Calendar Spread
The simultaneous sale and purchase of either calls or puts with the same strike price but different expiration months. See Interdelivery Spread and Horizontal Spread.

Call Option
An option contract that give the holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Calmar Ratio
Used to measure return relative to downside risk. Defined as the Compound Annualized Return over the last 3 years divided by the Maximum Drawdown (absolute value) over the last 3 years.

Cap
An option-like contract for which the buyer pays a fee or premium, to obtain protection against a rise in a particular interest rate above a certain level. For example, an interest rate cap may cover a specified principal amount of a loan over a designated time period such as a calendar quarter. If the covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principal amount times one quarter.

Capping
Effecting commodity or security transactions shortly prior to an option's expiration date depressing or preventing a rise in the price of the commodity or security so that previously written call options will expire worthless and the premium the writer received will be protected.

Capital Structure Arbitrage
Many issuers have more than one class of share. The prices of each of these shares trade in ranges relative to each other but often move out of line. Other shares may have an equivalent vehicle that trades in a different market (e.g. European equities and their American Depository Receipt counterparts). The strategy profits from the disparity in prices between these shares in the different markets.

Carried Interest
The general partner's share of the profits generated from a partnership. Typically general partners receive 20% of the profits and the limited partners receive 80%.

Carrying Charge
The cost of storing a physical commodity, such a grain or metal, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of funds necessary to buy the instrument. Also referred to as Cost of Carry.

Carrying Charges
Cost of storing a physical commodity or holding a financial instrument over a period of time. Includes insurance, storage and interest on the invested funds as well as other incidental costs. It is a carrying charge market when there are higher futures prices for each successive contract maturity. If the carrying charge is adequate to reimburse the holder, it is called a "full charge". Also see Negative Carry, Positive Carry and Contango.

Carryover
Grain and oilseed commodities not consumed during the marketing year and remaining in storage at year's end. These stocks are "carried over" into the next marketing year and added to the stocks produced during that crop year.

Cash Commodity
The physical or actual commodity as distinguished from the futures contract. Sometimes called Spot Commodity or Actuals..

Cash Settlement
Transactions generally involving index-based futures contracts that are settled in cash based on the actual value of the index on the last trading day, in contrast to those that specify the delivery of a commodity or financial instrument.

Changer
A clearing member of both the Mid-America Commodity Exchange (MCE) and another futures exchange who, for a fee, will assume the opposite side of a transaction on the MCE by taking a spread position between the MCE and another futures exchange which trades an identical, but larger, contract. Through this service, the changer provides liquidity for the MCE and an economical mechanism for arbitrage between the two markets.

Cheapest to Deliver
A method to determine which particular cash debt instrument is most profitable to deliver against a futures contract.

Clawback
A partnership provision that allows for a review of the total profit distribution from the partnership at the end of the term. The clawback is a mechanism to recapture overpayments to the general partners if they received more than their stated carried interest. The clawback provision requires return of any excess to the limited partners.

Clearinghouse
An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

Closed-End Fund
A type of fund that issues a set number of shares and typically trades on a stock exchange. Unlike more traditional open-end funds, transactions in shares of closed-end funds are based on their market price as determined by the forces of supply and demand in the marketplace. The market price of a closed-end fund may be above (at a premium) or below (at a discount) the value of its underlying portfolio (or NAV).

Closing Transaction
A transaction in which at some point prior to expiration, the option holder makes an offsetting sale of an identical option, or the option writer makes an offsetting purchase of an identical option. A closing transaction in an option reduces or cancels out an investor's previous position as the holder or the writer of that option.

Co-investment
Direct investment by a limited partner in a company in which the fund is invested.

Collar
The simultaneous purchase of a cap and the sale of a floor with the aim of maintaining interest rates within a defined range. The premium income from the sale of the floor reduces or offsets the cost of buying the cap.

Collateralized Loans
The strategy is to invest in securitized bank loans to earn a positive carry over the funding rate. Fees are earned for arranging loans and deal syndication as well.

Commitment
The obligation of a limited partner to contribute an agreed amount of capital to a fund.

Commodity Pool Operator (CPO)
An individual or organization that operates or solicits funds for a commodity pool.

Commodity Trading Adviser (CTA)
A person who, for compensation or profit, directly or indirectly advises others as to the value of the advisability of buying or selling futures contracts or commodity options. Advising indirectly includes exercising trading authority over a customer's account as well as providing recommendations through written publications or other media.

Congestion
A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices.

Contango
Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month; the opposite of "backwardation".

Contract Exit for Non-performance
A condition in a financial agreement that enables the investor to take back his funds if the result represented is not achieved.

Contract Grades
Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Convergence
The tendency for prices of physicals and futures to approach one another, usually during the delivery month. Also called a "narrowing of the basis".

Conversion
When trading options on futures contracts, a position created by selling a call option, buying a put option, and buying the underlying futures contract, where the options have the same strike price and the same expiration.

Convertible Arbitrage
Convertible arbitrage looks for mispricing between a convertible security and the underlying common stock. Convertible securities have a theoretical value that is based on a number of factors, including the value of the underlying stock. When the trading price of a convertible moves away from its theoretical value, an arbitrage opportunity exists.

This strategy typically involves purchasing undervalued convertible securities (bonds, preferred shares and warrants) and hedging the underlying equity risk by selling short an appropriate amount of common shares of the issuer. Properly executed, this strategy creates a net position which is substantially neutral to the movements in the underlying equity and has an attractive yield. Interest income on the convertible bond plus the rebate on the short stock typically provide a positive carry or static return. There are further opportunities for gains independent of market direction as the relative value relationship between the long bond and short stock changes.

Convexity
A bond is said to have positive convexity if its price rises more rapidly than an index in a bull market, when interest rates decline, and falls more slowly in a bear market, when interest rates rise. Convexity explains the difference between price change estimated by a bond's duration (see Duration) and its actual price change when market yields change. Thus it is a measure of the shape of the price/yield curve relationship. Negative convexity simply means behaviour is worse than expected by a simple duration calculation.

Correlation
A statistical measure of the degree to which the movements of two variables are related. For example, a hedge fund's returns may have positive or negative correlation with the market.

Correlation Coefficient
A measure of how closely the returns on two asset classes move together. The greatest possible correlation coefficient is 1.0, meaning the returns of two asset classes move in unison. The minimum correlation coefficient is -1.0, meaning the returns move in unison, but in opposite directions. Positive coefficients mean the movement is, on average, in the same direction, negative coefficients mean the movements are in opposite directions. A correlation coefficient of 0 means that knowing the direction of one asset class's returns will not help predict the direction of the other asset class's movement.

Covariance
A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means they vary inversely.

Crack
In energy futures, the simultaneous purchase of crude oil futures and the sale of petroleum product futures to establish a refining margin.

Credit Equivalent
Value amount representing the credit risk exposure in off-balance sheet transactions. In the case of derivatives, credit equivalent value represents the potential cost at current market prices of replacing the contract's cash flow in the case of default by the counter-party.

Credit Risk
The risk that a counter party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss.

Crop (Marketing) Year
The time span from harvest to harvest for agricultural commodities. The crop marketing year varies slightly with each ag commodity, but it tends to begin at harvest and end before the next year's harvest, e.g. the marketing year for soybeans begins September 1 and end August 31. The futures contract month of November represents the first major new-crop marketing month, and the contract month of July represents the last major old-crop marketing month for soybeans.

Cross-Hedging
Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends (e.g. using soybean meal futures to hedge fish meal).

Crush Spread
In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin.

Currency Swaps
A transaction involving the exchange of cash flows and principal in one currency for those in another with an agreement to reverse the principal swap at a future date.