Options & Derivatives Trading

The Cboe Options Exchange is the world's largest options exchange that was founded in 1973. It was originally known as the Chicago Board Options Exchange (CBOE), and the exchange changed its name in 2017 as part of a rebranding effort by its holding company, CBOE Global Markets, which runs the exchange with contracts focusing on individual equities, indexes, and interest rates.

Warrants are similar to options, except that they are issued by a company and dilute overall equity ownership. Warrant coverage is an agreement between a company and shareholders in which the company issues a warrant that is worth some percentage of the dollar amount of their investment. Warrants, also like options, allow investors to acquire shares at an agreed-upon price.

A warrant premium is the difference between the traded price of a warrant and its minimum value. A warrant's minimum value is the difference between its exercise price and the current traded price of its underlying stock.

A weather derivative is a financial product that companies or investors can use to hedge risk against weather-related disasters, much like insurance. The seller of a weather derivative agrees to bear the risk of disasters in return for a premium for taking on that risk. If nothing happens before the agreed-upon contract, the seller will profit, but in the event of a weather phenomenon or disaster, the buyer of the derivatives contract will claim the set amount. Various industries such as agriculture or tourism and travel will use these financial products to offset any potential losses from unexpected weather disrupting business.

Freight derivatives are financial products that derive their value from various freight agreements and freight rates, such as dry bulk carrying rates, and is used primarily in the shipping and cargo industry to manage the risk of fluctuating levels of freight charges or oil tanker rates changing unexpectedly. The risk management tool has become more in focus as the shipping industry bears the burden of supply-chain shocks and delays as a result of the global pandemic.

Transaction risk is the risk that an investor or company may take on when currency exchange rate fluctuations may change the value of a foreign transaction after a transaction has been completed but not yet settled, and can also be referred to as exchange rate, or currency risk. Transaction risk takes on greater risk when there is a longer time between when the transaction occurs and when it settles.

A cashless conversion is when the ownership of some kind of security or asset changes without cash payment by the owner. For example such a conversation may take place if convertible bonds or convertible preferred shares are part of a transaction in which there is a cashless conversion to common stock in the deal. A cashless conversion is typically spelled out in the contract when the deal occurs, and the transfer may happen by an agreed upon trigger event or specific date.