|
A
payroll tax deferral plan established by the IRS. The
accumulated earnings are free from taxation until the investor
takes possession of them. |
|
|
American-style option |
An
option contract that can be exercised at any time between the
date of purchase and the expiration date. Most
exchange-traded options are American-style. All
stock options are American-style. |
|
Amex/NASDAQ |
One
of four U.S. Exchanges that trade options. The
other three are: the
Chicago Board Options Exchange, the Pacific Stock Exchange and
the Philadelphia Stock Exchange. |
|
ask |
Is
the lowest price acceptable to a prospective seller of a security. A
quotation consists of bid and ask together. The
difference between the two prices is the spread. See "bid." |
|
asset |
Anything
having commercial or exchange value that is owned by a business,
institution, or individual. |
|
A
type of chart used for analyzing stock prices and trends. The
data required to produce a standard bar chart consists of the
open, high, low, and close prices for the time period under study. |
|
|
Barron's |
The
Dow Jones Business and Financial Weekly. |
|
bears |
People
who think a market will fall. |
|
bid |
Is
the highest price a prospective buyer is prepared to pay at a
particular time for a trading unit of a security. A
quotation consists of bid and ask together. The difference between
the two prices is the spread. See "ask." |
|
black
candle |
A
form used in candlestick charting. The
box that makes up the difference between the open and close is
called the real body of the candlestick. When
the body is black, it means that the closing price was lower
than the opening price. |
|
blue-chip stocks |
Also
known as the Dow Industrials or the Dow 30. The
top 30 companies listed on the New York Stock Exchange that have
shown steady growth, innovation, product development, marketing
and distribution power. The
term "blue-chip" is a reference to the most valuable chips in a
poker game. These
established companies with long records of earnings and dividends
represent the backbone of the economy. (Example: General Electric) return to top |
|
body |
The
portion of the candlestick called the real body. |
|
Any
interest-bearing or discounted government or corporate security
that obligates the issuer to pay the bondholder a specified sum
of money, usually at specific intervals, and to repay the principal
amount of the loan at maturity. |
|
|
book
value |
As
used with stocks is the net asset value of a company's stock
calculated by using the following formula: Total
assets minus goodwill, patents, etc., minus current
liabilities, long-term liabilities and stocks that have a prior
claim. The net asset
value divided by the number of shares gives the net value per
share. |
|
broker |
A
person who acts as an intermediary between a buyer and seller,
usually charging a commission. |
|
brokerage
firm |
A
firm that acts as an intermediary between a buyer and seller
of stock and other securities, usually charging a commission. When
buying from a broker acting as a dealer, a customer receives
securities from the firm's inventory. Since
most brokerage firms operate both as brokers and as principals,
the term broker-dealer is commonly used. |
|
bulls |
People
who think prices will rise. In
a more general sense, bullish means optimistic, so people can
be bullish on the economy as a whole. |
|
An
option contract giving the owner the right (not the obligation)
to buy 100 shares of stock at a strike price on or before the
expiration date. |
|
|
Chicago
Board Options
Exchange (CBOE) |
In
1973, the CBOE created "listed options" that became the standard,
and option prices were set in an auction market nearly identical
to the stock exchanges. Today
equity and index options are traded on four U.S. Exchanges: the
CBOE, Amex/NASDAQ, the Pacific Stock Exchange, and the Philadelphia
Exchange |
|
Chicago
Board of Trade (CBOT) |
Founded
in 1848 with 82 original members, it had an active cash and forward
contracting business at first. Although
the records were destroyed in the fire of 1971, it has agreed
that futures contracts were being traded there during the 1860's. Today,
the CBOT is the largest exchange in the world. It
is known for its grain, gold, and Treasury Bond futures, as well
as options on T-bond futures. |
|
closing |
The
price of the final trade of stock at the end of the day. |
|
common
stock |
Units
of ownership of a public corporation. |
|
company
report |
Also
known as a financial statement which is a written record of the
financial status of the company. The
financial statement includes a balance sheet and an income
statement (or operating statement or profit and loss statement). |
|
A
legal entity chartered by a state which is separate and distinct
from the persons who own it. |
|
|
covered
calls |
An
option contract backed by the shares of stock underlying the
option. |
|
Covered
writing |
A
form of option writing in which (using calls as an example) the
writer owns a quantity of the underlying security equivalent
to the number of shares represented by the option contracts written. It
is less risky than outright long stock positions and is equivalent
in its profit/loss profile to naked put writing. |
| An
order to buy or sell securities that expires unless executed
or canceled the day it is placed. |
|
|
debt |
One
party's obligation to pay another in accordance with an expressed
or implied agreement. Debt may or may not be secured. |
|
debt
ratio |
Also
called debt-to-equity ratio. The
total liabilities divided by total shareholders' equity. This
shows to what extent owner's equity can cushion creditors' claims
in the event of liquidation. |
|
delta
(also neutral hedge ratio) |
The
percentage of the price movement in the underlying stock that
will be translated into price movement in a particular option
series. For example, a delta of 50 percent indicates that the
option will move up (down) by one half point for each 1 point
rise (decline) in the underlying stock. Call options have positive
delta; put options have negative delta. Deltas increase as the
stock price rises and decrease as the stock price declines. The
delta is also an approximation of the probability that an option
will finish in the money. |
|
demand |
Relates
to the economic theory of supply and demand. As
supply of an item exceeds demand the price will fall to stimulate
demand. When supply of an item is limited, the price will increase
to slow demand. |
|
Stock
trading below book value. |
|
|
discount
broker |
A
brokerage house that executes orders to buy and sell securities
at commission rates lower than those charged by a full service
broker. |
|
diversification |
Spreading
risk by putting assets in several categories of investments - stock,
bonds, money market instruments and real estate, for instance. |
|
dividend |
When
a company's stock pays some form of compensation to existing
shareholders, this is known as a dividend. Dividends usually
take the form of quarterly cash dividends, which attracts investors
seeking regular income. Dividends can also be in the form of
additional stock, or spin-offs of existing subsidiaries. |
|
dividend
payouts |
Distribution
of earnings to shareholders, prorated by class of security and
paid in the form of money, stock, company products or property. Usually
in the form of money. |
|
down
trend |
A
shift of an economic or stock market cycle from rising to falling. |
|
The
company's profit. |
|
|
earnings
per share |
The
portion of a company's profit allocated to each outstanding share
of common stock. |
|
equity |
Ownership
interest possessed by shareholders in a corporation - stock as
opposed to bonds. |
|
equity
returns |
See
dividend payouts. |
|
European-style
option |
An
option contract that can only be exercised on the expiration
date. |
|
expiration
date |
The
last day (in the case of American-style) or the only day (in
the case of European-style) on which an option may be exercised.
For stock options, this date is the third Friday of the expiration
month; however, brokerage firms may set an earlier deadline for
notification of an option buyer's (holder's) intention to exercise.
If Friday is a holiday, the last trading day will be the preceding
Thursday. |
|
Broker
who provides a wide range of services to clients. Unlike
a discount broker, who just executes trades, a full-service broker
offers advice on which stocks, bonds, commodities, and mutual
funds to buy or sell. The full service broker may also offer
an asset management account; advice on financial planning; tax
shelters; and new stock issues. |
|
|
fundamental
analysis |
Analysis
of the balance sheet and income statements of companies in order
to forecast their future stock price movements. They consider
past records of assets, earnings, sales, products, management,
and markets in predicting future trends in these indicators of
a company's success or failure. |
| Good-till-canceled
order. A brokerage
customer's order to buy or sell a security, usually at a particular
price, that remains in effect until executed or canceled. |
|
| The
highest price a stock traded for during one day. |
|
| A
statistical measure of the changes in a portfolio representing
a market. The Standard & Poor's 500 is the most well-known
index. |
|
|
index
fund |
An
investment fund designed to match the returns on a stock market
index. |
|
index
option |
An
option whose underlying security is a stock index. This includes
options on the overall market (such as the S&P 100 Index
options) as well as options on narrower-based industry groups.
Index options are cash settlement options. |
|
In-the-money |
A
call option is said to be in-the-money if the current market
value of the underlying interest is above the exercise price
of the option. A
put option is said to be in-the-money if the current market value
of the underlying interest is below the exercise price of the
option. |
|
intrinsic
value |
The
difference between an in the money option strike price and the
current market price of a share of the underlying security. |
|
investment |
Use
of capital to create more money where an investor puts money
into a venture (such as stocks) designed to result in capital
gains. |
|
Investor's
Business Daily |
A
financial information newspaper. |
|
Japanese candlesticks |
A
charting system used by rice traders for over two hundred years. |
|
Long-term
Equity AnticiPation Securities. An
option with an extended expiration date. |
|
|
leverage |
The
control of a larger sum of money with a smaller amount. By accepting
the liability to purchase or deliver the total value of a futures
contract, a smaller sum (margin) may be used as earnest money
to guarantee performance. If prices move favorably, a large return
on the margin can be earned from the leverage. Conversely, a
loss can also be large, relative to the margin, due to the leverage. |
|
liability |
The
amount owed by a company. |
|
limit
order |
An
order to buy or sell stock at a specific price or better. The
broker will execute the trade only within the price restriction. |
|
long
term stock |
An
investment approach to the stock market in which an investor
seeks appreciation by holding a stock for a year or more. |
|
low
for the day |
Lowest
price the stock traded for during the day. |
|
A
dealer willing to accept the risk of holding securities to facilitate
trading in a particular security or securities. |
|
|
market
order |
An
order to buy or sell a security at the best available price. Most
orders executed on the exchanges are market orders. |
|
market
value |
The
price at which an investor will buy or sell each share of common
stock or each bond at a given time. |
|
market
psychology |
The
effect of fear and greed on the market. |
|
market-derived
information |
Price,
volume, trends. |
|
money
market funds |
An
open-ended mutual fund that invests in highly liquid and safe
securities such as government securities and pays money market
rates of interest. |
|
mutual
fund |
A
fund operated by an investment company that raises money from
shareholders and invests it in stock, bonds, options, commodities,
or money market securities. |
|
National
Association of Securities Dealers Automatic Quotation system.
An electronic quotation system that provides price quotations
to market participants about the more actively traded common
stock issues in the OTC market. About 4,000 common stock issues
are included in the NASDAQ system. |
|
|
New
York Stock Exchange (NYSE) |
Also
known as the Big Board. More than 20,000 common and preferred
stocks are traded. The exchange is the oldest in the United States,
founded in 1792, and the largest. |
|
non-trend |
A
stock that channels in a price range. Between
a high price (resistance) and a low price (support). |
|
The
price at which a stock starts a trading day. |
|
|
open
interest |
The
number of outstanding option contracts in the exchange market
or in a particular class or series. |
|
option |
The
right to buy or sell stock during a specified period of time;
A contract that entitles the holder to buy or sell a number of
shares (usually 100) of a particular common stock at a predetermined
price (see striking price) on or before a fixed expiration date. |
|
options
contract |
A
contract that, in exchange for the option price, gives the option
buyer the right, but not the obligation, to buy (or sell) a financial
asset at the exercise price from (or to) the option seller within
a specified time period, or on a specified date (expiration date). |
|
option
premium |
The
price of an option contract, determined in the competitive marketplace,
that the buyer (holder) of the option pays to the option seller
(writer) for the rights conveyed by the option contract. |
|
Pacific
Stock Exchange |
One
of four U.S. Exchanges that trade options. The other three are
the Amex/NASDAQ, the Chicago Board Options Exchange, and the
Philadelphia Stock Exchange. |
|
Philadelphia
Stock Exchange |
One
of four U.S. Exchanges that trade options. The other three are
the Amex/NASDAQ, the Chicago Board Options Exchange, and the
Pacific Stock Exchange. |
|
P/E
ratio |
Price
of a stock divided by its earnings per share. |
|
pension
plan |
A
plan (fund) set up by a corporation, labor union, governmental
entity, or other organization to pay the pension benefits of
retired workers. |
|
personal
broker |
A
person who acts as an intermediary between a buyer and seller,
usually charging a commission. |
|
portfolio |
Combined
holding of more than one stock, bond, commodity, real estate
investment, or other asset by an individual or institutional
investor. The purpose
of a portfolio is to reduce risk by diversification. |
|
A
class of stock that pays dividends at a specified rate and that
has preference over common stock in the payment of dividends
and the liquidation of assets. |
|
|
premium |
Stock
trading above book value. |
|
price |
The
market value of stock. |
|
put
option |
An
option contract that gives the owner the right to sell a specified
number of shares of stock at a specified price on or before a
specific date. |
|
A
stock that has highs and lows on its price range and gradually
rises to a high range over a period of time. |
|
|
range
rider down |
A
reverse range rider. A stock that has highs and lows on its price range and gradually
drops to a low range over a period of time. |
|
real
estate |
A
piece of land and all physical property related to it, including
houses, fences, landscaping and all rights to the air above and
earth below the property. Assets
not directly associated with the land are considered personal
property. |
|
resistance |
A
price ceiling the stock tends to trade at and below. |
|
retirement
savings |
Moneys
set aside by an individual for retirement. |
|
reversal |
A
change in direction by the stock. |
|
rolling
stock |
A
stock that channels in a price range. Between
a high price (resistance) and a low price (support). |
|
A
unit of equity ownership in a corporation. This
ownership is represented by a stock certificate or a purchase
advice. |
|
|
shares
outstanding |
Stock
held by shareholders, shown on corporate balance sheets under
the heading of Capital Stock issued and outstanding. |
|
stock |
Ownership
of a corporation represented by shares that are a claim on the
corporation's earnings and assets. |
|
stock
investing |
Purchasing
stock or options. |
|
stock
market |
An
organized marketplace in which stocks are traded by members of
the exchange. |
|
A
stock split increases a corporation's number of outstanding shares
of stock without any change in the stockholder's equity. Example: If
a stock at $100 value splits 2-for-1, the number of authorized
shares doubles and the price per share drops by half, to $50. |
|
|
stock
trading |
Buying
and selling stock. |
|
stockholder |
The
holder of shares of stock of a corporation. |
|
stockholder
equity |
Ownership
interest possessed by shareholders in a corporation - stock as
opposed to bonds. |
|
stockholder
of record |
Stockholder
shown as owner of stock on a certain date for purpose of receiving
dividends or benefits of a stock split. |
|
The
price at which the underlying security will be sold if the option
buyer exercises his/her rights in the contract. |
|
|
supply |
Relates
to the economic theory of supply and demand. As
supply of an item exceeds demand the price will fall to stimulate
demand. When supply of an item is limited, the price will increase
to slow demand. |
|
support |
A
price floor that the stock tends to trade at and above. |
|
Research
into the demand and supply for securities based on trading volume
and price studies. |
|
|
time
value |
The
portion of the premium that is attributable to the amount of
time remaining until the expiration of the option contract and
to the fact that the underlying components that determine the
value of the option may change during that time. Time value is
generally equal to the difference between the premium and the
intrinsic value. |
|
A
shift of an economic or stock market cycle from falling to rising. |
|
|
See "book
value." |
|
|
volatility |
The
propensity of the market price of the underlying security to
change in either direction. |
|
volume |
Total
number of stock shares or options traded in a particular period. |
|
A
financial newspaper by Dow Jones. |
|
|
white
candle |
A
form used in candlestick charting. The
box that makes up the difference between the open and close is
called the real body of the candlestick. When
the body is white, it means that the closing price is higher
than the opening price. |
|
Stocks:
Percentage rate of return paid on common or preferred stock in
dividends. General: Return
on an investor's capital investment. |
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