Definition of Basket trades

Basket trades

Related: Program trades.

Program trades

Also called basket trades, orders requiring the execution of trades in a large number of
different stocks at as near the same time as possible. Related: block trade

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 individual options on each
of the currencies that make up the basket.

Currency basket

The value of a portfolio of specific amounts of individual currencies, used as the basis for
setting the market value of another currency. It is also referred to as a currency cocktail.

Flat trades

1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest.
2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.

Informationless trades

trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Information-motivated trades

trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Barrier options

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

Dealer options

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

Delivery options

The options available to the seller of an interest rate futures contract, including the quality
option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which
Treasury Bond will be delivered or when it will be delivered.

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Equity options

Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

Guarantor program

Under the Freddie Mac program, the aggregation by a single issuer (usually an S&L)
for the purpose of forming a qualifying pool to be issued as PCs under the Freddie Mac guarantee.

Integer programming

Variant of linear programming whereby the solution values must be integers.

Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

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.

Mathematical programming

An operations research technique that solves problems in which an optimal
value is sought subject to specified constraints. Mathematical programming models include linear
programming, quadratic programming, and dynamic programming.

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).

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 on physicals

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

Planned capital expenditure program

Capital expenditure program as outlined in the corporate financial plan.

Planned financing program

program of short-term and long-term financing as outlined in the corporate
financial plan.

Program trading

Trades based on signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.

Tandem programs

Under Ginnie Mae, mortgage funds provided at below-market rates to residential
mortgage buyers with FHA Section 203 and 235 loans and to developers of multifamily projects with Section
236 loans initially and later with Section 221(d)(4) loans.

Zero-one integer programming

An analytical method that can be used to determine the solution to a capital
rationing problem.

Planning, programming and budgeting system (PPBS)

A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.

cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits

integer programming

a mathematical programming technique in which all solutions for variables must be restricted to whole numbers

linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost

mathematical programming

a variety of techniques used
to allocate limited resources among activities to achieve a
specific objective

program budgeting

an approach to budgeting that relates
resource inputs to service outputs

real options

options embedded in real assets.

Entitlement Program

A program, such as social security, under which everyone meeting the eligibility requirements is entitled to receive benefits from the program, so that costs are not known in advance.

Detailed Program

Design In software development, a detailed step-by-step plan for completing the software.

Exit Options

A variety of options available to an investor to recover their invested capital and the return on their investment.

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