Bar chart
A graphic representation of price movement disclosing the high, low, close, and sometimes the opening prices for the day. A vertical line is drawn to correspond with the price range for the day, while a horizontal “tick” pointing to the left reveals the opening price, and a tick to the right indicates the closing price. After days of charting, patterns start to emerge, which technicians interpret for their price predictions.
Basis
The difference between the cash price and the futures price of a commodity. CASH – FUTURES = BASIS. Basis also is used to refer to the difference between prices at different markets or between different commodity grades.
Bear call spread
The purchase of a call with a high strike price against the sale of a call with a lower strike price. The maximum profit receivable is the net premium received (premium received – premium paid), while the maximum loss is calculated by subtracting the net premium received from the difference between the high strike price and the low strike price (high strike price – low strike price net premium received). A bear call spread should be entered when lower prices are expected. It is a type of vertical spread.
Bear market (bear/bearish)
When prices are declining, the market is said to be a “bear market”; individuals who anticipate lower prices are “bears.” Situations believed to bring with them lower prices are considered “bearish.”
Bear put spread
The purchase of a put with a high strike price against the sale of a put with a lower strike price in expectation of declining prices. The maximum profit is calculated as follows: (high strike price – low strike price) – net premium received where net premium received = premiums paid – premiums received.
Bear spread
Sale of a near month futures contract against the purchase of a deferred month futures contract in expectation of a price decline in the near month relative to the more distant month. Example: selling a December contract and buying the more distant March contract.
Bearish
When market prices tend to go lower, the market is said to be bearish. Someone who expects prices to trend lower is “bearish.”
Beta
A measure correlating stock price movement to the movement of an index. Beta is used to determine the number of contracts required to hedge with stock index futures or futures options.
Bid
The request to buy a futures contract at a specified price; the opposite of offer.
Board of trade
An exchange or association of persons participating in the business of buying or selling any commodity or receiving it for sale on consignment. Generally, an exchange where commodity futures and/or futures options are traded. See also Contract market and Exchange.
Board orders
See Market if touched order.
Break
A sudden price move; prices may break up or down.
Break-even
Refers to a price at which an option’s cost is equal to the proceeds acquired by exercising the option. The buyer of a call pays a premium. His break-even point is calculated by adding the premium paid to the call’s strike price. For example, if you purchase a May 58 cotton call for 2.25¢ per pound when May cotton futures are at 59.48¢/lb., the break-even price is 60.25¢/lb. (58.00¢/lb. + 2.25¢/lb. = 60.25¢/lb.). For a put purchaser, the break-even point is calculated by subtracting the premium paid from the put’s strike price. Please note that, for puts, you do not exercise unless the futures price is below the break-even point.
Broker
An agent who executes trades (buy or sell orders) for customers. He receives a commission for these services. Other terms used to describe a broker include: a) Account Executive (AE), b) Associated Person (AP), c) Registered Commodity Representative (RCR), d) NFA Associate.
Bull call spread
The purchase of a call with a low strike price against the sale of a call with a higher strike price; prices are expected to rise. The maximum potential profit is calculated as follows: (high strike price – low strike price) – net premium cost, where net premium cost = premiums paid – premiums received. The maximum possible loss is the net premium cost.
Bull market (bull/bullish)
When prices are rising, the market is said to be a “bull market”; individuals who anticipate higher prices are considered “bulls.” Situations arising which are expected to bring higher prices are called “bullish.”
Bull put spread
The purchase of a put with a low strike price against the sale of a call with a higher strike price; prices are expected to rise. The maximum potential profit equals the net premium received. The maximum loss is calculated as follows: (high strike price – low strike price) – net premium received where net premium received = premiums paid – premiums received.
Bull spread
The purchase of near month futures contracts against the sale of deferred month futures contracts in expectation of a price rise in the near month relative to the deferred. One type of bull spread, the limited risk spread, is placed only when the market is near full carrying charges. See Limited risk spread.
Bullish
A tendency for prices to move up.
Butterfly spread
Established by buying an at-the-money option, selling 2 out-of-the money options, and buying an out-of-the money option. A butterfly is entered anytime a credit can be received; i.e., the premiums received are more than those paid.
Buy stop/sell stop orders
See Stop orders.
Buyer
Anyone who enters the market to purchase a good or service. For futures, a buyer can be establishing a new position by purchasing a contract (going long), or liquidating an existing short position. Puts and calls can also be bought, giving the buyer the right to purchase or sell an underlying futures contract at a set price within a certain period of time.
