Liquid yield option note (LYON)

Similar financial terms

Liquidity risk on bonds
The primary measure of liquidity is the size of the bid-ask spread. Liquidity risk depends on the ease with which an issue can be sold at or near its value. It follows that the wider the dealer spread, the more liquidity risk.

Accounting liquidity
The ease and quickness with which assets can be converted into cash

Liquidity premium
The amount that forward interest rates exceed expected future spot interest rates.

Self-liquidating loan
Loan to finance current assets, The sale of the current assets provides the cash to repay the loan.

Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.

Liquidity risk
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.

Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time.

Liquidity preference hypothesis
The argument that greater liquidity is valuable, all else equal. Also, the theory that the forward rate exceeds expected future interest rates.

Liquidity diversification
Investing in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor.

Liquidity
A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

Liquidator
Person appointed by unsecured creditors in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts.

Liquidation value
Net amount that could be realized by selling the assets of a firm after paying the debt.

Liquidation rights
The rights of a firm's securityholders in the event the firm liquidates.

Liquidation
When a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers are distributed to shareholders. Any transaction that offsets or closes out a Long or short position.

Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.

Liquid asset
Asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.

Liquidation Preference
Sometimes, usually by virtue of an agreement, certain shareholders will receive preferential treatment if a company is liquidated. Investors may insist on this so that if a company fails, they are paid out first before any other shareholders receive any payouts.

Position liquidation
The closing out of a long position. The term is sometimes used to denote closing out a short position, but this is more often referred to as covering.

Yield to maturity
The total yield on a bond obtained by equating the bond's current market value to the discounted cash flows promised by the bond. Also referred to as actuarial yield or just yield.

Yield curve
The yield curve, which plots the term structure, shows the relationship between yield (interest rate) and maturity for a set of similar securities. Typically, different yield curves are drawn for zero-coupon bonds (zero-coupon yield curve) and for coupon bonds quoted at par (par yield curve).

Yield
In general, the yield is the return on an investor's capital investment. For bonds it is the coupon rate of interest divided by the purchase price, called current yield. Also, the rate of return on a bond, taking into account the total of annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity.

Dividend yield
A stock's daily percentage summary of yield, calculated by dividing annual dividend per share by the day's closing stock price.

Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price.

Yield spread strategies
Strategies that involve positioning a portfolio to capitalize on expected changes inyield spreads between sectors of the bond market.

Yield ratio
The quotient of two bond yields.

Yield curve strategies
Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.

Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Weighted average portfolio yield
The weighted average of the yield of all the bonds in a portfolio.

Annual percentage yield (APY)
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12).

Steepening of the yield curve
A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has increased.

Riding the yield curve
Buying long-term bonds in anticipation of capital gains as yields fall with the declining maturity of the bonds.

Required yield
Generally referring to bonds, the yield required by the marketplace to match available returns for financial instruments with comparable risk.

Reoffering yield
In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds to investors.

Relative yield spread
The ratio of the yield spread to the yield level.

Realized compound yield
Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and rolled over until the bond matures.

Pure yield pickup swap
Moving to higher yield bonds.

Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well.

Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.

Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.

Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.

Capital gains yield
The price change portion of a stock's return.

Convenience yield
The extra advantage that firms derive from holding the commodity rather than the future.

Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.

Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.

Yield to worst
The bond yield computed by using the lower of either the yield to maturity or the yield to call on every possible call date.

Yield burning
A municipal bond financing method. Underwriters in advance refundings add large markups on US Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.

Up-and-Out Option
An option that ceases to exist when the price of the underlying asset increases to a set level.

Up-and-In Option
An option that comes into existence when the price of the underlying asset increases to a set level.

Synthetic Option
A synthetic is an option created by trading the underlying asset.

Swing Option
A swing option are found in the energy market. Its value depends on the consumption of energy, which must be between a minimum and maximum level. There is usually a limit on the number of times the option holder can change the rate at which the energy is consumed.

Static options replication
A static options replication is a procedure for hedging a portfolio that involves finding another portfolio of approximately equal value on some boundrary.

Spread option
AN option where the payoff depends on the difference between two market variables.

Exotic option
A non-standardized option

Real option
An option involving real (as opposed to financial) assets where. Real assets include land. plant, and machinery.

Option class
All options of the same type (call or put) on a particular stock.

Abandonment option
The option of terminating an investment earlier than originally planned.

Wild card option
The right of the seller of a Treasury Bond futures contract to give notice of intent to deliver at or before 8:00 p.m. Chicago time after the closing of the exchange (3:15 p.m. Chicago time) when the futures settlement price has been fixed.

American option
An option that may be exercised at any time up to and including the expiration date.

American-style option
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

Virtual currency option
An option contract introduced by the PHLX in 1994 that is settled in US$ rather than in the underlying currency. These options are also called 3-Ds (dollar denominated delivery).

Two-state option pricing model
An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

Timing option
For a Treasury Bond or note futures contract, the seller's choice of when in the delivery month to deliver.

Time value of an option
The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.

Tax-timing option
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and defer the capital gains tax.

Tax deferral option
The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is payable only when the gain is realized by selling the asset.

Stock option
An option in which the underlying is the common stock of a corporation.

Stock index option
An option in which the underlying is a common stock index.

Split-fee option
An option on an option. The buyer generally executes the split fee with first an initial fee, with a window period at the end of which upon payment of a second fee the original terms of the option may be extended to a later predetermined final notification date.

Quality option
Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury note futures contract.

Put option
This security gives investors the right to sell (or put) fixed number of shares at a fixed price within a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

Put an option
To exercise a put option.

Postponement option
The option of postponing a project without eliminating the possibility of undertaking it.

Path dependent option
An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.

Out-of-the-money option
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

Options on physicals
Interest rate options written on fixed-income securities, as opposed to those written on interest rate futures contracts.

Options contract multiple
A constant, set at $100, which when multiplied by the cash index value gives the dollar value of the stock index underlying an option. That is, dollar value of the underlying stock index = cash index value x $100 (the options contract multiple).

Options contract
A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).

Option-adjusted spread (OAS)
(a) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (b) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.

Option writer
An option writer is the option seller.

Option seller
Also called the option writer , the party who grants a right to trade a security at a given price in the future.

Option price
Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified price in the future.

Option premium
The option price.

Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale.

Option elasticity
The percentage increase in an option's value given a 1% change in the value of the underlying security.

Option
Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of a class of securities called derivatives, so named beca ...

Naked option strategies
An unhedged strategy making exclusive use of one of the following: Long call strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying put options ), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security.

Multi-option financing facility
A syndicated confirmed credit line with attached options.

Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.

Lookback option
An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Knock-in option
An option that begins to function as a normal option ("knocks in") once a certain price level is reached before expiration. Might not knock in at all.

Knock-out option
An option with a built in mechanism to expire worthless should a specified price level be exceeded.

Bargain-purchase-price option
Gives the lessee the option to purchase the asset at a price below fair market value when the lease expires.

Barrier options
Contracts with trigger points that, when crossed, automatically generate buying or selling of other options. These are very exotic options.

Basket options
Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of exchange. A basket option is generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an option on a basket of currencies than to buy ...

Binomial option pricing model
An option pricing model in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Call an option
To exercise a call option.

Call option
An option contract that gives its 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.

Chicago Board Options Exchange (CBOE)
A securities exchange created in the early 1970s for the public trading of standardized option contracts.

Compound option
Option on an option.

Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying.

Currency option
An option to buy or sell a foreign currency.

Dealer options
Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.

Ho-Lee Option Model
An arbitrage free model which uses an estimated spot curve to evaluate embedded options in credit or fixed income securities.

London Option
A generic term sometimes used to describe options on physical commodities or on futures contracts traded abroad (typified by options on London commodity markets). These options, which often had nothing whatsoever to do with legitimate foreign markets, gained notoriety--prior to their ban in the United States in 1978--because of the sales practices and fraud allegations associated with the American dealers who sold them.

Seller's Option
The right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.

Transferable Option
A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.

U.S. Treasury note
U.S. government debt with a maturity of one to 10 years.

Promissory note
Written promise to pay.

Project notes (PNs)
Project notes are issued by municipalities to finance federally sponsored programs in urban renewal and housing and are guaranteed by the US Department of Housing and Urban Development.

Notes to the financial statements
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.

Note issuance facility (NIF)
An agreement by which a syndicate of banks indicates a willingness to accept short-term notes from borrowers and resell these notes in the Eurocurrency markets.

Note agreement
A contract for privately placed debt.

Note
Debt instruments with initial maturities greater than one year and less than 10 years.

Municipal notes
Short-term notes issued by municipalities in anticipation of tax receipts, proceeds from a bond issue, or other revenues.

Money market notes
Publicly traded issues that may be collateralized by mortgages and MBSs.

Medium-term note (MTN)
A corporate debt instrument that is continuously offered to investors over a period of time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

Bank anticipation notes (BAN)
Notes issued by states and municipalities to obtain interim financing for projects that will eventually be funded long term through the sale of a bond issue.

Deposit Notes
A term deposit in a bank. Deposit notes, like medium-term notes, may serve as the basis for an equity or currency-linked risk management structure.

Equity-Linked Note (ELN)
An equity-linked note combines the characteristics of a zero or low coupon bond or note with a return component based on the performance of a single equity security, a basket of equity securities, or an equity index. In the latter case, the security would typically be called an equity index-linked note. Equity-linked notes come in a variety of styles. The minimum return may be nil with all of what would normally be an interest payment going to pay for upside equity participation. Alternatively, ...