A
ADR
American Depositary Receipts are certificates representing shares in a foreign corporation that a U.S. bank issues. The ADRs themselves can be traded on the U.S. stock market. They are a convenient means for U.S. investors to trade shares in non-U.S. companies.
American-style option
An option that can be exercised at any time prior to its expiration date. See also European-style option
Analyst
Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.
Annual Percentage Rate (APR)
"The cost of credit that the consumer pays, expressed as a simple annual percentage."
Annual Return
The simple rate of return earned by an investment for each year.
Arbitrage
A trading technique that involves the simultaneous purchase and sale of identical assets or of equivalent assets in two different markets with the intent of profiting by the price discrepancy.
Arbitrageur
An individual or company that takes advantage of momentary disparities in prices between markets which enables them to lock in profits because the selling price is higher than the buying price.
Ask / Ask price
The price at which a seller is offering to sell an option or a stock. Also known as the Offer price.
Assignment
"Notification by The Options Clearing Corporation to a clearing member that an owner of an option has exercised his or her rights there under. For equity and index options, assignments are made on a random basis by The Options Clearing Corporation. See also Delivery and Exercise"
At-The-Money
"A term that describes an option with a strike price that is equal, or nearly equal, to the current market price of the underlying stock."
Averaging down
This refers to the practice of buying more of a stock or an option at a lower price than the original purchase so as to reduce the investor's average purchase price.
B
Back-Testing
The testing of a strategy based on historical data to see if the results are consistent.
Beta
A measure of how closely the movement of an individual stock tracks the movement of the entire stock market.
Bid / Bid Price
The price at which a buyer is willing to buy an option or a stock.
Broker
An individual or firm which charges a commission for executing buy and sell orders.
Bullish
"An adjective describing the opinion that a stock, or the market in general, will rise in price - a positive or optimistic outlook."
C
Cash Dividend
A dividend paid in cash to a shareholder out of a corporation's profits.
Cash-only risk arbitrage
"In a cash-only risk arbitrage deal, or also know as cash-only merger arbitrage, a buyer proposes to purchase the share of the target company for a stated price in cash. The stock of the target usually trades under the purchase price of the deal until it is finalized. An arbitrageur buys the stock of the target and makes a profit if the acquirer actually buys the stock at the announced deal price. Risk arbitrage is only one example of an event driven strategy. The “risk” in risk arbitrage comes from the chance that the deal will not be finalized. This may happen for many reasons such as a tightening credit markets and/or material chances in the business.(for real life examples please see our Deal Tracker)"Call option
Charts
" Graphical representations of price, volume and/or other data over a period of time. Commonly used in technical analysis are Bar Charts, Line Charts, Point and Figure Charts, Candlestick Charts and Market Profile. "
Closing price
T he final price of a security at which a transaction was made.
Commission
A service charge assessed by a broker and his/her investment company in return for arranging the purchase or sale of a security.
Covered put / Covered cash-secured put
Cash secured put is an option strategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned).
Credit
Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.
D
Day Order
An order to buy or sell a security which expires if not filled by the end of the day.
Day trade
A position (stock or option) that is opened and closed on the same day.
Delta
The amount by which the price of an option changes for every dollar move in the underlying instrument.
Dividend
A sum of money paid out to a shareholder from the stock's profits.
Dividend Yield
"The percentage return on a common stock due solely to dividends, expressed on an annual basis. For instance, if a stock pays a quarterly dividend of $0.50, and the stock can be purchased for $75, the dividend yield is calculated as: (0.50 * 4) / 75 = 2.6%"
E
Earnings Per Share (EPS)
"EPS is the total annual after-tax earnings of a company divided by its average number of shares outstanding. For instance, if a company earns $10 million in a particular year and has an average of 4 million shares outstanding during a particular year, its EPS is $2.50 per share."
Ex-date / Ex-dividend date
"The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the 'ex-date,' and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date.."
Exchange
"An area where an asset, option, future, stock or derivative is bought and sold. "
Exchange Traded Fund (ETF)
"A security that tracks an index, a commodity or a basket of stocks like an index fund, but trades as a single stock on an exchange. ETFs offer the diversification benefits of a mutual fund but can be traded at any time during the day. "
F
Fundamental analysis
"A method of predicting stock prices based on the study of earnings, sales, dividends, and so on."
Futures
All contracts covering the purchase and sale of financial instruments or physical commodities for future delivery. These orders are transacted on a commodity futures exchange.
G
Good-'til-cancelled (GTC) order
"A type of limit order that remains in effect until it is either executed (filled) or cancelled, as opposed to a day order, which expires if not executed by the end of the trading day. A GTC option order is an order which if not executed will be automatically cancelled at the option's expiration."
H
Hedge / Hedged position
A position established with the specific intent of protecting an existing position. Reducing the risk of loss by taking a position through options or futures opposite to the current position they hold in the market.
Historic volatility
A measure of actual stock price changes over a specific period of time. See also Standard deviation.
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I
Index
A compilation of several stock prices into a single number. Example: the S&P 100 Index.
Index Options
Call options and put options on indexes of stocks are designed to reflect and fluctuate with market conditions. Index options allow investors to trade in a specific industry group or market without having to buy all the stocks individually.
Investment
Any purchase of an asset to increase future income.
L
Limit order
A trading order placed with a broker to buy or sell stock or options at a specific price.
M
Margin / Margin requirement
The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a security from a brokerage firm.
Margin Account
A customer account in which a brokerage firm lends the customer part of the purchase price of a trade.
Market Order
An order to buy or sell a security at its market price as soon as possible.
N
NASDAQ
National Association of Securities Dealers Automated Quotations system -- a computerized system providing brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities
New York Stock Exchange (NYSE)
The largest stock exchange in the United States.
O
Open interest
The total number of outstanding option contracts on a given series or for a given underlying stock.
Opening transaction
"An addition to, or creation of, a trading position. An opening purchase transaction adds long options to an investor's total position, and an opening sale transaction adds short options. An opening option transaction increases that option's open interest."
Option
"A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration). The contract also obligates the writer to meet the terms of delivery if the contract right is exercised by the owner."
Option pricing model
"The first widely-used model for option pricing is the Black Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options."
Out-of-the-money
"An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value."
P
P/E Ratio
"The P/E ratio, commonly used as a measure of common stock value, is calculated by dividing a stock's current price by its annual earnings per share. "
Put option
"An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned."
R
Risk
The potential financial loss inherent in an investment.
Risk Arbitrage
"Pertaining to mergers, It is an investment strategy that attempts to profit off the any differences (the spread) between the current asking price and the announced purchase price of the company that is being acquired. The risk is that the deal gets delayed, negotiated lower, or is not completed altogether. If a deal is not completed a larger loss can be incurred in a short time period while the stock adjusts to the transaction breakup news. "
Round Lot
"The usual increment for trading stock, 100 shares."
S
Secured put / Cash-secured put
An option strategy in which a put option is written against a sufficient amount of cash (or T-bills) to pay for the stock purchase if the short option is assigned.
Securities and Exchange Commission (SEC)
Commission created by the US Government to regulate the securities markets.
Securities Exchange
Marketplace where investors' representatives trade listed securities.
Selling Short
"The practice of borrowing a stock, future or option from a broker and selling it because the investor believes that the price of a stock is going lower than it's current price. "
Shares
Certificates representing ownership of stock in a corporation or company.
Stock split
"An increase in the number of outstanding shares by a corporation, through the issuance of a set number of shares to a shareholder for a set number of shares that the shareholder already owns. For example, a corporation might declare a '2-for-1 stock split.' This means that for every share of stock an investor owns, he/she will be given another, thus owning 2 shares instead of 1. There will be a corresponding reduction in equity value per share. In this case, the new shares (post-split) will be worth one-half their previous value but the investor will own twice as many shares. See also Stock dividend."
Stop order
"A type of contingency order, often erroneously known as a 'stop-loss' order, placed with a broker that becomes a market order when the stock trades, or is bid or offered, at or through a specified price. See also Stop-limit order."
Stop-limit order
"A type of contingency order placed with a broker that becomes a limit order when the stock trades, or is bid or offered, at or through a specific price."
T
Takeover
refers to one company purchasing another
Technical analysis
"A method of predicting future stock price movements based on the study of historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume."
Theta
The Greek measurement of the time decay of an option.
Time Decay
The amount of time premium movement within a certain time frame on an option due to the passage of time in relation to the expiration of the option itself.
Trade confirmation
A written or electronic statement from a broker verifying execution of an investor's order.
Transaction costs
"All of the charges associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and/or assignment, exchange fees, SEC fees, and margin interest."
U
Uncovered call option writing
A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.
Uncovered put option writing
"A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put."
Underlying security
The security subject to being purchased or sold upon exercise of the option contract.
V
Volatility
"A measure of stock price fluctuation. Mathematically, volatility is the annualized standard deviation of a stock's daily price changes. See also Historic volatility and Individual volatility and Implied volatility."
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