| American option | An option that can be exercised any time up to the expiration date, in contrast to a European option.
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| Arbitrage | The practice of simultaneously buying and selling financial instruments to benefit from temporary price differences; eliminates a riskless profit opportunity.
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| Arbitrageurs | People who engage in arbitrage.
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| At-the-money option | An option whose strike price equals the current market price for the underlying instrument.
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| Call option | A contract that confers the right, but not the obligation, to purchase a financial instrument at a predetermined price on or prior to an agreed upon date.
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| Clearing corporation | The institution that acts as the counterparty to both sides of all futures market transactions, guaranteeing that the parties to the contract will meet their obligations.
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| European option | An option that can be exercised only on the expiration date, not before, in contrast with an American option.
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| Fixed-rate payer | The party to an interest-rate swap that is making fixed payments.
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| Forward contract | An agreement to exchange an asset for money in the future at a currently agreed upon price.
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| Futures contract | A standardized agreement specifying the delivery of an underlying asset (commodity or financial instrument) at a given future date for a currently agreedupon price.
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| Hedger | Someone who uses financial instruments, like derivatives, to reduce risk.
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| Interest-rate swap | A contract between two counterparties specifying the exchange of interest payments on a series of future dates.
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| In-the-money option | An option that would yield a profit if exercised immediately. A call option is in the money when the strike price is less than the current market price for the underlying instrument.
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| Long futures position | The position held by a buyer of a futures contract.
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| Margin | 1. A minimum down payment legally required to purchase a stock. 2. A deposit placed by the buyer and seller of a futures contract with the clearing corporation.
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| Notional principal | The amount upon which the interest payments in an interest-rate swap are based.
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| Option premium | The price the buyer of an option pays to the seller in excess of the value of the option if it were immediately exercised.
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| Out-of-the money option | An option that would not yield a profit if exercised immediately. A call option is out of the money when the strike price is more than the current market price for the underlying instrument.
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| Put option | A contract that confers the right, but not the obligation, to sell a financial instrument at a predetermined price on or prior to an agreed upon date.
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| Short futures position | The position held by the seller of a futures contract.
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| Speculator | Someone who takes risks for the purpose of making a profit.
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| Spot price | The market price paid for immediate delivery of a commodity or financial instrument.
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| strike price | The predetermined price at which a call or put option specifies that the underlying asset can be bought (call) or sold (put); also called the strike price.
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| Swap | A financial contract obligating one party to exchange one set of payments for a second set of payments made by a counterparty.
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| Swap spread | The difference between the benchmark interest rate and the swap rate, it is a measure of risk.
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