Commodity glossary B

Glossaries - Commodity Glossary

BACKWARDATION

When the price for immediate delivery of a commodity is higher than the price of delivery for a future date.

BASE METAL

Non-ferrous metal, excluding precious metals (See www.basemetals.com for detailed up-to-date news on all base metals)

BARRIER OPTION

An exotic option that either comes to life (is knocked-in) or is extinguished (knocked-out) under conditions stipulated in the options contract. The conditions are usually defined in terms of a price level (barrier, knock-out or knock-in price) that may be reached at any time during the lifetime of the option. There are four major types of barrier options: up-and-out, up-and-in, down-and-out and down-and-in. The extinguishing or activating features of these options mean they are usually cheaper than ordinary options, making them attractive to purchasers looking to avoid high premium.

BASIS PRICE

The reference price used for establishing a physical contract. In option trading it is the price agreed for the underlying should an option be declared, more commonly referred to as the strike price or exercise price.

BE COPPER

Best electrolytic copper; features particular electrical conductivity, good brazing properties and excellent hydrogen resistance.

BLISTER COPPER

Unrefined porous copper. Molten copper absorbs gases more easily than copper in solid form. During solidification, dissolved gases in such copper form small blisters in the copper.

BEAR

Someone who anticipates that prices will fall.

BEAR CALL SPREAD

The purchase and sale of call options at different exercise prices but with the same expiry date. The purchased (or long) calls have a higher exercise price than the written (or short) calls. The investor expects a fall in the price of the underlying asset.

BEAR MARKET

A market in which the trend is for prices to decline.

BEAR PUT SPREAD

The purchase and sale of put options at different exercise prices but with the same expiry date. The puts purchased have a higher exercise price than the puts written. The investor expects a fall in the price of the underlying asset.

BETA

The beta of a rate or price is the extent to which that rate or price follows movements in the overall market. If the beta is greater than one, it is more volatile than the market; if the beta is less than one, it is less volatile.

BID

The price at which a dealer is willing to buy.

BLACK-SCHOLES MODEL

An option-pricing model initially derived by Fischer Black and Myron Scholes in 1973 for securities options and later refined by Black in 1976 for options on futures.

BLAST FURNACE

A furnace where mixed charges of oxide or sulfide ores (copper, iron, lead, tin, etc.), fluxes and fuels are blown with a continuous blast of hot air and sometimes oxygen-enriched air to force combustion for the chemical reduction of ores with metals to their metallic states.

BORROWING

One form of carry. In this case the simultaneous buying of metal for a near dated prompt and the selling of that metal for a later dated prompt. In effect the party is borrowing the metal for the period.

BROKER

One form of carry. In this case the simultaneous buying of metal for a near dated prompt and the selling of that metal for a later dated prompt. In effect the party is borrowing the metal for the period.

BULL

Someone who anticipates that prices will rise.

BULL CALL SPREAD

The purchase and sale of call options at different exercise prices but with the same expiry date. The purchased (or long) calls have a lower price than the written (or short) calls. The investor expects a rise in the price of the underlying asset.

BULL MARKET

A market in which the trend is for prices to increase.

BULLION

The generic word for gold and silver in bar or ingot form. Originally meant ‘mint’ or ‘melting place’ from the old French word bouillon, which means boiling.

BULL PUT SPREAD

The purchase and sale of put options at different exercise prices but with the same expiry date. The puts purchased have a lower exercise price than the puts written. The investor expects the price of the underlying asset to rise.

BUTTERFLY SPREAD

The simultaneous purchase of an out-of-the-money strangle and sale of an at-the-money-straddle. The buyer profits if the underlying remains stable and has limited risk in the event of a large move in either direction.

BUY

To place an opening trade at the offer price of a spread in anticipation of the underlying market rising, commonly referred to as an "up trade", "taking a long position", or "going long". You can also buy at the offer price to close an existing short position.

BUY SIGNAL

In technical analysis, a chart pattern which indicates a key reversal upwards in price and the time to buy.

BY-PRODUCT

Material of some economic value produced in a process which is focused on extracting another material. For example palladium is produced as a by-product of platinum mining in South Africa.