The simultaneous purchase and sale of equivalent securities and futures in order to benefit from an anticipated change in their price relationship

The price at which the party is willing to sell.

An option with an exercise price equal or near to the current underlying futures price.

The difference between the Futures price and the current index value.

The relationship between the movement of an individual stock or a portfolio and that of the overall Stock Market or an Index.

A spread that is put on with the expectation that the futures price will decline.

The price at which a party is willing to buy.

A spread position taken in the expectation that the futures price will rise.

SAFEX Call options are standardized agreements between buyers and sellers. The buyer has the right, but is not obligated, to buy the same quantity of futures contracts at a price equal to the strike level of the option on expiry date. For this right the buyer pays a premium to the seller. The seller of the call option contract, sells to the buyer, the right to buy futures contracts from him at a price equal to the strike level of the option on expiry date. The seller will receive the option premium.

Applies to the expiration of quarterly index options and futures contracts.  There is no delivery of securities, and the full value of the contract is not transferred.  Final settlement will occur on the morning following the last day of trading when all open positions will be marked to the closing level of the futures contract as determined by SAFEX on expiry day.  Expiring options that are in-the-money based on the expiry level will be automatically exercised.  This results, in effect, in cash settlement for the in-the-money amount.

A Bank or clearing member appointed by SAFEX that clears all transactions in the Derivatives Market.

The sale of an option against a position in the underlying futures contract.

A spread in which the value of the option sold exceeds the value of the option purchased.

A spread in which the value of the option purchased exceeds the value of the option sold.

The process by which funds and the physical commodity change hands upon expiration of a futures contract.

A measure of the price-change relationship between an option and the underlying future.

The double in a market is the difference in price that prevailing buyers and sellers are willing to transact at, at that specific moment in time.

The price at which futures positions are established upon the exercise of an option.  Also called strike price.

The last day that an option may be exercised.  (See Last Trading Day)

Margin is a deposit of good faith, placed with broking members of an exchange by futures and options traders to protect the member against short term price fluctuations. The broking member acts as an agent and enters into futures and option transactions on the behalf of traders. The derivatives exchange determines margin levels on each and every instrument listed and varies from time to time according to prevailing market conditions and volatility. This margin is levied from members on a daily basis. The members have the right to levy additional margin over and above the margin requirements of the exchange from the traders that it acts as agent for.

Futures contracts are traded on a regulated exchange where buyers and sellers come together to trade. Traded futures contracts are standardised by the exchange relating to the underlying asset, expiry date, quantity, leverage and settlement procedures. A futures contract is a contractual agreement between a buyer and a seller, where the buyer is obligated to take delivery of an asset at a future date, stipulated in the contract, at a price determined at the time when the contract was entered into or trade date. The seller of the contract is obligated to deliver the stipulated asset to the exchange at the contract expiry date. Two types of settlement can occur. Firstly, South African Index Futures are settled in cash, in other words, the difference in cash value of the index between trade date and expiry date is paid to the profiting party and levied from the losing party. Secondly, physical settlement systems are where the actual asset (i.e. individual equity futures or commodities) actually changes hands at the expiry date of the contract.

The limitation of risk in the event that investments do not perform as expected.  In the futures context, to hedge is to take a futures position opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change; a purchase or sale of futures as a temporary substitute for a cash transaction that will occur later.

A situation in which the market price of a futures contract is higher than the exercise price of a call, or lower than the exercise price of a put.

That portion of an option's premium that represents the amount an option is in-the-money.

For Index and Single Stock Futures and for quarterly options, this will be the Thursday prior to the third Friday of the Contract month.

An order in which the client specifies a price; the order can only be executed if the market reaches or betters that price.

Indicates ownership.  In the futures, a long has purchased the commodity for future delivery.  In the options, the long has purchased the call or the put option.

Funds that must be deposited with the broker for each future or written option contract as a guarantee of fulfillment of the contract. Also called security deposit.

A sum, usually smaller than - but part of - the initial margin that must be maintained on deposit at all times.

Daily, SAFEX adjusts all open positions to reflect the settlement price of each contract.  Each position is credited with profit or or charged with loss, and begins the next trading day at the settlement price.

An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Any position that liquidates or closes out an open contract position.

A situation in which the market price of a futures contract is below the exercise price of a call, or above the exercise price of a put.

The price of an option agreed upon by the buyer and the seller when the transaction is concluded.

SAFEX Put options are standardised agreements between buyers and sellers. The buyer has the right, but is not obligated, to sell the same quantity of futures contracts at a price equal to the strike level of the option on expiry date. For this right, the buyer pays a premium to the seller. The seller of the call option contract sells to the buyer, the right to sell futures contracts to him at a price equal to the strike level of the option on expiry date. The seller will receive the option premium.

A figure determined by the closing range, used to calculate gains and losses in futures market accounts.

Indicates obligation.  In the futures, the short has sold the commodity for future delivery.  In the options, the short has sold the call or put, and is obliged to take a futures position if he is assigned for exercise.

Every derivative instrument has an underlying asset that it is based on. A referral to the spot market means this underlying asset. In the case of Index futures, the underlying spot is the index that the future is based on. (I.e. the FTSE-JSE top 40 index, Industrial 25 index, etc.)

The current market price of the actual stock index.  Also called the cash price.

Holding a long and a short position in two related contracts, with the object of capturing profit from a changing price relationship.  The term also refers to the price difference between the contracts.

An order to buy or sell at the market when a definite price is reached, either above or below the price that prevailed when the order was given.

The purchase or sale of both a put and a call having the same exercise price and expiration date.

That portion of an option's premium that represents the amount in excess of the intrinsic value.

The sale of an option without a position in the underlying futures position.

The number of transactions in a contract made during a specific period of time.

The seller of an option.