Leverage

The Spot Price of the Underlying divided by the price of an Option or Warrant linked to that Underlying. Leverage is intended to be a measurement of how much more strongly the value of an Option or Warrant can rise and fall in comparison to investing the same amount in the Underlying asset. This simplified Leverage calculation is based on the incorrect assumption that the value of the Option or Warrant and the value of the Underlying always move in parallel, i.e. by the same absolute amount. Thus, a more refined leverage is calculated by multiplying the simple leverage with Delta. The result is often referred to as Elasticity.

Life

See Exercise Period.

Liquidity

A market characterised by conditions in which large-volume transactions in a financial instrument can be executed without these then having a noticeable impact on the market price of that instrument. For Warrants, the current volume of trading is often used as a measure of Liquidity.

Lookback

Gives the holder of the Option the right to exercise at the most favourable price of the Underlying over the Life of the Option. The Strike can also be set by looking-back over the life of the Option.

 

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