S - Return to Index
Sacred Cow - Is an asset, position, or project which is considered protected by management. Often this investment is presented as "off-limits" or non-negotiable.
Salvage Value - Is the amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. It should be noted that the gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.
SBA - Is the Small Business Administration.
SBIC - Is a Small Business Investment Company.
Scenarios - Are hypothetical outcomes or path dependent behavior for trading, hedging or analytical purposes.
Scheduled Bonds - Are instruments which are engineered to receive principal payments using stipulated payment schedules. Generally, the term is used for bonds other than Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) issues.
SD or S/D - Is the Settlement Date.
Seasonal - Refers to a recurring process. Often data are deseasonalized to smooth out spikes and provide a better basis for analytical purposes. Examples of this would be sales of heating oil, gasoline, retail employment statistics, and other ecnomic and financial time series.
Seasoned - Is a mortgage industry term that describes the aging process underlying collateral. It refers to mortgages, which are at least 30 months old and are expected to have relatively stable prepayment rates.
Seat - Refers to membership on an exchange. A seat can be purchased or leased.
Some exchanges offer different types of membership or trading privileges. These can be full membership, associate membership, time-limited membership, and product-limited membership.
Secondary Market - Is the aftermarket or the status for trades after an initial public offering (IPO). See Initial Public Offering.
Secured - Is a credit instrument which has priority of claim against a specific asset or portfolio of assets. This compares to Unsecured Debt.
Securities Act of 1933 - Is the Federal Law which covers new issues of securities. It requires full-disclosure of material information related to the offering. Some securities such as U.S. Treasuries are exempt from the provisions.
Securities Exchange Act of 1934 - Is the Federal Law which covers brokers and dealers (B/Ds) and secondary market activities. This compares to the Securities Act of 1933 which focuses on new issues.
Securities Registration - Is the compliance procedure whereby an individual is registered according to function, supervisory level, and type of customer contact. Also, firms must be registered with the appropriate regulatory bodies. See Account Executive and Series 7.
Securities Registration also refers to the process whereby the corporation or its representative applies to the appropriate Federal or State Agency to have the securities registered. This registration is not a sign of approval by the Agency but rather a notification by the corporation to the agency of its intent to sell securities.
Securitization - Is the process of homogenizing and packaging financial instruments into a new fungible one. Acquisition, classification, collateralization, composition, pooling and distribution are functions within this process. One common advantage of securitization is the enhancement of liquidity relative to the underlying collateral or financial instrument. Another benefit is the movement towards standardization of unit specifications.
Seed - Is the initial value or piece of data which is used to initiate an algorithm or process. In commodities, it refers to the part of the crop or crop inventory which is set aside for subsequent planting purposes.
Sell on Close - Is an order to sell at the close. It can be at the market or at a limit.
Sell on Opening - Is an order to sell at the opening. It can be at the market or at a limit.
Seller's Market - Refers to a situation when a holder of assets has greater flexibility and influence in receiving improved bids or proposals. Often the number of potential buyers is greater and the prices higher than those previously transacted.
Seller's Option - Is the contractual latitude or choice of the seller in a transaction to pick the date, grade, coupon, or maturity of a deliverable commodity or actual security. The degree of latitude varies according to the different exchanges and markets. See Wildcard.
Sellside or Sell-side - Refers to the brokerage industry which originates, presents, or sells securities to investors such as money managers and mutual funds.
Senior - Is a class of securities which have high or the highest claim against a borrower. Often they are secured or collateralized.
Senior Registered Options Principal - Is the designated supervisor within a firm who is responsible for the firm and its employees to abide by the rules, regulations, and review process governing options. In particular, this person has oversight on trading and transactions. Generally, the Senior Registered Options Principal can not be the Compliance Registered Options Principal as well. However, an exception is provided for firms do not exceed a certain threshold in terms of revenue. This person is Securities Series 4 licensed.
Separate Account - Refers to an insurance company's account which supports some it its products, in particular, variable annuities and life products. One key difference from the General Account is that the investment risks are carried by the policyholder.
Sequential - Is a class of bonds often described as short or long-term. It is critical to analyze the relationship of these bonds relative to the underlying collateral coupon. One version of these bonds is vulnerable to extension risk whereas another version is vulnerable to call risk.
Sequential Analysis - Is a small sample, nonparametric method. It does not presuppose sample sizes or probability distributions. It is an effective technique to use when analyzing or monitoring hedge or trading programs. The approach uses Type I and Type II Error frameworks.
Serial Bonds - Is an issuance of bonds which have different maturity dates for the principal. Often these bonds are issued on a year-by-year basis but there can be maturity gaps as well.
Serial Correlation - Is the statististical dependency of items between two or more times series. However, this term is sometimes used as a synonym for Autocorrelation. Compare these terms for distinctions.
Series - Can refer to a sequential or chronological arrangement of bonds. This arrangement is sometimes referred to as Tranches or Serial Bonds. The term also refers to the financial industry test and associated license.
Series for Options - Refers to all options of the same class which have the same strike or exercise price.
Series 3 - Is the Commodity Futures Examination (License). See Associated Person.
Series 4 - Is the Registered Options Principal Examination (License).See Registered Options Principal, Compliance Registered Options Principal, and Senior Registered Options Principal.
Series 5 - Is the Interest Rate Options Examination (License).
Series 7 - Is the Full Registration for the General Securities Examination (License). See Account Executive.
Series 8 - Can be the SU or General Securities Sales Supervisor Examination (License).
Series 8 - Can be the TS or Trading Supervisor Examination (License).
Series 15 - Is the Foreign Currency Options Examination (License).
Series 16 - Is the Supervisory Analyst Examination (License).
Series 24 - Is the General Securities Principal Examination (License). See Registered Securities Principal.
Series 26 - Is the Investment Company and Variable Contracts Principal Examination (License).
Series 27 - Is the Financial and Operations Principal Examination (License).
Series 28 - Is the Introducing Broker/Dealer Financial and Operations Principal Examination (License).
Series 52 - Is the Municipal Securities Representative Examination (License).
Series 53 - Is the Municipal Securities Principal Examination (License).
Series 62 - Is the Corporate Securities Representative Examination (License).
Series 63 - Is the Uniform Securities Agent State Law Examination (License).
Settlement Date - Is the date of the financial satisfaction of a transaction. This satisfaction can include payment and delivery of securities. In recent years, there has been progress towards closing the gap between trade date and settlement date. Many back office systems are primarily focused on settlements whereas front office systems are primarily focused on trades or transactions. Here, too the gaps are narrowing with the implementation of middle office software.
Settlement for Real Estate - Is often synonymous with the Closing. It refers to the concluding financial transactions required to satisfy the deal.
SFE - Is the Sydney Futures Exchange.
Share Equivalency - Is a term used in convertible trading and hedging which indicates the number of common shares that the convertible instruments could be exercised into.
Share Repurchase - Occurs when a company buys its own shares on the open market. Sometimes, it is done to bolster value, at other times it is executed to acquire shares for option or other incentive plans. When the rationale is the former, it is often considered preferable to use available to "reinvest" in the business than make other less apparently attractive investments or dividend distributions.
These activities reduce the number of shares outstanding and therefore increase the earnings per share statistic.
Short - Is the position opposite that of a long. Some who is short the market.
Short Coupon - Refers to the initial coupon for a municipal security which reflects less than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period. Compare to Long Coupon.
Short Hedge - Refers to the status of the open futures contract equivalent position. Here, it is understood that the hedger is short futures against a long actual position.
Short Option Minimum Charge - Is the amount charged for short positions in extremely deep-out-of-the-money options. This amount is the greater of the actual risk weighted statistic or the stated exchange or clearing house minimum.
Short Position - Refers to several concepts. It can refer to market directional positions. For example, the sale of a call or the purchase of a put are bearish in nature. These trades have a negative market bias.
Short position can also refer to the actual short sale of a derivative. Here, a short sale of a put is viewed as bullish or market directional positive but categorized by the short sale event.
Short Selling - Is the act by which a speculator or risk manager sells an instrument at a high price with the intent of purchasing it lower. This is particularly the case for the speculator. The risk manager would generally be selling short against a specific or global exposure. There are technical differences in selling short on the futures and securities markets. Also, the purchase of puts or other derivative strategies can serve as a substitute for being short. There are different rules which apply to short sellers on securities markets. The key differences are between market makers and market participants.
Short the Basis - Refers to the status of the open cash or spot market position. Here, the hedger would be short the cash market and long the futures or forward market. Compare to Long the Basis.
Shortening - Is the reduction of the held duration for assets or liabilities. It can be intentional or the result of prepayments, events, or exercised options.
SIAC - Is the Securities Industry Automation Corporation. It was established by the New York and American Stock Exchanges to provide automated services for data processing and clearing.
Side of the Market - Refers to the underlying market-driven or market directional position. For example, a long stock position is considered as a long side-of-the-market position. Similarly, a purchased call on the same security is viewed as long the same-side-of-the-market. A sold or short put position in the same security is considered as long the same-side-of-the-market. However, a purchased put is viewed as short or short side of the market. This term enables firms, exchanges, and clearinghouses to quantify positions as to market-side or market direction. This is very useful when evaluating complex positions.
Sigma - Is an option term sometimes used as a synonym for vega, lambda or kappa. See Vega.
SIMEX - Is the Singapore International Monetary Exchange.
Simulations - Are the results or the processes of generating data and outcomes for different paths and scenarios. It provides a statistical framework for what-if conditions. The art of the simulation is trying to construct an elegant, representative model. This model should properly weigh, in a probabilistic sense, the expected behavior of the time series.
SIPC - Is the Securities Investor Protection Corporation. It was created to protect the clients of a securities firm in the event that the firm went into bankruptcy.
There are limitations on the coverage as to cash and securities. Many brokerage firms purchase private insurance to increase the securities value limit for their accounts. It should be noted that this coverage is not offered or guaranteed by the Federal Government.
SIPC is comprised of members who are brokers and/or dealers registered under the Securities Exchange Act of 1934. It should be noted that in event of a bankruptcy there may not be a timely disposition of options or other security derivatives.
Skewness - Occurs when a distribution is not symmetrical about its mean. A distribution is symmetrical when its median, mean, and mode are equal. A positively skewed distribution occurs when the mean exceeds the median. A negatively skewed distribution occurs when the mean is less than the median. These conditions are also known as skewed to the right and skewed to the left, respectively.
Slippage - Refers to the commissions, fees and other costs of executing a transaction. The other dominant cost is the spread between the bid and offer and price adjustments for size. Sometimes, there are additional expenses in trading odd lots or very large blocks.
SLMA - Is the Student Loan Marketing Association or Sallie Mae.
SLUGS - Are State and Local Government Series securities used for escrow for advanced refunding. The image of these securities became marred when they were a focus point for yield burning cases.
SMA - Is the Special Memorandum Account. It refers to the amount of withdrawable cash from a margin account. It is the difference between the Account Equity and the Margin Requirement at Current Market Values.
SMBS - See Stripped Mortgage Backed Securities.
SOES - Is the Small Order Execution System.
Soft - Refers to weak price or basis behavior. It is a market which weakens on selling. Buyers are not aggressive.
Sold Call - Is a bearish strategy. It requires the grantor of the option to fulfill the contract by accepting a short position in the underlying instrument upon exercise. The risk is unlimited and the reward is limited to the premium received.
Sold Put - Is a bullish strategy. It requires the grantor of the option to fulfill the contract by accepting a long position in the underlying instrument upon exercise. The risk is considered unlimited, though bounded by a zero price, and the reward is limited to the premium received.
Sovereign - Refers to a debt security issued by a government other than the United States. It is often believed that the issuing government via its treasury will fully back the payment of interest and principal in a timely manner. Sometimes, that backing is insufficient and a default occurs.
At times of default, there are distinctions. Sometimes, there is a political upheaval and the new regime repudiates the former's obligations. At other times, there can be a lack of specified reserves to honor the obligations but a workout or restructuring of the payment schedule is agreed, bilaterally.
Soybean Complex - Refers to the commodity futures market for soybeans, soybean oil (soyoil), and soybean meal.
SPANŽ - Is the Standard Portfolio Analysis of Risk (SPANŽ) system. It was initially developed and implemented by the Chicago Mercantile Exchange. Other exchanges and clearinghouses have since adopted this methodology. It evaluates the performance bond, or margining requirements, for positions on a portfolio basis. It matches and evaluates similar instruments. These instruments can be futures, options, and derivatives. SPANŽ tries to indicate the largest potential one-day loss that a portfolio might experience. These losses can be attributable to adverse price and volatility behavior. Since the inception of SPANŽ, methodologies such as Value at Risk (VAR), have also focused on standard deviation (confidence level) statistics. SPANŽ uses 16 different scenarios or market conditions in the calculation of the risk arrays.
Specialist - Is a person on the floor of an exchange who is supposed to buy when others are selling, and sell when others are buying so as to maintain and orderly market. In doing so, specialists run risks and they are compensated by the spreads.
Special Purpose Vehicle - Is an organization constructed with a limited purpose or life. Frequently, these Special Purpose Vehicles serve as conduits or pass through organizations or corporations. They are created for various mortgage backed, real estate, or loan transactions.
Spiders (SPDRs) - Are securities which are based on the S&P 500. They are a product traded on the American Stock Exchange.
Spillover Effects - Occurs when conditions or behaviors in some markets or sectors pour over into other markets or securities. For example, selling in stocks may trigger margin selling which may be satisfied by selling other assets such as bonds to raise cash to meet the calls.
Spinoff - Is a company or division which is separated from the parent. Here, the parent's shareholders receive pro rata ownership shares in the newly free standing organization..
Spread - Is the simultaneous purchase and sale of two related instruments. This strategy tries to transform outright price risk into a basis or relationship risk position. It is also viewed as the difference between the bid and the offer or the profit margin.
SROP - See Senior Registered Options Principal.
SROs - Are Self Regulatory Organizations. Examples of this are the financial exchanges, industry associations, and the NASD.
Stack - Is a position which is focused on a particular delivery or expiration date. For example, a futures position which is comprised of 12 contracts all of which are established for December delivery. This compares to a Strip.
Stagflation - Is the economic and financial phenomenon which represents a relatively high rate of unemployment coupled with a relatively moderate to high rate of inflation.
Standard Deviation - Is a measure of volatility, risk, or statistical dispersion.
The standard deviation is calculated by:
In other words, the standard deviation is the positive square root of the variance.
- computing the mean of the series
- then taking the deviation by subtracting the mean from each observation,
- squaring the differences or deviations for each observation,
- dividing the sum of the squared deviations by the number of observations
- and then calculating the positive square root of the sum of squared deviations.
Standard Normal Distribution or Standardized Normal Distribution - Occurs when the underlying normal distribution is converted by changing its scale. The importance of this is that different normal distributions can now be compared to one another. Otherwise, separate tables of values would have to be generated for each pairing of mean and standard deviation values. This standardized variate term is often expressed as Z is N(0,1), or Z is a normal distribution with a mean value of zero and variance equal to one.
Static Analysis - Is the approach to study market conditions at a moment in time. It also called the Snapshot View of the market, corporate financial condition or other economic time series. It reflects one moment such as, the end-of-the-day, end-of-the-month, end-of-the-year, the opening or any other chronologically defined point. This compares to Dynamic Analysis.
Stationary - Refers to a time series or time series process which has a natural mean or tendency towards one. Over time and given larger samples, some economic time series tend to converge towards a natural level with stable volatilities. This compares to Nonstationary.
Statistical Analysis - Is a mathematical approach which quantifies market action. In its general form, it is reliant on large sample statistics and linear analysis. It assumes independence. Its popular terms are: the mean, variance, standard deviation, alpha and beta.
Stochastic - Is a condition in finance or economics whereby changes occur on a more abrupt basis than those expected to be "normally" encountered. In some ways stochastic has infinite variance and/or non-converging means implications.
Stocks and Bonds Hedge Funds - Are combinations which are analogous to "Balanced Mutual Funds" but, depending on the underlying charter, can use higher degrees of leverage or derivatives.
Stop - Is an order than becomes market executable when a stated level is hit or crossed. Sell stops become market activated when the market declines to the stated stop price or lower. Then the order requires the instrument to be sold at prevailing market prices. Buy stops become market activated when the market advances to the stated stop price or higher. Then this order requires the instrument to be purchased at the prevailing market prices. A variation of the Limit Order is the Stop Limit Order.
Stop Limit - Is a combination of a Stop and Limit order. In the case of a Sell Stop Limit, a Stop Price is given and the same or lower Limit Price is given. The market must decline down to this price or range to become executable. In the case of a Buy Stop Limit, a Stop Price is given and the same or higher Limit Price is given. The market must advance up to this price or range to become executable. Therefore, this type of order can only be executed at one price or a range of prices. Typically, this range is rather narrow.
STP - See Stop order.
STP LMT - See Stop Limit order.
Straddle - Is an option strategy where the near- or at-the-money put and call are combined to form a position. The straddle can be long (purchased) or short (sold).
Straight-Line Depreciation - Is an accounting procedure whereby each year's depreciation is equal to the other years. If an asset has an expected useful life of 5 years then 20 percent of its adjusted cost is charged against revenues each year. If the asset has an expected useful life of 10 years, then 10 percent of its adjusted cost is charged against revenues each year.
Strangle - Is related to the straddle. It is an option strategy where the put and call are out-of-the-money. The strangle can be long (purchased) or short (sold).
Street or The Street - Refers to Wall Street or the Securities and Derivatives Industry.
Strengthening - Is a hedging or risk management term used to describe the relative gain of value between the underlying market and the hedge vehicle. It suggests that the cash or spot commodity or market is becoming more valuable relative to the futures or forward as defined by the basis.
Stretching - Is the increase of the held duration for assets or liabilities. It can be intentional or the result of slowdowns in prepayments, events, or exercised options.
Strike Price - Is the stipulated price of an option at which level the underlying security, futures, or commodity will be priced or valued upon exercise.
Strip - Is a term in the commodity markets which refers to the placement of contracts in different delivery months. For example, the simultaneous placement of 12 contracts in the January through December calendar months would be a strip. This compares to a Stack.
Stripped Mortgage Backed Securities - Are securities which are constructed from MBS pass-throughs. Essentially, these securities strip the cash flow stream into a separate interest only (IO) and principal only (PO) securities.
Strips - Are Stripped Treasury Obligations. The principal and interest payments are separated from the underlying security. The stripped principal is sometimes called the Corpus. There are many variations on this theme with names striving to set apart different firms offerings in this asset group. The stripped offerings are essentially Zero Coupon Bonds.
Structured Products - Are custom-made, over-the-counter instruments. Among these are: Collateralized Loan Obligations, Collateralized Mortgage Obligations, Swaps, Unlisted and Exotic Options, and other Collateralized Obligations. These products are included in the broad definition of derivatives.
Structuring - Is a term which is used several ways. It can refer to arranging a deal.
Structuring can refer to rearrange the cash flow components, both interest and principal, into new streams or structures.
Structuring is the name for breaking down currency payments below treasury department reporting limits. The usual motivation for this is avoidance of income taxes or cloaking ownership. Here, cash and postal money orders are considered as currency.
Subordinated - Is a class of securities which have lower priority or claim against a borrower. Typically, these are unsecured obligations. They are also called Junior notes and bonds. This compares to Senior and Secured.
Substitute Cash or Dividend Payment - Occurs when there has been a short sale. The lender of the security is entitled to a substitute dividend or cash payment. The party who buys the actual security is entitled to the actual dividend as well as voting rights, if any.
Super Floater - Is a floating rate instrument which has its coupon set as a multiple of a benchmark. It exhibits greater movement than an ordinary floater.
Super PAC - Is Planned Amortization Class security that has broader prepayment protection due to its wider collar or prepayment band.
Super PO - Is a security that acts like a support instrument to Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) bonds. Yields on these double-duty securities can fluctuate greatly depending on the actual prepayment history. Very high prepayments against the underlying PACs and TACs can quickly boost Super PO yields.
Support - Is a bond engineered to counterbalance or uphold Planned Amortization Class, Targeted Amortization Class or other superior bonds in a deal. Also, referred to as a Companion Bond.
Support Bonds - Are a class of securities that absorb many of the risks of the Planned Amortization Class structure.
Support for Prices - Is a price level where stocks, bonds, currencies, and commodities are expected to receive buy orders. At its simplest application it is the bid side of a quote. On a more complex level it refers to the lower boundary of some described trading range.
SVT or SVTs (Specialistes en Valeurs du Tresor) - Is the system of primary dealers in French treasuries. There are approximately a dozen firms in this system.
Swap - Is a customized financial transaction between two or more counterparties. However, banks or brokerage firms often act as intermediaries or assume some of the risk of the total transaction as well. A swap is engineered between counterparties who agree to make periodic payments or adjusts to one another. Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. Swaps are not exclusively OTC transactions because listed instruments are often include in the risk management of the position. Often managers evaluate the relative merits of conducting a swap (OTC) or a hedge predicated on listed instruments. The interaction between these two markets promotes greater financial efficiencies.
Swaption - Is an option on a swap. This option can be a put, call or myriad combination of option features.
SWARCH - Is Switching Regime Autoregressive Conditional Heteroskedasticity (ARCH).
Sweetener - Is an added incentive to purchase a security. One example of this would be the coupling of warrants with a convertible bond issue. Here, the warrants would be viewed as the sweetener.
Switch - Is the trading process whereby an open contract position is closed and another contract month is opened. This activity is sometimes called a spread or a rollover.
Synthetic Futures - Is a position constructed with options which have the same strike price and same expiration. It can be either long or short. A long synthetic futures position consists of a purchased a call and a sold a put. A short synthetic futures position consists of a sold call and a purchased put. It is a part of the conversion and reverse conversion strategies.
Synthetic Long Call - Is a long position in the underlying instrument or futures combined with a long or purchased put.
Synthetic Long Put - Is a short position in the underlying instrument or futures combined with a long or purchased call.
Synthetic Long Straddle - Is constructed by the purchase of a futures contract or underlying instrument coupled with the purchase of two at-the-money puts. Since the purchase of the underlying with the purchase of one at-the-money put is a synthetic long call, then the purchase of the second put completes this synthetic option strategy.
This synthetic long straddle position can also be constructed by the short sale of the futures or underlying coupled with the purchase of two at-the-money calls. Here, the short sale of the underlying and the purchase of the put create a synthetic long put position. The purchase of the second call completes this synthetic option strategy. Note that in both cases, the buyer is paying a premium or purchasing time value which makes the position synthetically long.
Synthetic Short Call - Is a short position in the underlying instrument or futures combined with a short put position.
Synthetic Short Put - Is a long position in the underlying combined with a short call. Is sometimes referred to as a covered call write position.
Synthetic Short Straddle - Is constructed by the purchase of a futures contract or underlying instrument coupled with the sale of two at-the-money calls. Since the purchase of the underlying with the sale of one at-the-money call is a synthetic short put, then the sale of the second call completes this synthetic option strategy.
This synthetic short straddle position can also be constructed by the short sale of the futures or underlying coupled with the sale of two at-the-money puts. Here, the short sale of the underlying and the short sale of the put create a synthetic short call position. The sale of the second put completes this synthetic option strategy. Note that in both cases, the trader is collecting a premium or receiving time value which makes the position synthetically short.
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Copyright © 1998-2003 Barkley International Inc. All Rights Reserved. - Page created Tuesday, May 19, 1998 by Oasis Management®. Last Modified on Sunday, August 19, 2018.