The U.S. Treasury yield curve derived using on-the-run treasuries. The on-the-run Treasury curve is the primary benchmark used in pricing-fixed income securities. |||While the on-the-run Treasury yield curve is typically used to price fixed-income securities, its shape is sometimes distorted by up to several basis points if an on-the-run Treasury goes "on special". A Treasury goes on special when its price is temporarily bid up, usually as the result of demand by securities dealers to use the security as a hedging vehicle.
Short for standardized portfolio analysis of risk (SPAN). This is a leading margin system, which has been adopted by most options and futures exchanges around the world. SPAN is based on a sophisticated set of algorithms that determine margin according to a global (total portfolio) assessment of the one-day risk for a trader's account. Options and futures writers are required to have a sufficient amount of margin in their accounts to cover potential losses. The SPAN system, through its algorithms, sets the margin of each position to its calculated worst possible one-day move. The system, after calculating the margin of each position, can shift any excess margin on existing positions to new positions or existing positions that are short of margin.
An options or futures investor holding or controlling a single position below the required reporting levels. The reporting level for each option or futures contract is set by the CFTC and individual exchanges.
The most recently issued U.S. Treasury bond or note of a particular maturity. These are the opposite of "off-the-run treasuries". |||When quoting the price or yield of a Treasury, all market commentary refers to the on-the-run issue. The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically are a little bit more expensive and, therefore, yield less than their off-the-run counterparts.
Mainly used for fixed-income products, OAS measures the yield spread that is not directly attributable to the security's characteristics. |||This is a measurement tool for evaluating price differences between similar products with different embedded options. A larger OAS implies a greater return for greater risks.
An investment strategy that attempts to mimic the returns of a certain asset or group of assets by using a combination of different derivatives rather than buying the individual shares in the market. Traders will attempt to profit from the leverage found in options and futures because they can provide the same type of exposure to the underlying asset for a lower cost than if the trader were to buy the underlying assets outright. An example of a stock replacement strategy would be to buy deep in-the-money options. The reason many traders use this strategy is because the delta of deep in-the-money options is close to 1, which means that the option will increase by $1 for every favorable $1 move in the underlying security. Buying in-the-money options allows a trader to have the same type of exposure to a stock for a lower cost than having to buy the shares. However, keep in mind that incorporating leverage creates a new set of risks, so it is a good idea to contact your financial advisor before incorporating a stock replacement strategy into your investment portfolio.
A series of fixed payments made at the end of each period over a fixed amount of time. |||An ordinary annuity is essentially a level stream of cash flows for a fixed period of time. Straight bond coupon payments are normally referred to as ordinary annuities.
A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date. In the U.K., it is known as a "share option". American options can be exercised anytime between the date of purchase and the expiration date. European options may only be redeemed at the expiration date. Most exchange-traded stock options are American.
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