Glossary

**Alpha (α)**This refers to the return that can be delivered by a strategy, in excess of the relevant benchmark.AlphaAlpha is the component of return produced by an active manager that is independent of the market or other systematic risk factors.BackwardationA futures term structure is in backwardation if long-dated contracts trade at a discount to shorter-dated ones.Beta (β)This is the sensitivity of an asset or strategy to changes in the relevant benchmark.BleedThe bleed on an option is its time decay, ortheta.ContangoA futures term structure is in contango if long-dated contracts trade at a premium to shorter-dated ones.CTACTAs are Commodity Trading Advisors. They are authorised to trade futures on behalf of clients and regulated by the CFTC in the US.DeltaDelta is the sensitivity of an option to small changes in the underlying price. In mathematical terms, it is the partial derivative of an option with respect to the underlying price.Futures term structureThe futures term structure consists of the prices of futures contracts on a single underlying asset, with different times to maturity.GammaGamma is the sensitivity of an option's delta to small price changes. It measures how quickly the delta can change for small price moves. It is the partial derivative of an option's delta with respect to the underlying price or, equivalently, the second derivative of the option with respect to price.GreeksGreeks measure the sensitivity of an option to small changes in the underlying price, volatility, time and other factors. Options traders use Greeks to estimate their instantaneous risk and to hedge their overall exposure.Implied volatility skewThe implied volatility skew for an asset is derived from options with different strikes but a constant maturity. It measures the change in Black–Scholes implied volatility across option strikes or deltas.Plain vanilla optionA plain vanilla option is one with a relatively uncomplicated payout structure, such as a call or put.RhoRho is the sensitivity of an option's price to changes in interest rates.Roll yieldThis refers to the return you collect (or pay) when selling a nearby futures contract and buying a deferred one on the same underlying asset.Sharpe ratioThe Sharpe ratio of a strategy is its risk-adjusted return, i.e. its return over the risk-free rate divided by its volatility.VegaThe sensitivity of an option to small changes in implied volatility. Mathematically, it is the partial derivative of an option's price with respect to implied volatility.