| A | B |
|---|
| commodity | raw agricultural product |
| CBOT | Chicago Board of Trade |
| Chicago Board of Trade | allow buyers and sellers to get together in one place |
| Futures contracts | standardized agreements for quality, quantity, time, and location of delivery |
| Offset | taking a futures position opposite the initial transaction |
| margining system | traders deposit funds to guarantee contract performance |
| Commodity exchanges | buyers to get together in one place for a specific raw agricultural product |
| option | right but not the obligation to buy or sell futures contracts |
| Options specify | buy or sell, commodity, contract month, price |
| life of an option | 1-2 weeks before delivery date |
| Strike price | price of an option |
| Premium | paid to the seller of an option |
| Put option | right to sell a futures contract at a specific price |
| Call option | right to buy a futures contract at a specific price |
| Exercise the option | exchange it for a futures contract |
| option premiums | amount you pay when you buy an option |
| Intrinsic Value | relationship between strike price and current futures price |
| Intrinsic value for a put option | strike price-futures price, never negative |
| Intrinsic value for a call option | futures price-strike price |
| Speculators | those who are willing to accept price risk. They just buy and sell futures contracts and hope to make a profit on their expectations of future price movements. |
| hedging | buy or sell futures contracts to protect profit of margin against possible price change of a cash commodity that he or she plans to buy or sell. |
| long hedge | buying of a futures contract |
| short hedge | selling of a futures contract |
| Basis | relationship between cash prices and futures price |
| bear market | period of declining market |
| bull market | period of rising market prices |
| margin call | the request for additional money |
