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The agent of a commission house who serves customers/traders by entering their
commodity futures and options orders, reporting trade executions, advising on
trading strategies, etc.
The nearest base contract month that is not the current delivery month.
Physical cash commodities as opposed to futures contracts.
Alternative Delivery Procedure. A provision of a futures contract that allows
buyers and sellers to make and take delivery under terms or conditions that
differ from those prescribed in the contract. An ADP may occur at any time during
the delivery period, once long and short futures positions have been matched
for the purpose of delivery.
American Gas Association. Major natural gas industry trade association, based
in Alexandria, Virginia. AGA conducts technical research and helps create standards
for equipment and products involved in every facet of the natural gas industry.
It also compiles statistics which are considered industry standards.
All or None
An order which must be filled in its entirety or not at all.
An option contract that may be exercised at any time prior to expiration. This
differs from a "European option," which may only be exercised on the
American Petroleum Institute. The primary U.S. oil industry trade association,
based in Washington, D.C. API conducts research and sets technical standards
for industry equipment and products from wellhead to retail outlet. It also
compiles statistics which are regarded as industry benchmarks.
Gravity (weight per unit volume) of oils as measured by the API scale whereby:
API Gravity =141.5
specific gravity at 60o F=- 131.5
Armored carriers approved by the Exchange for the transportation of gold, platinum,
The simultaneous purchase of one commodity against the sale of another in order
to profit from fluctuations in the usual price relationships. Variations include
the simultaneous purchase and sale of different delivery months of the same
commodity; of the same delivery month, but different grades of the same commodity;
and of different commodities.
A motion to sell. The same as offer.
To test a metal or an oil for purity or quality.
The process by which the seller of an option is notified of a buyer's intention
to exercise the rights associated with the option.
Natural gas present in a crude oil reservoir, either separate from or in solution
with the oil.
American Society for Testing Materials. Grade and quality specifications for
petroleum products and metals are determined by the ASTM in test methods.
An order to buy or sell a futures contract at whatever price is obtainable when
the order reaches the trading floor. Also called a market order.
An option whose exercise, or strike, price is closest to the futures price.
Customary U.S. weights. 1 troy ounce = 1.09 ounces avoirdupois.
Following options expiration, an option which is in-the-money by $100 or more
is exercised automatically by the clearinghouse, unless the holder of the option
submits specific instructions to the contrary.
Market situation in which futures prices are lower in each succeeding delivery
month. Also known as an inverted market. The opposite of contango.
A draft or bill of exchange accepted by a bank; payment is guaranteed by the
A vessel, either motorized or towed, used to carry products in navigable waterways.
Inland river barges that carry oil products generally hold 25,000 barrels. Ocean-going
barges range in size up to 120,000 barrels.
A unit of volume measure used for petroleum and refined products. 1 barrel =
42 U.S. gallons.
Copper, aluminum, lead, nickel, and tin.
The minimum amount of electric power delivered or required over a given period
of time at a steady rate.
Electric generating equipment normally operated to serve loads on an around-the-clock
The differential that exists at any time between the cash, or spot, price of
a given commodity and the price of the nearest futures contract for the same
or a related commodity. Basis may reflect different time periods, product forms,
qualities, or locations. Cash minus futures equals basis.
The uncertainty as to whether the cash-futures spread will widen or narrow between
the time a hedge position is implemented and liquidated.
A measured amount in which crude oil and refined product shipments are sent
through a pipeline.
The order in which shipments are sent through a pipeline.
Billion cubic feet.
Barrels per Day. Usually used to quantify a refiner's output capacity or an
oilfield's rate of flow.
One who anticipates a decline in price or volatility. Opposite of a bull.
Market in which prices are in a declining trend.
1) The simultaneous purchase and sale of two futures contracts in the same or
related commodities with the intention of profiting from a decline in prices
but, at the same time, limiting the potential loss if this expectation is wrong.
This can usually be accomplished by selling a nearby delivery and buying a deferred
delivery. 2) A delta-negative options position comprised of long and short options
of the same type, either calls or puts, designed to be profitable in a declining
market. An option with a lower strike price is sold and one with a higher strike
price is bought.
A motion to buy a futures or options contract at a specified price. Opposite
An options pricing formula initially derived by Fisher Black and Myron Scholes
for securities options and later refined by Mr. Black for options on futures.
An enterprise which often is operated out of inexpensive, low-rent quarters
that uses high pressure sales tactics, generally over the telephone, and possibly
false or misleading information to solicit generally unsophisticated investors.
Transfer of title without actually delivering the product.
An options market arbitrage in which both a bull spread and a bear spread are
established for a riskless profit. One spread includes put options and the other
Insignia identifying the producer of a specific commodity.
A rapid and sharp price decline.
The underlying futures price at which a given options strategy is neither profitable
nor unprofitable. For call options, it is the strike price plus the premium.
For put options, it is the strike price minus the premium.
British Thermal Unit
The amount of heat required to increase the temperature of a pound of water
1o Fahrenheit. A Btu is used as a common measure of heating value for different
fuels. Prices of different fuels and their units of measure (dollars per barrel
of crude, dollars per ton of coal, cents per gallon of gasoline, cents per thousand
cubic feet of natural gas) can be easily compared when expressed as dollars
and cents per million Btus.
1) An individual who is paid a fee or commission for acting as an agent in making
contracts, sales, or purchases. 2) A floor broker is a person who actually executes
trading orders on the floor of an exchange. 3) An account executive, registered
commodity representative, or customers' man who deals with customers and their
orders in commission house offices. See also Futures Commission Merchant.
Bottom sediment and water, often found in crude oil and residual fuel.
See British thermal unit.
A rapid advance in futures prices.
One who anticipates an increase in price or volatility. Opposite of a bear.
Precious metals cast into bars or other uncoined form.
A precious metal coin whose market value is determined by its inherent precious
metal content. They are bought and sold mainly for investment purposes.
Market in which prices are in an upward trend.
1) The simultaneous purchase and sale of two futures contracts in the same or
related commodities with the intention of profiting from a rise in prices but
at the same time limiting the potential loss if this expectation is wrong. This
can be accomplished by buying the nearby delivery and selling the deferred.
2) A delta-positive options position composed of both long and short options
of the same type, either calls or puts, designed to be profitable in a rising
market. An option with a lower strike price is bought and one with a higher
strike price is sold.
A stack of copper cathodes strapped together for shipping.
Bunker C Fuel Oil ? (or bunkering fuel)
Fuel used for ships. Generally refers to a No. 6 grade of residual fuel oil
with an API gravity about 10.5o.
For electric utilities, as determined by the North American Electric Reliability
Council (NERC), the business day typically begins at 6 A.M. (the hour ending
0700) for a 24-hour period. Holidays are also determined by NERC and are separate
from U.S.-designated holidays.
A condition of the market in which there is an abundance of goods available
and hence buyers can afford to be selective and may be able to buy at less than
the price that previously prevailed. See seller's market.
Also called a long hedge. Buying futures contracts to protect against possible
increased costs of commodities that will be needed in the future.
An options position comprised of the purchase and sale of two options contracts
of the same type that have the same strike prices but different expiration dates.
Also known as a horizontal, or time spread.
An option that gives the buyer (holder) the right, but not the obligation, to
buy a futures contract (enter into a long futures position) for a specified
price within a specified period of time in exchange for a one-time premium payment.
It obligates the seller (writer) of an option to sell the underlying futures
contract (enter into a short futures position) at the designated price, should
the option be exercised at that price.
A supply contract between a buyer and a seller, whereby the buyer is assured
that he will not have to pay more than a given maximum price. This type of contract
is analogous to a call option.
In reference to electricity, the maximum load that a generating unit or generating
station can carry under specified conditions for a given period of time without
exceeding approval limits of temperature and stress.
The amount of electric energy and capacity available for purchase from outside
a utility system.
The total cost of storing a physical commodity over a period of time. Includes
storage charges, insurance, interest, and opportunity costs.
The actual physical commodity. Sometimes called a spot commodity or actuals.
The market for a cash commodity where the actual physical product is traded.
Gas present in an oil well that is removed when it flows to the surface at the
A flat rectangular piece of metal which has been refined by electrolysis. Copper
is commonly traded and delivered in this form.
A measure of the ignitability of diesel fuel. Diesel fuel generally has to meet
a cetane number specification of 40. As a measure of performance, the cetane
number serves a similar purpose to the octane number of gasoline.
Cubic feet per day. Usually used to quantify the rate of flow of a gas well
See Commodity Futures Trading Commission.
The use of graphs and charts in the analysis of market behavior, so as to plot
trends of price movements, average movements of price, volume, and open interest,
in the hope that such graphs and charts will help one to anticipate and profit
from price trends. Contrasts with fundamental analysis.
Cost, Insurance, Freight. Term refers to a sale in which the buyer agrees to
pay a unit price that includes the free on board (FOB) value at the port of
origin plus all costs of insurance and transportation. This type of transaction
differs from a "delivered" agreement in that it is generally ex-duty,
and the buyer accepts the quantity and quality at the loading port rather than
paying for quality and quantity as determined at the unloading port. Risk and
title are transferred from the seller to the buyer at the loading port, although
the seller is obliged to provide insurance in a transferable policy at the time
Generally refers to the location at which gas changes ownership or transportation
responsibility from a pipeline to a local distribution company or gas utility.
Class of Options
All call options, or all put options, exercisable for the same underlying futures
contract and which expire on the same expiration date.
Class of Service
A utility's sales categories such as residential, commercial, industrial, other,
and sales for resale.
Refined products such as kerosene, gasoline, home heating oil, and jet fuel
carried by tankers, barges, and tank cars. All refined products except bunker
fuels, residual fuel oil, asphalt, and coke.
Clearing members of the New York Mercantile Exchange accept responsibility for
all trades cleared through them, and share secondary responsibility for the
liquidity of the Exchange's clearing operation. They earn commissions for clearing
their customers' trades, and enjoy special margin privileges. Original margin
requirements for clearing members are lower than for non-clearing members and
customers, and clearing members may use letters of credit posted with the clearinghouse
as original margin for customer accounts as well as for their own trades. Clearing
members must meet a minimum capital requirement.
An Exchange-associated body charged with the function of insuring the financial
integrity of each trade. Orders are "cleared" by means of the clearinghouse
acting as the buyer to all sellers and the seller to all buyers.
A range of prices at which transactions took place at the closing of the market;
buying and selling orders during the closing period might have been filled at
any point within such a range.
A generating facility that produces electricity and another form of useful thermal
energy (such as heat or steam), used for industrial, commercial, heating, or
A supply contract between a buyer and seller of a commodity, whereby the buyer
is assured that he will not have to pay more than some maximum price, and whereby
the seller is assured of receiving some minimum price. This is analogous to
an option fence, also known as a range forward.
A utility which provides both gas and electric service.
The fee charged by a futures broker for the execution of an order.
An organization that trades commodities and/or futures and options contracts
for customer accounts in return for a fee.
One who makes a trade, either for another member of an exchange or for a non-member
client, but who makes the trade in his own name and becomes liable as principal
to the other.
Commitment or Open Interest
The number of open or outstanding contracts for which an individual or entity
is obligated to the Exchange because that individual or entity has not yet made
an offsetting sale or purchase, an actual contract delivery, or, in the case
of options, exercised the option.
As defined by the Commodity Futures Trading Commission, specifically enumerated
agricultural commodities, all other goods and articles, except onions, and all
services, rights, and interests in which contracts for future delivery are presently,
or in the future may be, dealt.
Commodity Futures Trading Commission
A federal regulatory agency authorized under the Commodity Futures Trading Commission
Act of 1974 to regulate futures trading in all commodities. The commission is
comprised of five commissioners, one of whom is designated as chairman, all
appointed by the President, subject to Senate confirmation. The CFTC is independent
of the Cabinet departments.
A venture, usually a limited partnership, in which funds contributed by a number
of investors are combined for the purpose of trading futures. Also called a
commodity fund or a futures fund.
Commodity Pool Operator (CPO)
Acts as a general partner of commodity pools. CPOs hire independent Commodity
Trading Advisors to handle daily trading decisions. Responsible for the pool's
administration, structure, and selecting and monitoring the traders who conduct
transactions using the fund's money.
Commodity Trading Advisor (CTA)
Directs trading in the managed accounts of a commodity pool. Professional money
managers who manage client assets on a discretionary basis, using global futures
markets as an investment medium.
A market situation in which prices are higher in the succeeding delivery months
than in the nearest delivery month. Opposite of backwardation.
An order which becomes effective only upon the fulfillment of some condition
in the marketplace.
1) A term of reference describing a unit of trading for a commodity future or
option. 2) An agreement to buy or sell a specified commodity, detailing the
amount and grade of the product and the date on which the contract will mature
and become deliverable.
That grade of product established in the rules of a commodity futures exchange
as being suitable for delivery against a futures contract.
See delivery month.
Contract Trading Volume
Daily trading volume.
A large geographic area within which a utility (or group of utilities) regulates
electric power generation in order to maintain scheduled interchanges of power
with other control areas and to maintain the required system frequency.
Control Area Operator
An electric entity that operates generating capacity to meet area demand, monitors
actual interchange (electric energy flowing between control areas), and can
dispatch generating resources to ensure that actual interchange equals scheduled
A delta-neutral arbitrage transaction involving a long futures contract, a long
put option, and a short call option. The put and call options have the same
strike price and same expiration date.
A group organized under law into a utility company that will generate, transmit,
or distribute supplies of electric energy to a specified area not being serviced
by another utility. Typically, a co-op is a not- for-profit organization.
Short-term transactions undertaken primarily to maintain the integrity of an
electricity distribution system.
To offset a short futures or options position.
The sale of an option against an existing position in the underlying futures
contract. For example, short call and long futures.
The simultaneous purchase or sale of crude oil against the sale or purchase
of refined petroleum products. These spread differentials which represent refining
margins are normally quoted in dollars per barrel by converting the product
prices into dollars per barrel (multiply the cents-per-gallon price by 42) and
subtracting the crude oil price.
Offsetting match by a broker of the buy order of one customer against the sell
order of another, or a match of a trade made by a broker with his customer,
a practice that is permissible only when executed in accordance with the Commodity
Exchange Act, Commodity Futures Trading Commission regulations, and rules of
the contract market. Neither NYMEX Division nor COMEX Division members are permitted
to take the opposite side of a customer's order, except, under certain circumstances,
for trades involving long-dated (nine months or more forward) COMEX Division
A mixture of hydrocarbons that exists as a liquid in natural underground reservoirs
and remains liquid at atmospheric pressure after passing through surface separating
facilities. Crude is the raw material which is refined into gasoline, heating
oil, jet fuel, propane, petrochemicals, and other products.
The most common measure of gas volume, referring to the amount of gas needed
to fill a volume of one cubic foot at 14.73 pounds per square inch absolute
pressure and 60 degrees Fahrenheit. One cubic foot of natural gas contains,
on average, 1,027 Btus.
Current Delivery Month
The futures contract which matures and becomes deliverable during the present
month or the month closest to delivery. Also called the spot month.
The amount of gas required in a storage pool to maintain sufficient pressure
to keep the working gas recoverable.
The purchase and sale of a futures or an options contract on the same day. Dealer
Tank Wagon Price (DTW) The price, usually of gasoline, offered by the majors
which is branded and delivered to the service station on a cost, insurance,
and freight basis.
A measure of the coldness of the weather (heating degree day) or its heat (cooling
degree day) based on the extent to which the daily mean temperature falls below
or rises above 65 degrees Fahrenheit.
Ten therms, 1 million British thermal units.
Often regarded as synonymous with cost, insurance, and freight in the international
cargo trade, its terms differ from the latter in a number of ways. Generally,
the seller's risks are greater in a delivered transaction because the buyer
pays on the basis of landed quality/quantity. Risk and title are borne by the
seller until such time as the commodity, such as oil, passes from shipboard
into the connecting flange of the buyer's shore installation. The seller is
responsible for clearance through customs and payment of all duties. Any in-transit
contamination or loss of cargo is the seller's liability. In delivered transactions,
the buyer pays only for the quantity of oil actually received in storage.
The term has distinct meaning when used in connection with futures contracts.
Delivery generally refers to the changing of ownership or control of a commodity
under specific terms and procedures established by the exchange upon which the
contract is traded. Typically, except for energy, the commodity must be placed
in an approved warehouse, precious metals depository, or other storage facility,
and be inspected by approved personnel, after which the facility issues a warehouse
receipt, shipping certificate, demand certificate, or due bill, which becomes
a transferable delivery instrument. Delivery of the instrument usually is preceded
by a notice of intention to deliver. After receipt of the delivery instrument,
the new owner typically can take possession of the physical commodity, can deliver
the delivery instrument into the futures market in satisfaction of a short position,
or can sell the delivery instrument to another market participant who can use
it for delivery into the futures market in satisfaction of his short position
or for cash, or can take delivery of the physical himself. The procedure differs
for energy contracts. Bona fide buyers or sellers of the underlying energy commodity
can stand for delivery. If a buyer or seller stands for delivery, the contract
is held through the termination of trading. The buyer and seller each file a
notice of intent to make or take delivery with their respective clearing members
who file them with the Exchange. Buyers and sellers are randomly matched by
the Exchange. The delivery payment is based on the contract's final settlement
The month specified in a given futures contract for delivery of the actual physical
spot or cash commodity.
A notice presented through an exchange's clearinghouse by a clearing member
announcing the intention to deliver the actual commodity in satisfaction of
a contract obligation.
Location(s) designated by an exchange at which delivery may be made in fulfillment
of contract terms.
The sensitivity of an option's value to a change in the price of the underlying
futures contract, also referred to as an option's futures-equivalent position.
Deltas are positive for calls, and negative for puts. Deltas of deep in-the-money
options are approximately equal to one; deltas of at-the-money options are 0.5;
and deltas of deep out-of-the-money options approach zero.
Delta Neutral Spread
A spread where the total delta position on the long side and the total delta
on the short side add up to approximately zero.
Depository or Warehouse Receipt
A document issued by a bank or warehouse indicating ownership of a commodity
stored in a bank depository or warehouse. In the case of many commodities deliverable
against futures contracts, transfer of ownership of an appropriate depository
receipt may effect contract delivery.
Financial instrument derived from a cash market commodity, futures contract,
or other financial instrument. Derivatives can be traded on regulated exchange
markets or over-the-counter. For example, futures contracts are derivatives
of physical commodities, options on futures are derivatives of futures contracts.
Distillate fuel oil used in compression-ignition engines. It is similar to home
heating oil, but must meet a cetane number specification of 40 or more.
Price differences between classes, grades, and locations of different stocks
of the same commodity.
Those petroleum products which leave significant amounts of residue in tanks.
Generally applies to crude oil and residual fuel oil.
1) A downward adjustment in price allowed for delivery of stocks of a commodity
of lesser than contract grade against a futures contract. 2) Sometimes used
to refer to the price differences between futures of different delivery months.
An arrangement by which the holder of an account gives written power of attorney
to someone else, often a broker, to buy and sell without prior approval of the
account holder. Often referred to as a "managed account."
Distillate Fuel Oil
Products of refinery distillation sometimes referred to as middle distillates;
kerosene, diesel fuel, and home heating oil.
A qualitative method of detecting undesirable sulfur compounds in petroleum
distillates; that is, determining whether an oil is sour or sweet.
A chart pattern of the price movement of a commodity that shows resistance to
a falling market; the inverse of double tops. The price patterns are used by
technical analysts to recognize a reversal of a price trend.
A chart pattern of commodity price movements that depict a rising market which
hits resistance at a certain level, retreats, rises again, but still cannot
breach the previous resistance point, and falls back again. The price patterns
are used by technical analysts to recognize a reversal of a price trend.
An industry term referring to commercial oil and gas operations beyond the production
phase; oil refining and marketing, and natural gas transmission and distribution.
Gas that does not contain liquid hydro-carbons.
See Exchange of Futures for Physicals.
Electric Utility An enterprise that is engaged in the generation, transmission,
and/or distribution of electric energy primarily for use by the public and is
the major power supplier within a designated service area. Electric utilities
include: investor-owned, publicly owned, cooperatively owned, and government-owned
The ultimate consumer of petroleum products or natural gas; most commonly refers
to large commercial, industrial, or utility consumers.
An option that may be exercised only on its expiration date.
Exchange Certified Stocks
Stocks of commodities held in depositories or warehouses certified by an Exchange-approved
inspection authority as constituting good delivery against a futures contract
position. Current total certified stocks are reported in the press for many
important commodities such as platinum.
Exchange of Futures for Cash
A transaction in which the buyer of a cash commodity transfers to the seller
a corresponding amount of long futures contracts, or receives from the seller
a corresponding amount of short futures, at a price difference mutually agreed
upon. In this way, the opposite hedges in futures of both parties are closed
Exchange of Futures for Physicals
A futures contract provision involving an agreement for delivery of physical
product that does not necessarily conform to contract specifications in all
terms from one market participant to another and a concomitant assumption of
equal and opposite futures positions by the same participants at the time of
The process of converting an options contract into a futures position.
The price at which the underlying futures contract will be bought or sold in
the event an option is exercised. Also called the strike price.
The date and time after which trading in an options contracts terminates, and
after which all contract rights or obligations become null and void.
The amount by which the premium exceeds its intrinsic value. Also known as time
Transactions in the ring that take place in such volume and with such rapidity
that price reporters are behind with price quotations, so they insert "Fast"
and show a range of prices.
The supply of crude oil, natural gas liquids, or natural gas to a refinery or
petrochemical plant or the supply of some refined fraction of intermediate product
to some other manufacturing process.
A long (short) underlying position together with a long (short) out-of-the-money
put and a short (long) out-of-the-money call. All options must expire at the
Futures Industry Association. A national not-for-profit futures industry trade
association that represents the brokerage community on industry, regulatory,
political, and educational issues.
The price at which an order is executed.
Fill or Kill
An order which must be filled immediately, and in its entirety. Failing this,
the order will be canceled.
The purity of precious metal measured in parts per thousand.
The weight of precious metal contained in a coin or bullion as determined by
multiplying the gross weight by the fineness.
The highest quality sales of electric transmission service offered to customers
under a filed rate schedule that anticipates no planned interruption.
Utility service which assumes no interruption except if residential customers'
supply is threatened. Opposite of interruptible service.
First Notice Day
The first day on which the clearinghouse notifies clearing members of delivery
allocations. Energy contracts have only one notice day. Metals contracts have
notice days just prior to the beginning and end of the delivery period.
1) The main trading area of an exchange. 2) A supply contract between a buyer
and seller of a commodity, whereby the seller is assured that he will receive
at least some minimum price. This type of contract is analogous to a put option.
An exchange member who executes orders to buy or sell futures and options in
the trading ring on the floor of a commodities exchange.
Floor Trader or Local
An exchange member who buys or sells futures and/or options for his own account.
A standard clause which indemnifies either or both parties to a transaction
whenever events which the Exchange declares to be reasonably beyond the contract.
A supply contract between a buyer and seller, whereby the buyer is obligated
to take delivery and the seller is obligated to provide delivery of a fixed
amount of a commodity at a predetermined price on a specified future date. Payment
in full is due at the time of, or following, delivery. This differs from a futures
contract where settlement is made daily, resulting in partial payment over the
life of the contract.
The process whereby saturated hydrocarbons from natural gas are separated into
distinct parts or "fractions" such as propane, butane, ethane, etc.
Free on Board (FOB)
A transaction in which the seller provides a commodity at an agreed unit price,
at a specified loading point within a specified period; it is the responsibility
of the buyer to arrange for transportation and insurance.
Refined petroleum products used as a fuel for home heating and industrial and
utility boilers. Fuel oil is divided into two broad categories, distillate fuel
oil, also known as No. 2 fuel, gasoil, or diesel fuel; and residual fuel oil,
also known as No. 6 fuel, or outside the United States, just as fuel oil. No.
2 fuel is a light oil used for home heating, in compression ignition engines,
and in light industrial applications. No. 6 oil is a heavy fuel used in large
commercial, industrial, and electric utility boilers.
The study of pertinent supply and demand factors which influence the specific
price behavior of commodities. See also Technical Analysis.
Interchangeable. Products which can be substituted for purposes of shipment
A supply contract between a buyer and seller, whereby the buyer is obligated
to take delivery and the seller is obligated to provide delivery of a fixed
amount of a commodity at a predetermined price at a specified location. Futures
contracts are traded exclusively on regulated exchanges and are settled daily
based on their current value in the marketplace.
Futures Commission Merchant
An FCM is the only industry participant who receives, handles, and manages customer
funds, margin payments, and commission charges. He is also responsible for confirmation
of trade slips, customer statements, and guarantees.
A term frequently used with reference to speculative position limits for options
on futures contracts. The futures-equivalent of an options position is the number
of options multiplied by the previous day's risk factor or delta for the options
series. For example, 10 deep out-of-the money options with a risk factor of
0.20 would be considered two futures-equivalent contracts. The delta or risk
factors used for this purpose is the same as that used in delta-based margining
and risk analysis systems.
The sensitivity of an option's delta to changes in the price of the underlying
European designation for No. 2 heating oil and diesel fuel.
Also known as raw gasoline. Gasoline which is obtained directly from crude oil
by fractional distillation. Straight-run gasoline generally must be upgraded
to meet current motor fuel specifications.
The process of producing electric energy by transforming other forms of energy.
The amount of energy produced is expressed in watthours.
One billion joules, approximately equal to 948,211 British thermal units. One
million Btus equals 1.0546175 GJ.
One billion watts. Gold/Silver Ratio The number of ounces of silver required
to buy one ounce of gold at current spot prices.
Approved metals brands acceptable for delivery against the metals contracts.
Good till Canceled
An order to be held by a broker until it can be filled or until canceled.
Grade 1 Copper
Copper which is good for delivery against the COMEX Division high grade copper
futures contract and meets the ASTM specification B115-91.
A stamped impression on the surface of a precious metals bar that indicates
the producer, serial number, weight, and purity of metal content.
Heating Oil (HO)
No. 2 fuel oil, a distillate fuel oil used either for domestic heating or in
moderate capacity commercial-industrial burners.
Crude oil with a high specific gravity and a low API gravity due to the presence
of a high proportion of heavy hydrocarbon fractions.
The initiation of a position in a futures or options market that is intended
as a temporary substitute for the sale or purchase of the actual commodity.
The sale of futures contracts in anticipation of future sales of cash commodities
as a protection against possible price declines, or the purchase of futures
contracts in anticipation of future purchases of cash commodities as a protection
against the possibility of increasing costs.
A trader who enters the market with the specific intent of protecting an existing
or anticipated physical market exposure from unexpected or adverse price fluctuations.
1) Ratio of the value of futures contracts purchased or sold to the value of
the cash commodity being hedged, a computation necessary to minimize basis risk.
2) The ratio, determined by an option's delta, of futures to options required
to establish a riskless position. For example, if a $1/barrel change in the
underlying futures price leads to a $0.25/barrel change in the options premium,
the hedge ratio is four (four options for each futures contract).
The annualized standard deviation of percent changes in futures prices over
a specific period. It is an indication of past volatility in the marketplace.
Calendar or time spread.
Organic chemical compounds containing hydrogen and carbon atoms. They form the
basis of all petroleum products.
Discrepancy between the amount that a seller contracted to deliver and the actual
volume of power delivered. Imbalances are resolved through monetary payment.
Immediate or Cancel
An order which must be filled immediately or be canceled. IOC orders need not
be filled in their entirety.
A measurement of the market's expected price range of the underlying commodity
futures based on market-traded options premiums.
An option that can be exercised and immediately closed out against the underlying
market for a cash credit. The option is in-the-money if the underlying futures
price is above a call option's strike price, or below a put option's strike
The imbalance of energy flows back and forth that are on-going and routine between
a generator of power and the centers of demand. These imbalances are typically
settled through exchanges of physical product.
Term generally applies to a non-integrated oil or natural gas company, usually
active in only one or two sectors of the industry. An independent marketer buys
petroleum products from major or independent refiners and resells them under
his own brand name or buys natural gas from producers and resells it. There
are also independents which are active exclusively either in oil or gas production
Independent Power Producer (IPP)
A non-utility power generating company that is not a qualifying facility (See
A term that describes the degree in, and to, which one given company participates
in all phases of the petroleum industry.
Utility service which expects and permits interruption on short notice, generally
in peak-load periods, in order to meet the demand by firm service customers.
Interruptible service customers usually pay a lower rate than firm service customers.
Opposite of Firm Service.
The amount by which an option is in-the-money. An option which is not in-the-money
has no intrinsic value. For calls, intrinsic value equals the difference between
the underlying futures price and the option's strike price. For puts, intrinsic
value equals the option's strike price minus the underlying futures price. Intrinsic
value is never less than zero.
A firm engaged in soliciting or in accepting orders for the purchase or sale
of any commodity for future delivery.
A futures market is said to be inverted when distant contract months are selling
at a discount to nearby contract months; also known as backwardation.
Uncounted stocks of a commodity in the hands of wholesalers, manufacturers and
producers which cannot be identified accurately; stocks outside commercial channels
but theoretically available to the market.
An inventory transfer of propane held in underground caverns or storage.
Kerosene-type; high-quality kerosene product used primarily as fuel for commercial
turbojet and turboprop aircraft engines.
A middleman. A gasoline jobber, for example, might buy from refiners and would
resell to small distributors or consumers.
A metric unit of energy.
A measure of the purity of gold. Pure gold is 24-karat.
One thousand watts.
Kilowatt Hour (Kwh)
Amount of electricity needed to light ten 100-watt light bulbs for a one-hour
period. One thousand watts used for one hour.
The actual delivered cost of oil to a refiner, taking into account all costs
from production or purchase to the refinery.
Last Notice Day
The final day on which notices of intent to deliver on futures contracts may
Last Trading Day
The final trading day for a particular delivery month futures contract or options
contract. Any futures contracts left open following this session must be settled
Financial instrument based upon the contango in the gold or silver market to
finance precious metals inventory.
Coins that have been authorized by Congress. This includes circulating coins
and all commemorative coins legislated by Congress.
Warehouses which have been approved for the storage of copper deliverable against
the COMEX Division copper futures contract.
An organization approved by the Exchange to witness and verify the weighing
of copper delivered against the COMEX Division copper futures contract.
Refers to tankers and barges loading cargoes of petroleum at a terminal or transshipment
Crude oil with a low specific gravity and high API gravity due to the presence
of a high proportion of light hydrocarbon fractions.
The more volatile products of petroleum refining, such as butane, propane, and
The maximum daily allowable amount a futures price may advance or decline in
any one day's trading session. Limits are also placed on the number of positions
a participant may hold in the market.
A contingent order for an options or futures trade specifying a certain maximum
(or minimum) price, beyond which the order (buy or sell) is not to be executed.
Liquefied Natural Gas (LNG)
Natural gas which has been made liquid by reducing its temperature to minus
258 degrees Fahrenheit at atmospheric pressure. Its volume is 1/600 of gas in
Liquefied Petroleum Gas (LPG)
Propane, butane, or propane-butane mixtures derived from crude oil refining
or natural gas fractionation. For convenience of transportation, these gases
are liquefied through pressurization.
The closing out of futures and options positions.
A market is said to be "liquid" when it has a high level of trading
activity and open interest.
A market characterized by the ability to buy and sell with relative ease.
The amount of power carried by a utility system or subsystem, or the amount
of power consumed by an electric device, at a specified time. Load is also referred
to as demand.
The daily varying of power output by a generator.
An exchange member who buys or sells futures and/or options for his own account.
Local Distribution Company (LDC)
Company that distributes natural gas primarily to end-users. A gas utility.
A market where prices have reached their daily trading limit and trading can
only be conducted at that price or prices which are closer to the previous settlement
1) The market position of a futures contract buyer whose purchase obligates
him to accept delivery unless he liquidates his contract with an offsetting
sale. 2) One who has bought a futures contract to establish a market position.
3) In the options market, position of the buyer of a call or put options contract.
Opposite of short.
Purchase of futures against the future market price purchase or fixed price
forward sale of a cash commodity to protect against price increases.
Long the Basis
A person or firm that has bought the spot commodity and hedged with a sale of
futures is said to be long the basis.
Any definite quantity of a futures commodity of uniform grade; the standard
unit of trading.
A term broadly applied to those multinational oil companies which by virtue
of size, age, or degree of integration are among the preeminent companies in
the international petroleum industry.
The amount of money or collateral deposited by a customer with his broker, or
deposited by a broker with a clearing member, or by a clearing member with the
clearinghouse, for the purpose of insuring the broker or clearinghouse against
adverse price movement on open futures contracts. The margin is not partial
payment on a purchase. 1) Initial margin is the minimum deposit per contract
required by the broker when a futures position is opened. 2) Maintenance margin
is a sum which must be maintained on deposit at all times. If the equity in
a customers' account drops to, or under, that level because of an adverse price
movement, the broker must issue a margin call to restore the customers' equity.
Margins are set by the Exchange based on its analysis of price risk volatility
in the market at that time. See variation margin.
A demand for additional margin funds when futures prices move adverse to a trader's
position, or if margin requirements are increased. Buyers of options are not
subject to margin calls.
Daily cash flow system used by U.S. futures exchanges to maintain a minimum
level of margin equity for a given futures or options contract position by calculating
the gain or loss in each contract position resulting from changes in the price
of the futures or options contracts at the end of each trading day.
In technical analysis, a small reversal in prices following a significant trending
An order that becomes a market order when a particular price is reached. A sell
MIT is placed above the market; a buy MIT is placed below the market.
An independent trader or trading firm which is prepared to buy and sell futures
or options contracts in a designated market. Market makers provide a two-sided
(bid and ask) market and greater liquidity.
An order to buy or sell at the end of the trading session at a price within
the closing range of prices.
An order to be filled immediately at the current market price.
Maximum Price Fluctuation
A commodity exchange's established maximum limits for fluctuations in futures
prices during any one trading session.
Thousand cubic feet.
One million watts.
Megawatt Hour (Mwh)
Amount of electricity needed to light ten thousand 100-watt light bulbs for
a one-hour period. One million watts used for one hour.
Hydrocarbons that are in the so-called "middle boiling range" of refinery
distillation. Examples are heating oil, diesel fuels, and kerosene.
Minimum Price Fluctuation
Minimum unit by which a futures price or an options premium can fluctuate per
trade, also known as tick size.
One million British thermal units, one dekatherm. Approximately equal to a thousand
cubic feet (Mcf) of natural gas.
Industry slang for motor gasoline.
A complex mixture of relatively volatile hydrocarbons, with or without small
quantities of additives, which have been blended to form a fuel suitable for
use in spark-ignition engines.
Refined lubricating oil, usually containing additives, used in internal combustion
A long or short market position taken without having an offsetting short or
long position. A trader who executes one side of a spread is said to be naked
until he executes the other side.
A volatile, colorless product of petroleum distillation. Used primarily as a
paint solvent, cleaning fluid, and blendstock in gasoline production.
One of the three basic hydrocarbon classifications found naturally in crude
oil. Naphthenes are widely used as petrochemical feedstocks.
National Futures Association
Futures industry trade association which promulgates rules of conduct and mediates
disputes between customers and brokers.
A naturally occurring mixture of hydrocarbon and non-hydrocarbon gases found
in porous rock formations. Its principal component is methane.
Natural Gas Liquids (NGL)
A general term for all liquid products separated from natural gas in a gas processing
plant. NGLs include propane, butane, ethane, and natural gasoline.
Industry term referring to the net free on board cost of product offered on
a delivered or cost, insurance, and freight basis. It is derived by subtracting
all costs of shipment from the landed price.
The difference between an individual or firm's open long contracts and open
short contracts in any one commodity.
Another name for a delta neutral spread. Spreads may also be lot neutral, where
the total number of long contracts and the total number of short contracts of
the same type are approximately equal.
The declared price for a futures month sometimes used in place of a closing
price when no recent trading has taken place in that particular delivery month;
usually an average of the bid and asked prices.
Natural gas in a reservoir which contains no crude oil.
The quality sale of transmission service offered to customers that anticipates
possible interruption of deliveries.
North America Electric Reliability Council (NERC)
A group formed in 1968 by the electric utility industry to promote the reliability
and adequacy of bulk power supply in the electric utility systems of North America.
NERC consists of 10 regional reliability councils and encompasses essentially
all the power regions of the contiguous United States, Canada, and Mexico. The
NERC regions are: Alaskan System Coordination Council, ASCC; East Central Reliability
Coordination Agreement, ECAR; Electric Reliability Council of Texas, ERCO; Mid-America
Interpool Network, MAIN; Mid-Atlantic Area Council, MAAC; Mid-Continent Area
Power Pool, MAPP; Northeast Power Coordinating Council, NPCC; Southeastern Electric
Reliability Council, SERC; Southwest Power Pool, SPP; Western System Coordinating
A reference price based on trading activity during a certain range close to
the end of the day that is used to calculate the maximum daily price fluctuation
for trading on the NYMEX ACCESS? after-hours electronic trading system when
the regular settlement price has not been established in time for the start
of the NYMEX ACCESS? session. The system is then updated with final settlement
prices later in the session.
A measure of the resistance of gasoline to pre-ignite or knock when burned in
an internal combustion engine.
A motion to sell a futures or options contract at a specified price. Opposite
The load for the remaining hours that are not on-peak (See on-peak).
A transaction which liquidates or closes out an open contract position. In spread
positions, one side offsets the other without liquidating the entire position.
Risk is reduced when one side offsets the other.
An account carried by one futures commission merchant with another in which
the transactions of two or more persons are combined rather than designated
separately and the identity of the individual accounts is not disclosed.
Refers to hours of the business day when demand is at its peak. For example,
the NYMEX Division California-Oregon border and Palo Verde electricity futures
contracts define the on-peak period from the hour ending 0700 to the hour ending
2200 (6 A.M. to 10 P.M.), prevailing time. In the physical market, on-peak definitions
vary by North America Electric Reliability Council region.
One Cancels the Other
Two orders submitted simultaneously, either of which may be filled. If one order
is filled, the other is considered to be canceled.
Open Interest or Commitment
The number of open or outstanding contracts for which an individual or entity
is obligated to the Exchange because that individual or entity has not yet made
an offsetting sale or purchase, an actual contract delivery, or, in the case
of options, exercised the option.
A resting order that is good until canceled.
A method of public auction for making verbal bids and offers for contracts in
the trading pits or rings of commodity exchanges.
The price for a given futures commodity that is generated by trading through
open outcry during the opening range of trading on a commodity exchange.
A contract which gives the holder the right, but not the obligation, to purchase
or to sell the underlying futures contract at a specified price within a specified
period of time in exchange for a one-time premium payment. The contract also
obligates the writer, who receives the premium, to meet these obligations.
The initial deposit of funds, as good faith monies, when a position is initiated
in order to guarantee fulfillment of its obligations. Also known as initial
An option which has no intrinsic value. For calls, an option whose exercise
price is above the market price of the underlying future. For puts, an option
whose exercise price is below the futures price.
A planned outage is the shutdown of a generating unit, transmission line, or
other facility for inspection and maintenance, in accordance with an advance
schedule. A forced outage is the unplanned loss of service of a generating unit,
transmission line, or other facility for purposes other than inspection and
A technical opinion that the market price has risen too steeply and too fast
in relation to underlying fundamental factors.
A technical opinion that the market price has declined too steeply and too fast
in relation to underlying fundamental factors.
The writing of more options than one expects to have exercised. Call options
are overwritten because the writer considers the underlying overvalued. Put
options are overwritten because the underlying is considered undervalued.
PAD (or PADD)
Petroleum Administration for Defense District. The United States is divided
into five distinct marketing regions in which prices might differ due to variations
in the supply or demand.
A term used to denote trade in non-physical oil (futures, forwards, swaps, etc.)
markets which give a buyer or seller the right to a certain quantity and quality
of crude oil or refined products at a future date, but not to any specific physical
Par or Basis Grade
The grade or grades specified in a given futures contract for delivery. A contract
may permit substitutions for and deviations from the par grade subject to specified
premiums or discounts.
An intermediate chemical derived from petroleum, hydrocarbon liquids, or natural
gas, such as ethylene, propylene, benzene, toluene, and xylene.
A generic name for hydrocarbons, including crude oil, natural gas liquids, refined,
and product derivatives.
The risk to a trader who has sold an option that, at expiration, has a strike
price identical to, or pinned to, the underlying futures price. In this case,
the trader will not know whether he will be required to assume his options obligations.
A pipe through which oil or natural gas is pumped between two points, either
offshore or onshore.
Pit or Ring
The place on the floor of an exchange where a commodity futures or options contract
is traded by open outcry. Platinum Group Metals (PGM) Platinum and related metals,
including palladium, rhodium, ruthenium, and iridium.
Point or Tick
The smallest monetary unit of change in a futures price or an options premium.
The net total of a trader's open contracts, either long or short, in a particular
For a single trader or firm, the maximum number of allowable open contracts
in the same underlying commodity.
The price some refiners will pay for crude of a certain API gravity from a particular
field or area.
A temperature 5 degrees Fahrenheit higher than the temperature at which crude
oil or a refined product stops flowing.
A wholesale power entity that has registered with the Federal Energy Regulatory
Commission to buy and sell wholesale power from and to each other and other
public entities at market-derived prices. Power marketing companies include
investor-owned, utility-affiliated companies; natural gas marketing companies;
financial intermediaries; independent power producers; and entrepreneurs. Typically,
power marketers do not own generating facilities.
1) The price or cost of an option determined competitively by buyers and sellers
in open outcry trading on the exchange trading floor. 2) An upward adjustment
in price allowed for delivery of a commodity of higher grade against a futures
The manner of making prices visible and readily available to the public.
A chart pattern of the price movement of a commodity when the low price of one
bar on a chart is higher than the high of the preceding bar (or inversely, the
high is lower than the low of the preceding bar); depicting a price or price
range where no trades take place. The price patterns are used by technical analysts
to try to recognize changes in a price trend.
Stocks of crude oil or refined products held in storage at leases, refineries,
natural gas processing plants, pipelines, tankfarms, and bulk terminals that
can store at least 50,000 barrels of refined products.
Plant which separates natural gas into methane and the various other gases (e.g.,
propane, butane, ethane).
Product which will move or become available within three to four days.
A natural hydrocarbon occurring in a gaseous state under normal atmospheric
pressure and temperature, however, propane is usually liquefied through pressurization
for transportation and storage. Propane is primarily used for rural heating
and cooking and as a fuel gas in areas not serviced by natural gas mains and
as a petrochemical feed stock.
An intra, or inter-facility transfer. For example, when one pipeline pumps crude
oil or refined products from its tanks or mainline into the mainline or storage
tank of the receiving pipeline.
An option which gives the buyer, or holder, the right, but not the obligation,
to sell a futures contract at a specific price within a specific period of time
in exchange for a one-time premium payment. It obligates the seller, or writer,
of the option to buy the underlying futures contract at the designated price,
should an option be exercised at that price. See call option.
Qualifying Facility (QF)
A generator or small power producer that meets certain ownership, operating,
and efficiency criteria established by the Federal Energy Regulatory Commission,
and has filed with FERC for QF status or has self-certified. QFs are physical
Price charged by a supplier to a customer that buys transport truck lots at
a terminal, on a free on board basis.
An advancing price movement following a decline in a market.
The difference between the highest and lowest prices recorded during a given
Any spread where the number of long market contracts and the number of short
market contracts are unequal.
A company that acts as a wholesaler of gasoline, heating oil, or other products
which operates its own refinery; may also retail and buy additional supplies
to supplement its own refining output.
A plant used to process crude oil or metals. An oil refinery separates the fractions
of crude oil and converts them into usable products. A metals refinery removes
impurities, bringing the metal up to designated purity specifications.
The use of heat and catalysts to effect the rearrangement of certain hydrocarbon
molecules without altering their composition appreciably; for example, the conversion
of low-octane naphthas or gasolines into high-octane number products.
The number of futures contracts, as determined by the Exchange or the Commodity
Futures Trading Commission, above which a customer must be identified daily
to the Exchange and to the Commission with regard to the size of his position
by commodity, by delivery month, and by purpose of the trading.
Residual Fuel Oil
Heavy fuel oil produced from the residue in the fractional distillation process
rather than from the distilled fractions.
Opposite of support.
An order away from the market, waiting to be executed.
A special futures straddle trading procedure involving the shift of one month
of a straddle into another future month while maintaining the other contract
month of the original spread position. The shift can take place in either the
long or short straddle month.
A quantity of a commodity equal in size to the corresponding futures contract
for the commodity, as distinguished from a job lot, which may be larger or smaller
than the contract.
The completion of both a purchase and sale of a commodity futures contract.
A speculator on the trading floor of an exchange who buys and sells rapidly,
with small profits or losses, holding his positions for only a short time during
a trading session. Typically a scalper will stand ready to buy at a fraction
below the last transaction price and to sell at a fraction above, thus creating
A condition of the market in which there is a scarcity of goods available and
hence sellers can obtain better conditions of sale or higher prices. Opposite
of buyer's market.
Selling Hedge (or Short Hedge)
Selling futures contracts to protect against possible decreased prices of commodities.
Also see hedging.
Options on the same underlying futures contract which expire in more than one
month. NYMEX Division platinum options have serial expiration.
All options of the same class which share a common strike price.
Settlement or Settling Price
The price established by the Exchange settlement committee at the close of each
trading session as the official price to be used by the clearinghouse in determining
net gains or losses, margin requirements, and the next day's price limits. The
term "settlement price" is often used as an approximate equivalent
to the term "closing price." The close in futures trading refers to
a brief period at the end of the day, during which transactions frequently take
place quickly and at a range of prices immediately before the bell. Therefore,
there frequently is no one closing price, but a range of prices. The settlement
price is derived by calculating the weighted average of prices during that period.
1) The market position of a futures contract seller whose sale obligates him
to deliver the commodity unless he liquidates his contract by an offsetting
purchase. 2) A trader whose net position in the futures market shows an excess
of open sales over open purchases. 3) The holder of a short position. 4) In
the options market, the position of the seller of a call or a put option. The
short in the options market is obliged to take a futures position if he is assigned
for exercise. Opposite of long.
Selling a contract with the idea of delivering or of buying to offset it at
a later date.
Short the Basis
The purchase of futures as a hedge against a commitment to sell in the cash
or spot markets. See hedging.
Sour or Sweet Crude
Industry terms which denote the relative degree of a given crude oil's sulfur
content. Sour crude refers to those crudes with a comparatively high sulfur
content, 0.5% by weight and above; sweet refers to those crudes with sulfur
content of less than 0.5%.
Natural gas found with a sufficiently high quantity of sulfur to require purifying
prior to shipment or use.
The spark spread reflects the costs or anticipated costs of producing power
from a specific facility. It can be used as a method of converting millions
of Btus to megawatt hours and vice versa, and thus relates well to the electricity
and natural gas futures contracts. The spread is simply the heat rate (a proxy
for efficiency) of a specific generating unit or power system (the number of
Btus needed to make one kilowatt hour of electricity), multiplied by the cost
of energy expressed as dollars per British thermal units (Btus). For example,
if it takes 10,000 Btus to make one kilowatt hour of electricity, the formula
can be simplified by multiplying the price per million Btus (MMBtu) by 10 to
equate one MMBtu of natural gas to one megawatt hour (Mwh) of electricity. The
usefulness of the spread evaluation is dependent on the market price for power
which reflects the relationship of the supply and demand for power, not the
efficiencies of the generating units. Other costs affecting the price of power
using the spark spread evaluation include those of gas transportation, power
transmission, plant operations and maintenance, and fixed costs. Because the
electricity futures contract is specified in lots of 736 megawatt hours, and
the natural gas futures contracts are specified in units of 10,000 million Btus,
one power contract equates to 0.736 natural gas contracts.
1) Contract terms specified by the Exchange. 2) Term referring to the properties
of a given crude oil or refined petroleum product, which are "specified"
since they often vary widely even within the same grade of product. In the normal
process of negotiation, seller will guarantee buyer that the product or crude
to be sold will meet certain specified limits. Generally, the major properties
of oil that are guaranteed are API gravity, sulfur, pour point, viscosity, and
The ratio of the density of a substance at 60 degrees Farenheit to the density
of water at the same temperature.
Speculative Position Limit
The maximum position, either net long or net short, in one commodity futures
or options, or in all futures or options of one commodity combined, which may
be held or controlled by an entity without a hedge exemption as prescribed by
an exchange or the Commodity Futures Trading Commission.
A trader who hopes to profit from the specific directional price move of a futures
or options contract, or commodity.
Term which describes one-time open market case (CHANGE TO CASH) transaction,
where a commodity is purchased "on the spot" at current market rates.
Spot transactions are in contrast to term sales, which specify a steady supply
of product over a period of time.
The futures contract closest to maturity. The nearby delivery month.
The simultaneous purchase and sale of futures contracts for different months,
different commodities, or different grades of the same commodity.
The purchase and sale of options which vary in terms of type (call or put),
strike prices, expiration dates, or both. May also refer to an options contract
purchase (sale) and the simultaneous sale (purchase) of a futures contract for
the same underlying commodity.
A settlement procedure in which the purchase of a contract requires immediate
and full payment by the buyer to the seller. In stock-type settlement, the actual
cash profit or loss from a trade is not realized until the position is liquidated.
NYMEX Division energy and platinum options have this type of settlement procedure,
which differs from that in the futures market where gains and losses are realized
on a daily basis.
Stop Limit Order
An order that goes into force as soon as there is a trade at the specified stop
price. The order, however, can only be filled at the limit price or better.
The stop price and the limit price can be the same or different. The stop price
is the price level specified in the order.
A resting order designed to close out a losing position when the price reaches
a level specified in the order. It becomes an at-the-market order when the "stop"
price is reached. Individuals also use stops to enter the market when the prices
reach a specified level.
Also known as a spread, the purchase of one futures month against the sale of
another futures month of the same commodity. A straddle trade is based on a
price relationship between the two months.
The purchase or sale of both a put and a call having the same strike price and
expiration date. The buyer of a straddle benefits from increased volatility,
and the seller benefits from decreased volatility.
An options position consisting of the purchase or sale of put and call options
having the same expiration but different strike prices.
The price at which the underlying futures contract is bought or sold in the
event an option is exercised. Also called an exercise price.
The simultaneous purchase (or sale) of futures positions in consecutive months.
The average of the prices for the futures contracts bought (or sold) is the
price level of the hedge. A six-month strip, for example, consists of an equal
number of futures contracts for each of six consecutive contract months. Also
known as a calendar strip.
An element that is present in some oil and gas as an impurity in the form of
its various compounds.
In technical analysis, a price area where new buying is likely to come in and
stem any decline.
A position created by combining call and put options. A synthetic long futures
position is created by combining a long call option and a short put option for
the same expiration date and the same strike price. A synthetic short futures
position is created by combining a long put and a short call with the same expiration
date and the same strike price.
A custom-tailored, individually negotiated transaction designed to manage financial
risk, usually over a period of one to 12 years. Swaps can be conducted directly
by two counterparties, or through a third party such as a bank or brokerage
house. The writer of the swap, such as a bank or brokerage house, may elect
to assume the risk itself, or manage its own market exposure on an exchange.
Swap transactions include interest rate swaps, currency swaps, and price swaps
for commodities, including energy and metals. In a typical commodity or price
swap, parties exchange payments based on changes in the price of a commodity
or a market index, while fixing the price they effectively pay for the physical
commodity. The transaction enables each party to manage exposure to commodity
prices or index values. Settlements are usually made in cash.
A procedure in the rail shipment of crude oil, refined products, and other liquids
developed by General American Transportation (GATX). "Tank Train"
tank cars are interconnected, which permits loading and unloading of the entire
train of cars from one connection.
A schedule of rates or charges permitted a common carrier or utility; pipeline
tariffs are the charges made by pipelines for transporting crude oil, refined
products, or natural gas from an origin to a destination.
An approach to forecasting commodity prices which examines patterns of price
change, rates of change, and changes in trading volume and open interest, without
regard to underlying fundamental market conditions.
An option's value generated by a mathematical model given certain prior assumptions
about the term of the option, the characteristics of the underlying futures
contract, and prevailing interest rates.
100,000 British thermal units. A dekatherm is 1 million Btus.
The sensitivity of an option's value to a change in the amount of time to expiration.
1) A term used to describe the total volume of raw materials that are processed
by a plant such as an oil refinery in a given period. 2) The total volume of
crude oil and refined products that are handled by a tank farm, pipeline, or
terminal loading facility.
A minimum change in price, up or down.
The selling of a nearby option and buying of a more deferred option with the
same strike price.
Part of the options premium which reflects the excess over the intrinsic value,
or the entire premium if there is no intrinsic value. At given price levels,
the option's time value will decline until expiration. It is this decrease in
time value that makes options a wasting asset.
A firm which deals in the physical commodity.
A NYMEX ACCESS? workstation through which NYMEX ACCESS? orders are placed.
Buying and selling.
The number of contracts that change hands during a specified period of time.
Company that transports gas for resale on its own behalf or transports gas for
others. Also known as a pipeline company.
The general direction of price movement.
Chart patterns of the price movement of a commodity when the market consolidates
sideways. The price patterns are used by technical analysts to try to recognize
changes in a price trend.
A unit weight, equal to about 1.1 avoirdupois ounce. The troy ounce is the traditional
unit weight for precious metals, believed to be named after a weight used as
the annual fair at Troyes in France in the Middle Ages.
1 ounce troy = 480 grains = 31.04 grams
1,000 grams = 1 kilogram = 32.15 ounces troy
1,000 kilograms = 1 metric ton = 32,150 ounces troy
Type of Option Either puts or calls.
The stock, commodity, futures contract, or cash index against which the futures
or options contract is valued.
Payment made on a daily or intraday basis by a clearing member to the clearinghouse
to cover losses created by adverse price movement in positions carried by the
clearing member, calculated separately for customer and proprietary positions.
The sensitivity of an option's value to a change in volatility.
A method of measuring a given liquid's resistance to flow, usually decreasing
with increasing temperatures. Material with higher viscosity is more resistant
The market's price range and movement within that range. The direction of the
price move, whether up or down, is not relevant. Historic volatility indicates
how much prices have changed in the past and is derived by using daily settlement
prices for futures. Implied volatility measures how much the market thinks prices
will change in the future, and is obtained from daily settlement prices for
A document of title issued by a warehouse or depository for a specific lot
of stored metal that meets the specifications of the corresponding Exchange
metals futures contract. Metal that is "on warrant" is eligible for
delivery against a short position on the Exchange.
West Texas Intermediate
A grade of crude oil deliverable against the New York Mercantile Exchange light,
sweet crude oil contract. Nominally, the benchmark crude of the U.S. oil industry.
A physical barrel of crude oil or refined product as opposed to a "paper
Natural gas containing condensable hydrocarbons.
The seller of an option. Also known as the grantor of the option.
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1) A measure of the annual return on an investment expressed as a percentage.
2) The proportion of heavy or light products which can be derived from a given
barrel of crude oil.