Word of the Day
Futures Terms that begin "I"
Illiquid Market
A market (or contract) with few buyers and/or sellers. Illiquid markets have little trading activity and those trades that do occur may be done at large price increments.
In-The-Money
A term used to describe an option which could be converted for a profit because it has moved through its strike price.
Incentive Fee
Fee paid as an incentive to the general partner of a hedge fund or a Commodity Trading Advisor, the amount of which depends on his/her performance, usually relative to some benchmark index. Such a form of compensation could in fact extend to any financial professional, but tends to be most common among people directly responsible for managing funds.
Inefficient Portfolio
A portfolio that delivers an expected return that is too low for the amount of risk it requires, or equivalently, a portfolio that requires too much risk for a given expected return.
Initial Deposit/Margin
Funds put up as security for the guarantee of the contract fulfilment at the beginning of a futures or options contract.
Interest Rate Futures
Futures contracts traded on fixed income securities such as U.S. Treasury issues, or based on the levels of specified interest rates such as LIBOR (London Interbank Offered Rate). Currency is excluded from this category, even though interest rates are a factor in currency values.
Interest Rate Swap
A swap in which the two counterparties agree to exchange interest rate flows. Typically, one party agrees to pay a fixed rate on a specified series of payment dates and the other party pays a floating rate that may be based on LIBOR (London Interbank Offered Rate) on those payment dates. The interest rates are paid on a specified principal amount called the notional principal.
Internal Rate of Return (IRR)
Internal Rate of Return. The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity.
Intrinsic Value
Definition 1
The actual value of a security, as opposed to its market price or book value. The intrinsic value includes other variables such as brand name, trademarks, and copyrights that are often difficult to calculate and sometimes not accurately reflected in the market price. One way to look at it is that the market capitalization is the price (i.e. what investors are willing to pay for the company) and intrinsic value is the value (i.e. what the company is really worth). Different investors use different techniques to calculate intrinsic value.
Definition 2
The amount by which a call option is in the money, calculated by taking the difference between the strike price and the market price of the underlier. For example, if a call option for 100 shares has a strike price of $35 and the stock is trading at $50 a share than the call option has an intrinsic value> of $15 share, or $1500. If the stock price is less than the strike price the call option has no intrinsic value.
Definition 3
The amount by which a put option is in the money, calculated by taking the difference between the strike price and the market price of the underlier. For example, if a put option for 100 shares has a strike price of $35 and the stock is trading at $20 a share than the put option has an intrinsic value of $15 per share, or $1500. If the stock price is greater than the strike price the put option has no intrinsic value.
Investment Strategy
An investor's plan of distributing assets among various investments, taking into consideration such factors as individual goals, risk tolerance and horizon.