Good Till Cancelled (G.T.C.) order
A Good Till Cancelled (G.T.C.) order is active until it is either filled or manually canceled, even if this takes several days. It can be a sell order or a buy order.
The opposite is a day order. A day order is automatically canceled at the end of the trading day if it hasn’t been filled by then. It can be a sell order or a buy order.
Greeks in finance – what are they?
In mathematical finance, the Greeks are quantities representing the sensitivity of the price of derivatives to a change in underlying parameters. The most well-known of these are denoted by Greek letters, and that is why we used the term “The Greeks”. Examples include Delta, Vega, Theta, Rho and Gamma. For an investor or speculator, understanding the Greeks are important since they are vital tools in risk management.
Gamma is the rate of change for delta with respect to the underlying asset’s price. Gamma is the first derivative of delta. It can be used to gauge the price movement of an option in relation to how much in the money or out of the money the option is. The popular delta-hedge strategy among traders is based on reducing gamma to achieve a hedge of a wider price range. Gamma is the third letter of the Greek alphabet.
Delta refers to the relationship between an option’s value change and the underlying asset’s market price. Spread delta is a measure of how sensitive a spread is to a price change in the underlying asset. Delta hedge is an options hedge where the reciprocal of the option delta is allowed to determine the number of contracts. Delta is the fourth letter of the Greek alphabet.
Theta represents the lost-value rate of an option over time (i.e. time value decay). Theta is the eight letter in the Greek alphabet.
In finance, a hedge is an investment position held to offset potentially losses or gains that may be incurred by a companion investment. A lot of different things can be used in this fashion, including stocks, options, swaps, forwards and futures contracts.
The idea behind hedging is to diminish (or, ideally, completely offset) a loss incurred by one investment by using a companion investment. This tactic can be used to mitigate a long row of different risks, such as currency risk, interest rate risk or commodity risk – to mention a few.
The person or entity that carries of hedging is called hedger.
Recently, so called hedge funds has attracted a lot of attention both in the form of praise and in the form of criticism. A hedge fund is a fund engaged in hedged investment strategies or hedged speculation.
Historical volatility for a financial instrument
The historical volatility for a financial instrument is the realized volatility over a given time period. It is abbreviated hv and is usually expressed as average deviation from the average price.
For investors and speculators, historical volatility is of interest since comparing historical volatility to implied volatility is seen as one (but not the only) way to ascertain if a financial instrument is over-valued or under-valued.
Intrinsic value of an option
The intrinsic value of an option is the profit (if any) that would be gained right now if the option was exercised at its current price.
If you purchase an asset with the hopes of it rising in value, you are in a long position.
The opposite of a long position is a short position, where you borrow an asset and sell it, hoping for it to decrease in value so that you can purchase it back for a lower price when it is time for you to return the borrowed asset.
The amount that must be placed in collateral to open a position is called initial margin requirement. The one asking for collateral can for instance be an exchange, a broker or a clearinghouse. The collateral is placed in a margin account. The asset can be anything accepted by the entity making the request, but is usually cash or securities.
The amount that must be kept in the margin account is usually lower than the initial requirement, and is known as margin maintenance requirement. The riskier the instruments, the higher the maintenance requirement. The collateral in the margin account is intended to cover some or all of the credit risk of the counterpart. (The counterpart can be an exchange, broker, or similar.)
A margin call is when you are requested to add more collateral to your margin account to cover losses on an outstanding open position. If you do not add more collateral or close the position voluntarily, the position can be closed for you.
Market On Close (M.O.C.) order
If you want a trader to execute your order close towards the end of the trading day, you place a Market On Close Order (also known as at-the-close order). It is abbreviated M.O.C order. It is up to the trader to decide exactly how near the end of the trading day that your order will be executed.
Nowadays, most exchanges have rules for how late a Market On Close order can be submitted, canceled or modified. For NYSE the cut-off is 15:45 and for NASDAQ it is 15:50 EST.