Vontobel derivatives glossary

A

American-style optionOption which can be exercised at any time before expiry. An option which can only be exercised on the expiry date is known as an European option.
AskPrice at which a warrant is offered for sale by the market maker. This is the price you are charged when you buy a warrant. Also called: offering or asking price.
Asking pricePrice at which a warrant is offered for sale by the market maker. This is the price you are charged when you buy a warrant. Also called: offering price, ask.
At the moneyExercise or strike practically equals the price of the underlying instrument.
Average spread as %Like “Spread as %”, but based on the bid and offer prices of the preceding 5 trading days.
Average turnover 1000 CHFLike the “Volume 1000 CHF” but instead based on the average figure for the preceding 5 trading days. This figure indicates the average (5-day) liquidity of a warrant.

B

BidPurchase price of a warrant from a market maker’s view. This is the price you receive when you sell a warrant. Also called: bid price
Break evenPrice of underlying at which neither a profit nor a loss result. With reference to a call option, break even corresponds to the underlying price plus the price of the warrant. With reference to a put option, break even corresponds to the underlying price minus the price of the warrant. Also called: break-even point.

C

Call optionOption entitling but not obligating the buyer to acquire a specified amount of a certain underlying instrument at a predetermined underlying price within a specific period of time or receive the intrinsic value of the option in cash. Anticipation of rising value (opposite of a put option). Also called: call.
Cash settlementDifference between exercise price and the price of the underlying instrument paid out on expiry.
CodeCodes are used to identify warrants.
COSI®

Collateralized Secured Instruments ("COSI"®) are suitable for investors seeking to minimize the issuer risk related to structured products. For this insurance, they waive a marginal share of their profit. In general, a simple and effective collateralization is possible for most listed certificates within the range of capital protection, yield enhancement and participation. With this service, investors benefit from a great flexibility, innovation and a short lead time of structured products. At the same time, they are protected against the issuer default risk.

 

D

DeltaMeasure indicating the change in the price of an option when the price of the underlying instrument changes by one unit and all other factors remain unchanged.
DerivativeFinancial instrument, the value of which depends on price movements of an underlying instrument (future, forward, option, swap).

E

Equity warrantsWarrants on equities. This type of warrant is usually issued by a bank and refers to the shares of a company in circulation. “Traditional” equity warrants are usually issued by the company itself and entitle the holder to subscribe newly issued shares.
European optionOption which can only be exercised on expiry.
ExerciseAssertion of the option right by the holder of a warrant (buyer of option) relative to the issuer (seller of option).
Exercise priceReference price of the underlying used to calculate the cash settlement on expiry of the warrant. In cases of physical delivery it is the price at which the underlying is bought (call) or sold (put). Also called: strike price
Exercise price currencyReference currency of exercise price.
Expiration dateThe last day of an option’s term. Buyers can sell or exercise an option up to this day. Afterwards the option expires. Also called: Maturity date.

F

Financial futuresA contract to deliver or take delivery of a financial instrument in the future. A fixed futures contract (forward, future) obligates the parties to carry out the transaction at a specified future date. An option is a conditional futures contract because the decision whether to go ahead with the transaction, i.e. whether to exercise the option, rests solely with the buyer.
ForwardNon standardized, future transaction concluded between two parties providing for the delivery of a certain underlying instrument at a specified future date.
FutureStandardized futures contract with specified terms traded on a futures exchange.

G

GearingCurrent price of the underlying instrument divided by the price of the warrant. A warrant can be based on a fraction or a multiple of the underlying, which has to be taken into consideration. Gearing merely states how many warrants can be bought for the same amount of money as one unit of the underlying security.

I

Implied volatilityThe expected range of fluctuation in the price of an underlying security during a certain period in the future. Implied volatility can be calculated based on the price of a warrant using a corresponding model.
In/Out of the moneyIn the money means, with regard to a call option, that the market price of the underlying security is higher than the call’s exercise price (strike price). If a call is out of the money, this means that the market price of the underlying security is lower than the exercise price. At the money means that the market price of the underlying is equal to the exercise price.
Index warrantA warrant based on an index. An equity index is composed of different stocks whose value in the index is weighted according to certain criteria and expressed as a number. The strike price is usually an index level expressed in the reference currency.
Intrinsic valueThe value of an option that could be realized when exercised. In practice, intrinsic value is viewed as the positive difference between the current market price of the underlying and the strike price.

L

LeverageLeverage is a measure of the percentage change in the price of an option given a one percent change in the price of the underlying instrument.

M

Market makerIssuer who trades in warrants and always buys warrants at the bid price and sells them at the ask price. The range between the bid and ask price is called the spread.
Maturity dateThe last day of an option’s term. Buyers can sell or exercise an option up to this day. Afterwards the option expires. Also called: Expiration

O

Option pricePurchase price of a warrant. The option price consists of the intrinsic value plus the time value.
Out of the moneyThis means the market price of the underlying is lower than a call’s strike price or higher than a put’s strike price. The price of the warrant consists of only the time value; the intrinsic value is zero. Such an option is worthless upon expiry.

P

Physical deliveryThe actual delivery of the underlying instrument upon payment of the strike price at expiration.
Premium p.a. as %Premium (see Premium total %) but calculated over a one-year period (p.a.).
Premium total %Premium corresponds to the difference between the current market price of the underlying and the break-even point (acquisition price). Premium is expressed as a percent over the entire term of an option.
Put optionOption entitling but not obligating the buyer to sell a specified amount of a certain underlying instrument at a predetermined underlying price within a specific period of time or receive the intrinsic value of the option in cash.

Q

Quanto Quanto certificates eliminate the currency risk for investors. This is especially important when the underlying of a certificate is denominated in a currency which is subject to strong fluctuations. Without a Quanto hedge, buyers carry the full exchange rate risk. If they opt for the Quanto protection, investors pay a Quanto Fee.

R

RatioNumber of underlying instruments the warrant is based on. Also called: Subscription ratio

S

Security numberThis seven-digit number (Valorennummer / Security Code) is used to identify warrants.
Spread as %The spread between the bid and offer price, which correspond to the price to buy and sell a warrant from a market market’s view. The narrower the spread, the sooner the buyer can reach the profit zone.
Strike priceReference price of the underlying used to calculate the cash settlement on expiry of the warrant. In cases of physical delivery it is the price at which the underlying is bought (call) or sold (put). Also called: exercise price
Subscription ratioNumber of underlying instruments the warrant is based on. Also called: ratio.

T

Term to expiryNumber of days (starting from today) until the option expires.
Time valueThe amount by which the option price exceeds the intrinsic value. The time value corresponds to the sum that the buyer must pay with regard to the upside potential of a warrant. Time value recedes to zero by the expiration date.
Turnover 1000 CHFLast-paid price multiplied by the (accumulated) number of securities traded. This figure indicates a warrant’s liquidity.

U

UnderlyingFinancial instrument which the warrant refers to. The underlying instruments can be equities, indices, currencies, interest-rate instruments and commodities. Also called: Underlying instrument
Underlying currencyThe currency in which the underlying instrument is traded.
Underlying instrumentFinancial instrument which the warrant refers to. The underlying instruments can be shares, indices, currencies, interest-rate instruments and commodities.
Underlying pricePrice of the underlying instrument

V

Value at RiskValue at risk (VaR) is a measure of how the market value of an asset or of a portfolio of assets is likely to decrease over a certain time period (usually over 1 day or 10 days) under usual conditions.
VolatilityA statistical measure of the amount by which an underlying instrument fluctuates in a given period of time (standard deviation). Volatility is expressed as a percent per annum.

W

WarrantAn option that is securitized and therefore easily tradable. Apart from this legal distinction, there is no fundamental difference between an option and a warrant.
Warrant ask priceWarrants can be bought for this price (see Ask price)
Warrant bid priceWarrants can be sold for this price (see Bid price)
Warrant priceThe current average market price (average of bid and offer price).