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Immediate-or-cancel order (IOC): A type of option order which gives the trading crowd one opportunity to take the other side of the trade. After being announced, the order will be either partially or totally filled with any remaining balance immediately cancelled. An IOC order, which can be considered a type of day order, cannot be used as part of a GTC order since it will be cancelled shortly after being entered. The difference between fill-or-kill (FOK) orders and IOC orders is that a IOC order may be partially executed.

Implied volatility: The volatility percentage that produces the ‘best fit’ for all underlying option prices on that underlying stock. See also Individual volatility

Index: A compilation of several stock prices into a single number. Example: the S&P 100 Index.

Index: A specialized average. Stock indexes may be calculated by establishing a base against which the current value of the stocks, commodities, bonds, etc., will change; for example, the S&P 500 index uses the 1941 – 1943 market value of the 500 stocks as a base of 10.

Index option: An option whose underlying interest is an index. Generally, index options are cash-settled.

Individual volatility: The volatility percentage that justifies an option’s price, as opposed to historic or implied volatility. A theoretical option pricing model can be used to generate an option’s individual volatility when the five remaining quantifiable factors (stock price, time until expiration, strike price, interest rates, and cash dividends) are entered along with the price of the option itself.

Inelasticity: A statistic attempting to quantify the change in supply or demand for a good, given a certain price change. The more inelastic demand (characteristic of necessities), the less effect a change in price has on demand for the good. The more inelastic supply, the less supply changes when the price does.

Inflation: The creation of money by monetary authorities. In more popular usage, the creation of money that visibly raises goods prices and lowers the purchasing power of money. It may be creeping, trotting, or galloping, depending on the rate of money creation by the authorities. It may take the form of “simple inflation,” in which case the proceeds of the new money issues accrue to the government for deficit spending; or it may appear as “credit expansion,” in which case the authorities channel the newly created money into the loan market. Both forms are inflation in the broader sense.

Initial margin: When a customer establishes a position, he is required to make a minimum initial margin deposit to assure the performance of his obligations. Futures margin is earnest money or a performance bond.

Institution: A professional investment management company. Typically, this term is used to describe large money managers such as banks, pension funds, mutual funds, and insurance companies.

Interest: What is paid to a lender for the use of his money and includes compensation to the lender for three factors: 1) Time value of money (lender’s rate)-the value of today’s dollar is more than tomorrow’s dollar. Tomorrow’s dollars are discounted to reflect the time a lender must wait to “enjoy” the money, not to mention the uncertainties tomorrow brings. 2) Credit risk-the risk of repayment varies with the creditworthiness of the borrower. 3) Inflation-as the purchasing power of a dollar declines, more dollars must be repaid to maintain the same purchasing power. Interest is one of the components of carrying charges; i.e., the cost of the money needed to finance the commodity’s purchase or storage. The market rate of interest can also be used to establish an opportunity cost for the funds that are tied up in any investment.

Interest rate futures: Futures contracts traded on long-term and short-term financial instruments: U.S. Treasury bills and bonds and Eurodollar Time Deposits. More recently, futures contracts have developed for German, Italian, and Japanese government bonds, to name a few.

Inter-market: A spread in the same commodity, but on different markets. An example of an inter-market spread would be buying a wheat contract on the Chicago Board of Trade, and simultaneously selling a wheat contract on the Kansas City Board of Trade.

In-The-Money: An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

In-the-money: A call is in-the-money when the underlying futures price is greater than the strike price. A put is in-the-money when the underlying futures price is less than the strike price. In-the-money options have intrinsic value.

In-the-money option: An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

Intra-market: A spread within a market. An example of an intra-market spread is buying a corn contract in the nearby month and selling a corn contract on the same exchange in a distant month.

Intrinsic value: The in-the-money portion of an option’s price. See also In-the-money option

Intrinsic value: The amount an option is in the-money, calculated by taking the difference between the strike price and the market price of the underlying futures contract when the option is “in-the-money.” A COMEX 350 gold futures call has an intrinsic value of $10 if the underlying gold futures contract is at $360/ounce. An option that is out-of-the-money has no intrinsic value.

Introducing Broker (IB): An individual or firm who can perform all the functions of a broker except one. An IB is not permitted to accept money, securities, or property from a customer. An IB must be registered with the CFTC, and conduct its business through an FCM on a fully disclosed basis.

Inverted market: A futures market in which near-month contracts are selling at prices that are higher than those for deferred months. An inverted market is characteristic of a short-term supply shortage. The notable exceptions are interest rate futures, which are inverted when the distant contracts are at a premium to near month contracts.

Iron butterfly: An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination. An iron butterfly contains four options as is an equivalent strategy to a regular butterfly spread which contains only three options. For example, a short iron butterfly might be: buying 1 XYZ May 60 call and 1 May 60 put, and writing 1 XYZ May 65 call and writing 1 XYZ May 55 put.

ISE: International Securities Exchange.


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