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A | B | C | D | E | G | I | M | P | S | U | V | W
- A
- American Option
- An option that can be exercised anytime during its life. The majority of exchange-traded options are American.
- Asian Option
- An option whose payoff depends on the average price of the underlying asset over a certain period of time as opposed to at maturity. Also known as an average option.
- At The Money
- An option is at-the-money if the strike price of the option equals the market price of the underlying security.
- B
- Black Scholes Model
- A model of price variation over time of financial instruments such as stocks that can, among other things, be used to determine the price of a European call option. The model assumes that the price of heavily traded assets follow a geometric Brownian motion with constant drift and volatility. When applied to a stock option, the model incorporates the constant price variation of the stock, the time value of money, the option's strike price and the time to the option's expiry.
- C
- Call
- A Call Warrant gives the holder the right, but not the obligation, to buy the underlying share for a fixed price known as the "exercise price" at a future date or, in the case of a cash settled warrant to receive a cash settlement amount reflecting the amount by which the share is above the exercise price. Taking up this right is know as "exercising" the warrant.
- D
- Delta
- The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the "hedge ratio".
- E
- European Option
- An option that can only be exercised at the end of its life.
- Exercise
- An action by a stockholder taking advantage of a privilege offered by a company or other financial institution. This includes warrants, options and other exotic financial instruments.
- Exotic Option
- A type of option that differs from common American or European options in terms of the underlying asset or the calculation of how or when the investor receives a certain payoff. These options are more complex than options that trade on an exchange, and generally trade over the counter.
- G
- Gamma
- The rate of change for delta with respect to the underlying asset's price. Mathematically, gamma is the first derivative of delta and is used when trying to gauge the price of an option relative to the amount it is in or out of the money.
- Greeks
- Dimensions of risk involved in taking a position in an option (or other derivative). Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Various sophisticated hedging strategies are used to neutralize or decrease the effects of each variable of risk.
- I
- Implied Volatility
- The estimated volatility of a security's price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets. In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the Black-Scholes Model.
- Intrinsic Value
- For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero.
- M
- Maturity
- The end of the life of a security.
- Moneyness
- Moneyness tells option holders whether exercising will lead to a profit. There are many forms of moneyness, including in,out or at the money. Moneyness looks at the value of an option if you were to exercise it right away. A loss would signify the option is out of the money, while a gain would mean it's in the money. At the money means that you will break even upon exercising the option.
- P
- Premium
- Like a derivative option, warrants will have an intrinsic value and extrinsic value. For a warrant, the intrinsic value is the difference between the warrant's exercise price and the market price of the underlying. The premium is anything paid above the intrinsic value for the warrant. Typically the premium will decrease as the price of the warrant rises and the time to expiration decreases.
- Put
- An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.
- S
- Strike
- The stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract.
- Synthetic
- A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.
- U
- Underlying
- In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised.
- V
- Volatility
- A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used.
- Volatility Smile
- A common graphical shape that results from plotting the strike price and implied volatility of a group of options with the same expiration date. Volatility increases as the option becomes increasingly in-the-money and out-of-the-money.
- W
- Warrant
- A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.
- Warrants per Share
- Warrants per Share (sometimes abreviated to WPS) is the number of warrants needed in order to buy (or sell) one share at expiry. Conversion Ratio is the inverse of warrants per share and is usually expressed as a decimal.
For example, if the warrants per share for a warrant is 6.0, this means that the holder needs six warrants in order to purchase one share at expiry. The conversion ratio in this case would be 0.167 (or 1 divided by 6). This figure would also be used to determine the cash settlement amount on the expiry date.
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While Macquarie Capital Securities (Singapore) Pte Limited ("MCSSPL") provides the information in good faith and derived from sources believed to be reliable, MCSSPL does not represent or warrant the completeness, reliability, accuracy, timeliness or fitness for any purpose of any of the material and it accepts no responsibility for the accuracy, completeness or timeliness of the information.
This internet site is produced by 'Macquarie Warrants Singapore - Macquarie Capital Securities (Singapore) Pte Limited (Registration No 198702912C)', holder of a capital markets services licence under the Securities and Futures Act, Chapter 289 of Singapore. The information on this internet site is directed and available to residents of Singapore only and is not provided to any person who is a resident of the United States or any other country. Any material provided on this internet site, including any indicative terms are provided for information purposes only and do not constitute an offer, a solicitation of an offer, or any advice or recommendation to conclude any transaction (whether on the indicative terms or otherwise). We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The price of warrants may go down as well as up and there is a risk that an investor may lose some or all their investments. Past performance is not indicative of future performance.
Please visit the following webpage: Company Disclosures for disclosure of corporate finance relationship with the Macquarie Group.
MCSSPL is not an authorised deposit taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia), and MCSSPL's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not otherwise guarantee or provide assurance in respect of the obligations of MCSSPL.
MBL does not carry on banking business in Singapore, does not hold a license under the Banking Act, Chapter 19 of Singapore and therefore is not subject to the supervision of the Monetary Authority of Singapore in respect thereof.
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