Discount

"Discount" describes a situation where something is trading for less than some reference value that people expect it to be worth. The word itself just means "cheaper than the benchmark" — the interesting part is always what the benchmark is.

In options trading, an option is said to trade at a discount when its market price is below its intrinsic value. Intrinsic value is the amount an option would be worth if you exercised it right now — for a call, that's the stock price minus the strike price (if positive); for a put, it's the strike minus the stock price. An option trading below that amount is rare in liquid markets because traders can normally buy the option and exercise it for an instant profit, but it can show up in illiquid or hard-to-borrow names, or right around dividends and corporate actions.

In futures markets, a future is trading at a discount when its price is lower than the current cash (spot) price of the underlying index, commodity, or asset. This is the mirror image of a future trading at a premium. A discount often reflects expectations that the underlying will be cheaper by the time the futures contract expires, or it can reflect costs and yields baked into the pricing — for example, a commodity future can sit at a discount to spot when storage costs are low relative to the interest earned on holding cash instead of the physical good.

The nuance that trips people up is that "discount" is always relative to a specific reference price, not an absolute judgment that something is "cheap." A future at a discount to spot isn't a bargain in the retail sense — it may simply be pricing in a fair expectation about future supply, demand, or interest rates. Traders confuse discount-to-fair-value with a trading opportunity, when often the market is pricing it correctly.