Arbitrage: The simultaneous purchase and sale of contracts designed to benefit from a temporary price discrepancy in their price relationship. In theory, an efficient market lacks an opportunity for profitable arbitrage.

Assignment: The designation by a clearing organization for an option seller in the event the short option is exercised. In the case of a call, the seller will be assigned a short futures position. For a put, the seller is assigned a long futures position.

Backwardation: A term for a market situation in which contract prices are progressively lower in the distant delivery months.

Basis: The difference between the spot market or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity.

Bear Spread: A trading strategy which combines one long and one short position which profit from a decline in prices.

Bid: The stated price at which a buyer wishes to acquire a contract.

Black-Scholes Model: A model for pricing options based on the model developed by Fischer Black and Myron Scholes for pricing securities options.

Bull Spread: A trading strategy which combines one long and one short position which profit from a rise in prices.

Butterfly Spread: An option spread with three legs in which each leg has the same expiration date but different strike prices

Buy (or Sell) On Close: An order to buy (or sell) at the end of the trading session within the closing price range.

Buy (or Sell) On Opening: An order to buy (or sell) at the beginning of a trading session within the open price range.

Calendar Spread: A trading strategy involving the purchase and simultaneous sale of contracts which differ only in delivery month or, in the case of options, expiration date. Also referred to as a horizontal spread or time spread.

Call: An option contract which gives the buyer the right but not the obligation to purchase the underlying instrument at the strike price.

Carrying Charges: The costs of storing or holding a physical commodity or financial instrument over a length of time. These charges can include storage, insurance, and other incidentals.

Cash Market: The spot market for a physical commodity as either an organized, self-regulated central market, a decentralized over-the-counter market or a local organization like a grain elevator.

Clearing Organization: An affiliate or freestanding entity for an exchange through which all futures and transactions are settled. Also responsible for ensuring proper conduct for delivery and financial obligations. Also known as a clearing house or clearing association.

Combination: A long or short position which contains both puts and calls with different strike prices and/or expiration dates.

Commitments of Traders Report (COT): A weekly report from the CFTC providing a breakdown of open interest for actively traded markets in which 20 or more traders hold positions equal to or above the reporting levels.

Commodity: A tangible good or commodity as defined by the Commodity Exchange Act.

Commodity Exchange Act: A congressional act which provides for the federal regulation of commodity futures and options trading.

Commodity Futures Trading Commission(CFTC): The Federal regulatory agency established by the Commodity Futures Trading Act of 1974 to administer the Commodity Exchange Act.

Commodity Option: A derivative contract on a commodity or a futures contract.

Commodity Pool: An investment trust or similar form of enterprise operated for the purpose of trading commodity futures or option contracts with "pooled" or collective funds of multiple participants who share in profits or losses.

Commodity Trading Advisor (CTA): A person engaged in the business of advising others in the trading of commodity futures or options or who issues analysis concerning futures or options in exchange for a fee.

Congestion: For technical analysis, a period of time marked by limited and repetitive price fluctuations or a market in which shorts are attempting to cover their positions and are unable to find an adequate supply longs willing to liquidate or fresh buyers entering the market.

Contract Grades: The grades of a commodity specified by the futures contract as qualifying for delivery for settling a futures contract.

Cover: The act of purchasing a futures contract to offset a short futures position.

Conversion: A position created by selling a call option, buying a put option, and buying the underlying instrument (for example, a futures contract), where the options have the same strike price and the same expiration date.

Covered Option: A short call or put option position that is covered by the sale or purchase of the underlying futures contract or other underlying instrument. In the case of options on futures contracts, a covered call is a short call position combined with a long futures position. A covered put is a short put position combined with a short futures position.

Crack Spread: The purchase of a crude oil futures contract combined with the simultaneous sale of heating oil or gasoline futures.

Credit Spread: The difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities.

Cross-Hedge: The act of hedging an actual cash position with a futures or options contract in a different but related market.

Crush Spread: The purchase of a soybean futures contract combined with the simultaneous sale of soybean oil and soybean meal futures.

Day Order: An order which is good for the current trading session and expires if not filled by the close.

Daily Price Limit: A maximum price move above or below the previous session's closing price.

Delivery: The receipt and tender of the actual underlying commodity for a futures contract or of a delivery instrument covering the commodity like a warehouse receipt or cash.

Delta: The expected change in an option's price given a one-unit change in the price of the underlying futures contract or physical commodity.

Delta Neutral: A position involving options that is designed to have an overall delta of zero.

Derivative: A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement.

Diagonal Spread: A spread which includes two options with different strike prices and different expiration dates.

Expiration Date: The date at which an option expires and the last day on which it can be exercised.

Fast Market: Also known as fast tape, this designates a market in which transactions are occurring in great volume with great rapidity.

Fill or Kill Order (FOK): An order which instructs that it be immediately executed or cancelled. Usually, this order will involve a designation to offer or bid once and if not filled immediately, it is cancelled.

Final Settlement Price: The price at which a cash-settled futures contract is settled at maturity following the procedure specified by the exchange.

First Notice Day: The first day on which sellers of actual commodities can issue notices of intent to deliver against a contract.

Forced Liquidation: The act of a broker offsetting all open positions in a customer's account in the event of a margin call when the customer leaves the account under margined after notification.

Forward Contract: A non-standardized agreement between a buyer and a seller to transact a commodity sale, usually with a price agreement in advance.

Front Month: The nearest traded contract month for a commodity.

Fundamental Analysis: The applied study of the underlying factors for a market which influence supply and demand.

Futures Commission Merchant (FCM): Formal entities that solicit or accept orders for the purchase or sale of commodity futures and collect payment or issue credit for the accepted orders.

Futures Contract: A standardize agreement to purchase or sell a commodity for a future delivery date at a price agreed when initiated and which obliges each party to fulfill the contract at the specified price. This contract may be satisfied through delivery or it may be offset prior to maturity.

Futures Option: An option on a futures contract.

Gamma: A measure of how fast the delta of an option changes, given a unit change in the underlying futures price.

Good 'Till Canceled Order (GTC): An order to purchase or sell a contract which is valid until cancelled or it expires at the end of the last trading day on the relevant market, also known as an open order.

Hedging: Taking a position in a commodity futures market that is opposite to actual cash holdings or an actual interest for the purposes of minimizing the financial risk associated with adverse price movements.

Historical Volatility: A statistical measure of the volatility of a futures contract over a number of previous trading days.

Horizontal Spread: An option trade which contains a long and a short option position which differ only in expiration date. Also called a time spread or calendar spread.

Implied Volatility: The volatility of a futures contract as implied by the prices of an option on that instrument, calculated using an option pricing model.

In-The-Money: An expression used for an option which would have a value if exercised.

Initial Margin: Funds in a trading account which are required as a performance bond against a newly initiated contract position.

Intrinsic Value: An expression for the portion of an option's price which would have value if exercised.

Introducing Broker (IB): A person or entity who is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on an exchange who does not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts that result.

Inverted Market: A futures market in which the nearer months are selling at prices higher than the more distant months; a market displaying "inverse carrying charges," characteristic of markets with supply shortages.

Last Trading Day: Day on which trading ceases for the maturing delivery month.

Limit (Up or Down): The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.

Limit Order: A customer order which specifies a minimum sale price or maximum sale price for a contract.

Margin: The amount of money in an account which is required as a performance bond for each position initiated. i.e. a performance bond. Calculated by the SPAN Margin system, margin has two components. Initial Margin is the amount required for each new option position and maintenance margin lowest level to which an account may drop before the owner will be required to deposit additional funds.

Margin Call: A request by the clearing firm or organization to deposit additional funds to maintain a position. A margin call is initiated once an account falls below the maintenance margin level.

Market-if-Touched (MIT) Order: An order which specifies a price to which a market must trade before the order becomes a market order. Sell MIT orders are placed above the market and buy MIT orders below.

Market-on-Close: An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market-on-Opening: An order to buy or sell at the beginning of the trading session at a price within the opening range of prices.

Market Order: An order to buy or sell a futures contract at the best possible price upon reaching the trading floor or platform.

Naked Option: A short option position in which no other position in the account would offset the assigned contract.

Offer: An expression of the price at which someone is willing to sell a contract. Also referred to as the "ask".

One Cancels the Other (OCO) Order: A pair of orders which specify if one is executed, the other will automatically be cancelled.

Open Interest: The total number of futures contracts long or short in a delivery month or market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery. Also called open contracts or open commitments.

Open Order: An order that remains valid until it is canceled or until the contract expires, also known as a GTC order.

Open Outcry: The method of public auction at commodity exchanges where traders bid and offer for their own accounts or for customer accounts. Transactions must take place within the pit or ring.

Option: A contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument. Can be either a put or call.

Option Buyer: A person who buys calls, puts, or any combination of calls and puts.

Option Writer: A person who originates an option contract by promising to perform a certain obligation in return for the price or premium of the option. Also known as option seller.

Option Pricing Model: A mathematical model used to calculate the theoretical value of an option.

Out-Of-The-Money: A term for an option with no intrinsic value.

Premium: The expression of the dollar value at which someone buys or sells an option.

Put: An option contract that gives the holder the right but not the obligation to sell a specified quantity of a particular commodity or other interest at a given price (the "strike price") prior to or on a future date.

Ratio Spread: This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price. Ratio spreads can be designed to be delta neutral.

Risk/Reward Ratio: The relationship between the probability of profit versus the risk of loss.

Round Turn: A completed transaction involving both a purchase and sale of a contract.

SPAN^® (Standard Portfolio Analysis of Risk^®): As developed by the Chicago Mercantile Exchange, the industry standard for calculating performance bond requirements or margins on the basis of overall portfolio risk.

Settlement Price: The daily price at which the clearing house clears all trades and settles all accounts between clearing members of each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries. The term also refers to a price established by the exchange to even up positions which may not be able to be liquidated in regular trading.

Spread: The purchase of one futures or option contract against the sale of another contract of the same or similar commodities. These purchase and sale combinations can differ in delivery month or, in the case of options, in strike price. A crack spread is a purchase / sale combination of crude oil futures and distillate futures. A crush spread is the purchase / sale combination of soybean futures and bean oil or meal futures.

Speculator: One who trades with the objective of achieving profits through trading futures or options on futures rather than hedging.

Spot Price: The cash price agreed for a commodity available for immediate delivery.

Stop Limit Order: An order which specifies that it is not active until trading occurs at a specified price at which time the order may only be filled at the given price or better.

Stop Order: An order which specifies that after trading reaches passes through a certain price, the order will be filled at the best possible price. A sell stop price is placed above the market and a buy stop price is placed above the market. These orders are also known as stop loss orders when they are placed in conjunction with an opposite open position in the same market.

Straddle: An option position involving the purchase or sale of both a call and put with the same strike prices and expiration.

Strangle: An option position involving the purchase or sale of both a call and put with different strike prices but the same expiration date.

Strike Price: The price in an option contract at which the underlying futures will be purchased or sold.

Synthetic Futures: 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 and the same strike price. A synthetic short futures contract is created by combining a long put and a short call with the same expiration date and the same strike price.

Technical Analysis: A method of forecasting future market price movement based on patterns formed by current and past pricing, volume, and other charting techniques.

Tick: The minimum price increment at which a futures contract can move up or down; the minimum price fluctuation.

Time Decay: The tendency of an option to lose value with the passage of time.

Time Value: An expression for the portion of an option's value which represents the amount of time left until expiration.

Underlying Commodity: The cash commodity which a futures contract represents or the futures contract on which an option contract is based.

Vega: A measure of an option's price sensitivity to change given a change in the underlying market volatility.

Vertical Spread: The combined sale and purchase of option contracts which differ only in strike price.

Volatility: An expression of the rate of price change in a futures contract. Implied volatility is the likelihood of future price changes and historic volatility is the measure of previous price changes.