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Definition of Contango

Contango Image 1

Contango

A market condition in which futures prices are higher in the distant delivery months.



Related Terms:

Backwardation

A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.


Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.


DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.


QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate


Agency costs

The incremental costs of having an agent make decisions for a principal.



Arm's length price

The price at which a willing buyer and a willing unrelated seller would freely agree to
transact.


Ask price

A dealer's price to sell a security; also called the offer price.


Contango Image 1

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.


Bargain-purchase-price option

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


Basis price

price expressed in terms of yield to maturity or annual rate of return.


Bear market

Any market in which prices are in a declining trend.


Bid price

This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
speaking, This is the available price at which an investor can sell shares of stock. Related: Ask , offer.


Black market

An illegal market.


Brokered market

A market where an intermediary offers search services to buyers and sellers.


Bull market

Any market in which prices are in an upward trend.


Bulldog market

The foreign market in the United Kingdom.


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Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.


Call price

The price for which a bond can be repaid before maturity under a call provision.



Capital market

The market for trading long-term debt instruments (those that mature in more than one year).


Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.


Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.


Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.


Carring costs

costs that increase with increases in the level of investment in current assets.


Cash delivery

The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.


Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.


Clean price

Bond price excluding accrued interest.


Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.


Contango Image 3

Common stock market

The market for trading equities, not including preferred stock.



Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.


Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.


Consumer Price Index (CPI)

The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.


Contract month

The month in which futures contracts may be satisfied by making or accepting a delivery.
Also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and
P/E ratios and higher dividend yields, seeing value where others do not.


Conversion parity price

Related:market conversion price


Convertible price

The contractually specified price per share at which a convertible security can be
converted into shares of common stock.


Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.


Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.


Debt market

The market for trading debt instruments.


Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind
bond.


Delivery

The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.


Delivery notice

The written notice given by the seller of his intention to make delivery against an open, short
futures position on a particular date. Related: notice day


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.


Delivery points

Those points designated by futures exchanges at which the financial instrument or
commodity covered by a futures contract may be delivered in fulfillment of such contract.


Delivery price

The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
price at which the futures contract is settled when deliveries are made.


Delivery versus payment

A transaction in which the buyer's payment for securities is due at the time of
delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be
made by bank wire, check, or direct credit to an account.


Derivative markets

markets for derivative instruments.


Devaluation A decrease in the spot price of the currency



Direct search market

Buyers and sellers seek each other directly and transact directly.


Dirty price

Bond price including accrued interest, i.e., the price paid by the bond buyer.


Dollar price of a bond

Percentage of face value at which a bond is quoted.


Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.


Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.


Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.


Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).


Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.


Emerging markets

The financial markets of developing economies.


Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.


Equity market

Related:Stock market


Eurocurrency market

The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal tender.


Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.


Execution costs

The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
costs.


Exercise price

The price at which the underlying future or options contract may be bought or sold.


External market

Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal
market


Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.


Fair price

The equilibrium price for futures contracts. Also called the theoretical futures price, which equals
the spot price continuously compounded at the cost of carry rate for some time interval.


Fair price provision

See:appraisal rights.


Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.


Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).


Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.


Fixed-income market

The market for trading bonds and preferred stock.


Fixed price basis

An offering of securities at a fixed price.


Fixed-price tender offer

A one-time offer to purchase a stated number of shares at a stated fixed price,
usually a premium to the current market price.


Flat price risk

Taking a position either long or short that does not involve spreading.


Flat price (also clean price)

The quoted newspaper price of a bond that does not include accrued interest.
The price paid by purchaser is the full price.


Flower bond

Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.


Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.


Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.


Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.


Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.


Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.


Forward delivery

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon on the trade date.


Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.


Fourth market

Direct trading in exchange-listed securities between investors without the use of a broker.


Friction costs

costs, both implied and direct, associated with a transaction. Such costs include time, effort,
money, and associated tax effects of gathering information and making a transaction.


Full price

Also called dirty price, the price of a bond including accrued interest. Related: flat price.


Futures

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.


Futures commission merchant

A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account


Futures contract

Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.


Futures contract multiple

A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.


Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.


Futures option

An option on a futures contract. Related: options on physicals.


Futures price

The price at which the parties to a futures contract agree to transact on the settlement date.


Good delivery

A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in
order.


Good delivery and settlement procedures

Refers to PSA Uniform Practices such as cutoff times on delivery
of securities and notification, allocation, and proper endorsement.


Gray market

Purchases and sales of eurobonds that occur before the issue price is finally set.


Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.


Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.


High price

The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.


Incremental costs and benefits

costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.


Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).


Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.


Intermarket sector

spread The spread between the interest rate offered in two sectors of the bond market for
issues of the same maturity.



 

 

 

 

 

 

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