Lambda
The ratio of a change in the option price to a small change in the option volatility. It is the partial derivative of the option price with respect to the option volatility.

Large Order Execution (LOX) Procedures
Rules in place at the Chicago Mercantile Exchange that authorize a member firm which receives a large order from an initiating party to solicit counterparty interest off the exchange floor prior to open execution of the order in the pit and that provide for special surveillance procedures. The parties determine a maximum quantity and an "intended execution price". Subsequently, the initiating party's order quantity is exposed to the pit; any bids (or offers) up to and including those at the intended execution price are hit (acceptable). The unexecuted balance is then crossed with the contraside trader found using the LOX procedures.

Last Notice Day
The final day on which notices of intent to deliver on futures contracts may be issued.

Last Trading Day
According to the Chicago Board of Trade rules, the final day when trading may occur in a given futures or options contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).

Leaps
Long-dated, exchange-traded options.

Leverage
When investors borrow funds to increase the amount that they have invested in a particular position, they use leverage. Investors use leverage when they believe that the return from the position will exceed the cost of the borrowed funds. Sometimes, managers use leverage to enable them to take on new positions without having to liquidate other positions prematurely. Leverage can effectively increase the potential for higher capital gain returns on investment capital, but can also increase the risk of greater capital loss.

Limited Liability Company (LLC)
An alternative structure to a limited partnership. It is often described as a hybrid between a corporation and a partnership because it offers limited liability like a corporation and single taxation on income like a partnership.

Limited Partner
An investor in a limited partnership. Limited partners provide the capital, but have not direct involvement in the management of the fund. Limited partners have limited liability but also have limited control over the management of the fund.

Limited Partnership
The most common format used in structuring private equity investments. Limited partners provide the capital, but have no direct involvement in the management of the fund. Limited Partners have limited liability but also have limited control over the management of the fund.

Linkage
The ability to buy (sell) contracts on one exchange (such as the Chicago Mercantile Exchange) and later sell (buy) them on another exchange (such as the Singapore International Monetary Exchange)

Liquidity
The ability to dissolve positions on demand. Many hedge funds may not want to or may not be able to dissolve positions on demand. Redemptions are normally limited to once a week, once a month, or even longer periods.

Locked-In
A hedged position that cannot be lifted without offsetting both sides of the hedge. Also refers to being caught in a limit price move.

Long/Short Equity
Sometimes referred to as equity hedged. The manager uses a combination of long and short positions in stocks to reduce market risk and focus on identifying individual stocks to buy or sell. Managers will generally be proactive in varying their "net" long position based on the market outlook. They may also raise cash to protect capital. Manager skill impacts the level of market risk (longs less shorts) total exposure (longs plus shorts) and selection of individual securities. Managers usually use fundamental analysis and may have a style bias. They will usually focus on one geographical area. Managers often invest significantly in the mid and small cap areas, which tend to be more inefficient than the large capitalization equity area.

Longest Losing Streak
The number of consecutive months a fund has had negative performance.

Long the Basis
A person or firm that has bought the spot commodity and hedged with a sale of futures is said to be long the basis.

Lookback Option
An option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.

Look-Back Provisions
Partnership provisions that allow for a review of the total profit distribution from the partnership at the end of the term. The look-back is a mechanism to recapture overpayments to the general partners if they received more than their stated carried interest. The look-back provision requires return of any excess to the limited partners.

Loss Standard Deviation
A measure of the volatility of downside performance, this statistic calculates a mean return for only the periods with a loss and then measures the variation of only the losing periods around this loss mean.