Options which are Out-of-the-Money at expiration date are not declared and are said to be abandoned.


Numbered bars of precious metal which have been 'allocated' in the vault to the purchaser of the metal. (see 'unallocated'.)

American option (or US style)

Is an option that can be exercised at any time during the life of the contract rather than being due only on its expiration date.


Arbitrage means matching deals across more than one market. For instance, the purchase of metal at the LME and the simultaneous sale of an equivalent quantity of the same metal at the New York commodity exchange.

Asian option

This is a cash-settled option on the average price of a given metal in a given averaging period.


An option is said to be at-the-money when the strike price is the same as the current market price of the underlying metal.


Where a party buys or sells in advance at the future price of a quotational period in an effort to capture or limit contango or backwardation in advance, so mitigating any future spread variance.


Backwardation (or back) is the situation where the spot price of a metal is higher than the price for future delivery, or where a short-term delivery price is higher than a long term delivery price.

Basis price (or strike price)

The price on which a carry is based, reflecting the current market price.


The price a buyer is prepared to pay.


An options pricing model (named after its two inventors) which relates the calculation of premium fair value of an option to a combination of the value of the underlying metal, the time to expiry, the implied volatility of the metal and the prevailing interest rate.


This means 'borrowing metal from the market', or in other words, buying at a nearby date and simultaneously selling at a date further forward.


A party which mediates between a buyer and a seller.


Commission charged by a broker for completing a transaction on the exchange.


A bull market is associated with increasing investor confidence, motivating investors to buy in anticipation of rising prices. Someone who believes prices will rise is known as a bull.

Business day

Any day except Saturday, Sunday or public holiday in England, or any day designated not to be by the LME directors.

Call option (or call)

A financial contract which gives the buyer the right, but not the obligation, to purchase a particular futures contract at a certain date and at a specific strike price. The seller is obliged to sell at the agreed terms if the buyer decides to go ahead. The buyer pays a premium for this right.

Carry / carrying

Carrying is the general term used for both borrowing and lending on the LME.
It is also used to describe a borrowing operation which results in physical metal being held in an LME warehouse by the borrower.


On the LME, the spot position for trading (with settlement on the second following day).


The process of settling all the differences between LME clearing members at the end of the day's trading. It is implemented through the clearing house.

Clearing house

An independent body appointed or owned by an exchange to clear and guarantee business transacted between member brokers. The LME uses the London clearing house.


The New York commodity exchange, on which copper, aluminium, gold and silver are traded on a monthly contract basis.

Commission house

A term referring to brokerage houses, usually american, which execute general commissionable business on behalf of clients in securities and futures.


The situation when the price of a metal for future delivery is higher than the spot price, or where a long term delivery price is higher than a short term delivery price. A contango occurs when the metal is in plentiful supply.

Day order (GAD)

An order placed with a broker which is valid throughout all the rings and kerbs on the day on which it was placed. If not executed that day, it is automatically cancelled. A day order can be valid for all markets (including pre-market, lunchtime and evenings as well as the rings and kerbs) if the instruction clearly states 'all markets'.


When an option buyer informs an option grantor that he is taking up his right to buy (or sell) metal under the option contract, he is said to be declaring.

Declaration date

The date on which the buyer's right to exercise his option expires if not declared.

Delivery date

The date on which a metal has to be delivered to fulfil the contract terms.


The measurement of the rate of change in premium for every dollar change in the underlying price. The position equivalent in straight futures contracts of a more complex derivative contract or combination of contracts, when measured in terms of price risk for a small price change from the current price. Often used as shorthand for price exposure in an option dealer's position.


Generic term originating from the financial sector for all contracts related to an underlying security or commodity, whether or not they are traded on a futures exchange.


In clearing, contracts are concluded at maturity by the payment by buyer to seller (or vice versa) of the difference between the contract price and the corresponding settlement price.