Period Pricing
A contract for physical metal supply over a period (usually a year) in which all elements except price are settled in advance. Invoice prices are then structured on, for example, the average LME price for that metal for the month of delivery.
Premarket
Trading over the telephone between brokers before the LME opens for ring dealing.
Premium
There are four possible definitions for the word 'premium':
1. The fee payable when buying, or received when granting, an option.
2. The amount by which the price for one delivery date is higher than that for another date.
3. The difference in price between different refined products, for instance between an ingot and a billet.
4. The amount above the LME price negotiated between physical trading partners for a specific product or delivery location.
Prompt
For immediate (two day) delivery.
Prompt Date
The date on which a metal has to be delivered to fulfil the contract terms.
Put Option
An option which gives the buyer the right, but not the obligation, to sell a particular futures contract at a specific strike price for a specific expiration.
QP (Quotational Period)
A selected range of dates in respect to an averaging contract.
RIE
The acronym for Recognised Investment Exchange as defined in the 1986 Financial Services Act. The LME is such an Exchange.
Ring
This can mean either the five-minute trading period in a single metal on the LME or the circle of seats where the dealing takes place.
Ring Dealing Member
An organisation which is a full clearing member of the LME and entitled to deal in the Ring.
Roll
To transfer a market position in futures or options to another by a simultaneous purchase and sale. When transferring from one date to another this is known as rolling forward or backward. When transferring from one strike price to another it is rolling up or down.
Session
This refers to the morning and afternoon trading sessions at the LME. Each session is made up of two five-minute 'rings' for each metal and a fifteen to twenty-five minute 'kerb' period in which all metals are traded.
Settlement Price
The last unfulfilled offer to sell cash at the close of the second morning ring in each metal i.e. the cash seller's price at that close. This price becomes the accepted cash reference price for the metal for the next 24 hours.
Short
An open sold position on a futures market. To 'go short' is to start a transaction by the sale of a futures contract. Equally a producer or processor may be short of physical if his supply of metal is less than his sales orders.
Spot Market
The market for delivery of metal and currency two business days after the transaction date.
Spot Month
The first deliverable month for which a quotation is available on a futures market. As the LME trades in daily dates, it does not have a spot month.
Stop-Loss Order
An order which becomes a market order to buy only if the market advances to a specified level, or to sell only if the market declines to a specified level. As soon as this specified level is touched or breached the order is executed for the client at the next obtainable price or prices. There is no guarantee the order will be executed at the price specified. A stop-loss order, the most common form of this order is, as its name implies, instituted to prevent or minimise losses from either a short or long position.
Straddle
The simultaneous purchase or sale of Put and Call Options at the same strike price with the same prompt. Straddles are generally a volatility trade: Traders expecting a rise in market volatility would buy straddles and those expecting quieter conditions would sell straddles.
Strangle
The simultaneous sale (or purchase) of out-of-the-money calls and out-of-the-money puts for the same date.
Strike Price
A series of contractually binding price levels at which an option may be struck. An option with a strike price that is in-the-money will have a higher premium than a strike selection that is out-of-the-money.
Swap
An agreement between a hedger and a broker or bank to swap a series of forward cash flows based on selling and buying at an agreed pair of prices. These may be fixed (a known LME price) or floating (a yet-to-be-determined LME average price).
Switching
Can refer to the exchange of metal in one warehouse for that in another or the movement out of one futures contract into another, usually further forward.