in the cash balance of an account resulting from either a deposit or a transaction. As it relates to option orders, a credit is how much the premium collected from selling options exceeds the premium paid for buying options.

Credit Balance (CR)

This is the money the broker owes the client after all commitments have been paid for in full. The money could come after a sale of securities, or simply be cash in the client's account.

Credit Spread

Any option spread where you collect a credit when the spread order is filled. The credit occurs when the amount of premium received for the option sold exceeds the premium paid for the option purchased.

Crossed Market

A situation that occurs on multiple-listed stock and options, where the highest bid price for a stock or option on one exchange is higher than the lowest ask price for that same stock or option on another exchange.

Crossing Orders

The practice of using one client's orders to fill a second client's order for the same security on the opposite side of the market. For this to occur each order must be first offered on the exchange floor; if there are no takers, the broker may cross the orders usually at a price somewhere in between the existing bid and ask prices.

Current Market Value (CMV)

The current worth of the securities in an account. The market value of listed securities is based on the closing prices on the previous business day. Syn. long market value (LMV).

Consolidated Tape

The ticker reporting transactions of NYSE listed stocks that take place on the NYSE or any of the other regional stock exchanges.

Conversion (Option's Position)

A position of long stock, short a call, and long a put (with the call and put having the same strike price, expiration date, and underlying stock). The short call and long put acts very much like short stock, thus acting as a hedge to the long stock. So, a conversion has a very small delta. A conversion is a way to exploit mispricing’s in carrying costs.

Covered-Return

An annualized projected return of a covered position where options are sold for cash at the expense of limiting maximum gain on the underlying position.
Covered return = call mark – in the money amount / stock price * 365/calendar days to expiration.