Trading Strategy Definitions

Bear Spread

(1) A strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but different strike prices. In a bear spread, the option that is purchased has a lower delta than the option that is bought. For example, in a call bear spread, the purchased option has a h

Spread (or Straddle)

The purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market ag

Basis Risk

The risk associated with an unexpected widening or narrowing of basis between the time a hedge position is established and the time that it is lifted.

Back Spread

A delta-neutral ratio spread in which more options are bought than sold. A back spread will be profitable if volatility increases. See also: Delta

Ladder Strategy

A strategy in which a bond portfolio is constructed that invests equal amounts of money in every maturity within a given range in order to offset interest rate risk.

Arbitrageur

An individual who attempts to profit from the differences in price when the same, or a similar, security, currency, or commodity is traded on two or more markets. The arbitrageur attempts to profit by simultaneously purchasing and selling to take advantage of pric

Arbitrage

Arbitrage describes the simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets. Also see: Spread

Selling Hedge (or Short Hedge)

Selling futures contracts to protect against possible decreased prices of commodities. See also: Hedging

Alligator Spread

Describes an options market spread, the commission for which is so large that the client is unlikely to make a profit even if the markets move in the client’s favor.

Dollar Cost Averaging

Dollar cost averaging refers to the practice of purchasing securities at predetermined intervals and at set amounts, protecting the investor against dramatic movements in price.