Glossary

A-C   D-F   G-I   J-L   M-O   P-R   S-U   V-Z   Options


A-C

Accounts Payable
Money a company owes for services and supplies rendered.

Accrued Interest
The interest due on a bond or other fixed-income security since the last interest payment was made. The buyer of a bond pays the market price plus accrued interest.

Acquisition
One company taking control of another by purchasing a majority or all of the target company's outstanding shares. An "unfriendly" or "hostile" acquisition attempt is usually characterized by an offer far in excess of the market value of the shares, which is meant to induce current stockholders into selling. The target company's management may retaliate by soliciting competing offers from other companies in hopes that a bidding war will frighten off the attacker.

American Depositary Receipt (ADR)
A receipt that is issued by a U.S. Depository Bank which represents shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.

American Stock Exchange (Amex)
An open auction market similar to the NYSE where buyers and sellers compete in a centralized marketplace. The Amex typically lists small to medium cap stocks of younger or smaller companies. Until 1921 it was known as the New York Cumulative Exchange.

American Style Option
An option that may be exercised at any time between its purchase and its expiration date.

Annual Report
A publication that is issued yearly by all publicly held corporations and freely available to all shareholders. It reveals the company's assets, liabilities, revenues, expenses, and earnings for the past year, along with other financial data. This is often accompanied by a presentation of the company's achievements and philosophy, but it is the accounting information that is required by law to allow investors to gauge the financial health of the company.

Arbitrage
A technique used by alert traders, now aided by sophisticated computer programs, to profit from minute price differences for the same security on different markets. For example, if a computer monitoring markets notices that ABC stock can be bought on a New York exchange for $10 a share and sold on a London exchange at $10.12, the arbitrageur or a special program can simultaneously purchase ABC stock in New York while selling the same amount of it in London, thus pocketing the difference.

Arbitration
A low-cost alternative to settling disputes over securities transactions in the court system. The NYSE administers this service.

Assets
Property and items of value owned by a person or business. The primary classifications of assets are:
current assets: cash and other liquid instruments, including accounts receivable, that can be converted to cash      within one year at maximum;
long term assets: plants, equipment, real estate and other capital assets, net of depreciation;
prepaid and deferred assets: expenditures for future costs or expenses, such as insurance, interest or rent,       that are set up as assets to be amortized over an applicable period;
intangible assets: assets with a determined value, but which may not be scalable, such as goodwill, patents,      copyrights, and brand name recognition.

Assignment
The receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

At-the-Money
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security.

Auction Market
A form of trading that takes place by verbal outcry of bids and offers by Exchange members acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the over-the-counter market the price is determined by a dealer who buys and sells out of inventory.

Audit Report
Often called the accountant's opinion, it is the statement of the accounting firm's work and its opinion of the corporation's financial statements, especially if they conform to the normal and generally accepted practices of accountancy.

Balance Sheet
A condensed financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date. In dollar amounts the balance sheet shows that the company owned, what it owed, and the ownership interest in the company of its stockholders.

Base Point
One-hundreth of one percentage point. Such a small measurement is especially helpful in expressing the often small but significant variations in bond yields. For example, the difference between a 12.83% yield and a 12.88% yield is 5 basis points

Bear Market
A term to describe a market of declining prices.

Bear (Bull)
For generations, bulls and bears on Wall Street have referred to two decidedly different types of investors - the bulls being those who expect stock prices to rise, the bears being those who believe prices are about to decline.

Bearer Bond
A bond that does not have the owner's name registered on the books of the issuer. Interest and principal, when due, are payable to the owner.

Beta
Coefficient measuring a stock's relative VOLATILITY. The beta is a covariance of the stock in relation to the rest of the stock market. The Standard & Poor's 500 Stock Index has a beta coefficient of 1. Any stock with a high beta is more volatile than the market, and any with a low beta can be expected to rise and fall more slowly than the market. A conservative investor whose main concern is preservation of capital should focus on stocks with low betas, whereas one willing to take high risks in an effort to earn high rewards should look for high-beta stocks.

Block
A large holding or transaction of stock. Generally 10,000 or more shares or any quantity worth over $200,000 is considered a block.

Blue Chip
A company known nationally for the quality of its products or services, its reliability, and its ability to operate profitably in good and bad economic times.

Bond
Bonds are promissory notes or IOUs issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000, although $100 and $500 denominations are available. A bond is evidence of a debt on which the issuing company usually promises to pay the bondholder a specified amount of interest at intervals over a specified length of time, and to repay the original loan on the expiration date. A bond represents debt, therefore its holder is a creditor of the corporation and not a part owner, as the stockholder is.

Book Value
An accounting term. The book value of a stock is determined by adding up all of a company's assets and then deducting all of its debt and liabilities, including the liquidation price of any preferred issues. This sum is then divided by the number of common shares outstanding and the result is book value per common share. Book value of a company's assets or of a security may have little relationship to the market value.

Borrowing
A way of acquiring necessary capital. One form of borrowing is when an individual or a company asks a bank to loan them a certain amount of money, over a certain period of time, and agrees to pay a certain amount of interest.

Broker
A person or firm acting as an agent for buyers and sellers and charging commission for services rendered.

Call Option
A contract that gives the holder the right to buy the underlying stock at a specified price (the strike price) within a fixed period of time.

Callable
Term to describe a bond issue all or part of which may be redeemed by the issuing corporation under specified conditions before maturity. The term also applies to preferred shares that may be redeemed by the issuing corporation.

Capital Gain
Profit earned on the sale of securities, either through dividends or by selling the securities at a higher price than they originally cost.

Capital Stock
All shares representing ownership of a business, including common and preferred.

Capitalization
Total amount of various securities issued by a corporation. Capitalization may include bonds, debentures, preferred and common stock, and surplus .

Capped-Style Option
An option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call), or at or below (for a put), the option's cap price.

Callable
Term to describe a bond issue all or part of which may be redeemed by the issuing corporation under specified conditions before maturity. The term also applies to preferred shares that may be redeemed by the issuing corporation.

Cash Flow
Reported net income of a corporation plus amounts charged for depreciation, depletion, amortization, extraordinary charges to reserves, which are bookkeeping deductions and not paid out in actual dollars and cents.

Cash Sale
A transaction on the floor of the Stock Exchange that calls for delivery of the securities the same day. In regular stock trades, the seller is to deliver on the third business day. Bonds must be delivered on the next day after a trade.

Certificate of Deposit
An agreement with a bank that you will leave your money on deposit for a specified period of time in return for a specific amount of interest.

Certificate
The actual piece of paper that is evidence of ownership of stock in a corporation. Watermarked paper is finely engraved with delicate etchings to discourage forgery.

Circuit Breakers
In response to the market breaks in October 1987 and October 1989, the New York Stock Exchange instituted several circuit breakers to reduce market volatility and promote investor confidence. The following is a list and brief description of these circuit breakers.
Rule 80A
On February 16, 1999, following approval by the Securities and Exchange Commission, the NYSE implemented revisions to Rule 80A, which restricts index arbitrage trading, that eliminated the set 50-point collar and allowed the trigger level to track the Dow Jones Industrial Average. The revised collar is calculated quarterly as two percent of the average closing value of the DJIA for the last month of the previous quarter, rounded down to the nearest 10 points, and implemented as follows:
A decline in the DJIA of 210 points or more will require all index arbitrage sell orders of the S&P 500 stocks to be      stabilizing, or sell plus 1, for the remainder of the day, unless on the same trading day, the DJIA advances 100      points or less below its previous day's close.
An advance in the DJIA of the 210 points will require all index arbitrage buy orders of the S&P 500 stocks to be       stabilizing, or buy minus 2, for the remainder of the day, unless the DJIA retreats to 100 points or less above its       previous day's close.
The restrictions will be re-imposed each time the DJIA advances or declines 210 points from its previous day's       close. Trading collars, which restrict index arbitrage trading, will be triggered during second-quarter 2002 when the      DJIA moves 210 points or more above or below its closing value on the previous trading day and removed when the      DJIA is above or below the prior day's close by 100 points. Accompanying the Rule 80A amendment, and with the      SEC's approval, on Feb. 16, 1999 the NYSE also eliminated all side car provisions, which went into effect when the      S&P 500 futures contract dropped 12-points from the previous day's close. The side car had diverted program      trading orders into a separate file for five minutes and banned the entry of stop orders and stop limit orders for the      remainder of the trading day.
Rule 80B
The New York Stock Exchange will implement new circuit breaker and trading collar trigger levels for second-quarter 2002, effective Monday, April 1. Circuit breaker points represent the thresholds at which trading is halted market wide for single-day declines in the Dow Jones Industrial Average (DJIA). The 10, 20 and 30 percent decline levels, respectively, in the DJIA will be as follows:
A 1050-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and       2:30 p.m.; and have no effect if at 2:30 p.m. or later.
A 2100-point drop in the DJIA before 1 p.m. will halt trading for two hours; for one hour if between 1 p.m. and 2      p.m.; and for the remainder of the day if at 2 p.m. or later.
A 3150-point drop will halt trading for the remainder of the day regardless of when the decline occurs. Point levels     are set quarterly by using the DJIA average closing values of the previous month, rounded to the nearest 50 points.     

Class of Options
Options contracts of the same type (call or put and style-American, European or Capped) that cover the same underlying security.

Closing Purchase
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a given series of options.

Closing Sale
A transaction in which the seller's intention is to reduce or eliminate a long position in a given series of options.

Collateral
Securities or other property pledged by a borrower to secure repayment of a loan.

Commercial Paper
Very short- term IOUs written by reputable blue chip companies in need of short-term financing.

Commission
The broker's basic fee for purchasing or selling securities as an agent.

Common Stock
Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock.

Conglomerate
A corporation that has diversified in operations usually by acquiring enterprises in widely varied industries

Consolidated Balance Sheet
A balance sheet showing the financial condition of a corporation and its subsidiaries.

Convertible
A bond, debenture or preferred share that may be exchanged by the owner for a fixed number of common shares of other securities usually of the same company, in accordance with the terms of the issue.

Coupon Bond
A bond with interest coupons attached. The coupons are clipped as they come due and presented by the holder for payment of interest. Currently, while the term "coupon" is still sometimes used to refer to the interest payments on a bond, the physical possession of securities has been made obsolete by computers.

Covered Option
An option whose writer (seller) maintains the appropriate opposing position in the underlying security.

Cummulative Preferred
A stock having a provision that if one or more dividends are omitted, the omitted dividends must be paid before dividends may be paid on the company's common stock.

Current Assets
Those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during one year. These include cash, U.S. Government bonds, receivables and money due usually within one year, and inventories.

Current Liabilities
Money owed and payable by a company, usually within one year.

D-F

Day Order
An order to buy or sell which, if not executed, expires at the end of the trading day on which it was entered.

Dealer
An individual or firm in the securities industry who buys and sells stocks and bonds as a principal rather than as an agent. The dealer's profit or loss is the difference between the price paid and the price received for the same security. The dealer's confirmation must disclose to the customer that the principal has been acted upon. The same individual or firm may function, at different times, either as broker or dealer.

Debenture
A promissory note backed by the general credit of a company and usually not secured by any specific collateral, such as a mortgage or property.

Debit Balance
In a customer's margin account, that portion of the purchase price of stock, bonds or commodities that is covered by credit extended by the broker to the margin customer.

Depository Bank
A bank organized in the U.S. which provides all the stock transfer and agency services in connection with a depository receipt program. This function includes arranging for a custodian to accept deposits of ordinary shares, issuing the negotiable receipts which back up the shares, maintaining the register of holders to reflect all transfers and exchanges, and distributing dividends in U.S. dollars.

Depository Trust Company (DTC)
The Depository Trust Company (DTC) is the world's largest securities depository with more than $10 trillion worth of securities in custody. In 1995, DTC processed $41 trillion of securities through its book-entry settlement system. DTC is a national clearing house for the settlement of trade in corporate and municipal securities and performs securities custody-related services for its participating banks and broker-dealers. DTC is owned by members of the financial industry and by their representatives who are its users. DTC is 35.1% owned by the New York Stock Exchange on behalf of the Exchange's members. It is operated by a separate management and has an independent board of directors. It is a limited purpose trust company and is a member of the Federal Reserve.

Depreciation
Normally, charges against earnings to write off the cost, less salvage value, of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay nor are funds earmarked for the purpose.

Derivative Security
A financial security whose value is determined in part from the value and characteristics of another security, known as the underlying security.

Director
Person elected by shareholders, usually during an annual meeting, to serve on the Board of Directors of a corporation. The directors appoint the president, vice president and all other operating officers. Directors decide, among other matters, if and when dividends shall be paid.

Discount
The amount by which a preferred stock or bond may sell below its par value. Also used as a verb to mean: takes into account as the price of the stock has discounted the expected dividend cut.

Diversification
Spreading investments among different types of securities and various companies in different fields.

Dividend Reinvestment Plan (DRIP)
A program offered by companies that allow investors to buy their stock directly from the company, without using a brokerage firm. DRIP allows investors to use their dividends to purchase additional shares of stock in the company.

Dividend
The payment designated by the Board of Directors to be distributed pro rata among the shares outstanding. For preferred shares, the dividend is usually a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand, and may be omitted if business is poor or if the directors determine to withhold earnings to invest in plants and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit.

Dollar Cost Average
A system of buying securities at regular intervals with a fixed dollar amount. Under this system investors buy by the dollars worth rather than by the number of shares. If each investment is of the same number of dollars, payments buy more shares when the price is low and fewer when it rises. Temporary downswings in price benefit investors if they continue periodic purchases in both good times and bad and the price at which the shares are sold is more than their average cost.

Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is an index used to measure the performance of the U.S. financial markets. Introduced on May 26, 1896 by Charles H. Dow, it is the oldest stock price measure in continuous use. Over the past century "the Dow" has become the most widely recognized stock market indication in the U.S. and probably in the entire world. The 30 stocks included in today's Dow are listed on the New York Stock Exchange, except for Microsoft and Intel, and are all large blue-chip companies that reflect the health of the U.S. economy. All but a handful of these have major business operations throughout the rest of the world, thus providing some insight into the economic well-being of the global economy.
The Dow has been repeatedly updated over the decades to reflect changes in Corporate America. From the original 12 stocks used in 1896 it was increased to 20 stocks in 1916 and then 30 stocks in 1928. The most recent modification occurred on November 1, 1999 when Home Depot, Intel, Microsoft, SBC replaced Chevron, Goodyear, Sears, Union Carbide, respectively. Intel and Microsoft, which both trade on the Nasdaq stock market, are the first Dow 30 components that are not listed on the New York Stock Exchange since the Dow Jones Industrial Average was created in 1896.
Though it is only the unweighted average of 30 stock prices, over the long run the DJIA's tracking of market movements has closely paralleled more broadly based capitalization-weighted indexes like the New York Stock Exchange Composite, the Standard & Poor's 500 and the Wilshire 5000. In 1896 the Dow was computed as the sum of the prices of 12 stocks divided by the number of stocks. Since then the divisor has been adjusted to compensate for stock splits and other distributions that would create distortions in the average that did not reflect a change in value of the stocks. The value of the adjusted divisor as of November 1, 1999 was 0.20435952. Its current value is printed in the Wall Street Journal every day.
The following are the companies that make up the Dow:
Company Name(Ticker Symbol)
AlliedSignal Inc. (ALD)
ALCOA Inc.(AA)
American Express Co.(AXP)
AT&T Corp.(T)
Boeing Co. (BA)
Caterpillar Inc.(CAT)
Citigroup Inc.(C)
Coca-Cola Co.(KO)
Dupont Co.(DD)
Eastman Kodak Co.(EK)
Exxon Corp.(XON)
General Electric Co.(GE)
General Motors Corp.(GM)
Hewlett Packard Co.(HPQ)
Home Depot (HD)
Intel (INTC)
International Business Machines Corp.(IBM)
International Paper Co.(IP)
JP Morgan & Co.(JPM)
Johnson & Johnson(JNJ)
McDonalds Corp. (MCD)
Merck & Co.(MRK)
Microsoft (MSFT)
Minnesota Mining & Manufacturing Co. (MMM)
Phillip Morris Co.(MO)
Procter & Gamble Co.(PG)
SBC Communications, Inc. (SBC)
United Technologies Corp.(UTX)
WalMart (WMT)
Walt Disney Co. (DIS)
For more information about DJIA, visit the Dow Jones website

Earnings Report
A statement issued by a company showing its revenues and expenses over a given period. The health of a company's earnings is what most investors consider when buying stock.

Economic Indicator
A key statistic in the overall economy that experts use as a yardstick to predict the performance of the stock market.

Equity
Ownership in a company. Whereas bonds represent debt, stocks represent equity.

European Style Option
An option that may be exercised only during a brief period of time just prior to its expiration date.

Ex-Dividend
A synonym for "without dividend." The buyer of an ex-dividend stock is not entitled to the next dividend payment. Dividends are payed on a set date to all those shareholders recorded on the books of the company as of a previous date of record.
For example, a dividend may be declared as payable to stockholders of record on a given Friday. Since three business days are allowed for delivery of stock in a regular transaction on the New York Stock Exchange, the Exchange would declare the stock "ex-dividend" as of the opening of the market on the preceding Wednesday. That means anyone who bought it on or after that Wednesday would not be entitled to that dividend. When stocks go "ex-dividend", the stock tables include the symbol "x" following the name.

Ex-Rights
Without the rights. Corporations raising additional money may do so by offering their stockholders the right to subscribe to new or additional stock, usually at a discount from the prevailing market price. The buyer of a stock selling ex-rights is not entitled to the rights.

Exercise Prices
The prices at which an option may be exercised. Also called strike.

Exercise Settlement Amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

Exercise
Action taken by an option holder that requires the writer to perform the terms of the contract.

Expiration Date
The date after which an option can no longer be exercised. If an option has not been exercised by its expiration date, it becomes worthless and ceases to exist. The expiration date for most options is the Saturday following the third Friday of the expiration month.

Face Value
The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuing company. Face value is ordinarily the amount the issuing company promises to pay at maturity. Face value is not an indication of market value. Sometimes referred to as par value.

Fiscal Year
Any consecutive 12-month period of financial accountability for a corporation or government. For example, because of the Christmas rush many department stores find it easier to wind up their yearly accounting on January 31 instead of December 31. Fiscal year is often abbreviated FY with a date. For example, FY May 31 means that the company's fiscal year goes from June 1 to May 31 of the following year.

Fixed Charges
A company's fixed expenses, such as bond interest, which it has agreed to pay whether or not earned, and which are deducted from income before earnings in equity capital are computed.

Flat Income Bond
This term means that the price at which a bond is traded includes consideration for all unpaid accruals of interest. Bonds that are in default of interest or principal are traded flat. Income bonds that pay interest only to the extent earned are usually dealt in and interest, which means that the buyer pays to the seller the market price plus interest accrued since the last payment date.

Floor
The open space where the trading of listed stocks and bonds takes place. The New York Stock Exchange (NYSE) floor measures over 37,000 square feet, or about the size of an American football field.

Fundamental Research
Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc.

Futures
A contract specifying a future date of delivery or receipt of a certain amount of a specific tangible or intangible product. The commodities traded in futures markets include stock index futures; agricultural products like wheat, soybeans and pork bellies; metals; and financial instruments. Futures are used by business as a hedge against unfavorable price changes and by speculators who hope to profit from such changes.

G-I

Gilt-Edged Bond
A high-grade bond issued by a blue chip company in which investors can have confidence that their interest payments will not be interrupted.

Good 'til Cancelled (GTC) Order
An order to buy or sell that remains in effect until it is either executed or canceled. Also called an Open Order.

Good 'til Executed (GTX) Order
An order to buy or sell that remains in effect until it is executed.

Good Delivery
Certain basic qualifications must be met before a security sold on the Exchange may be delivered. The security must be in proper form to comply with the contract of sale and to transfer title to the purchaser.

Government Bonds
Obligations of the U.S. Government, regarded as the least risky, highest grade securities issues. The major types of debt instruments issued by the U.S. government are:
Treasury bills
Saving bonds
Treasury notes
Treasury bonds

Growth Stock
Shares of a company known for a history of rapid earnings growth. Most growth stocks do not pay dividends because management reinvests earnings to feed the growth.

Hedging
The purchase or sale of a derivative security (such as options or futures) in order to reduce or neutralize all or some portion of the risk of holding another security.

Holding Company
A corporation that owns a large number of shares in other companies. Holding companies use the voting rights that come with their shares to exert influence over the companies under them.

Index
Indicators of trends in markets, sections of the economy, or other economic indicators, such as precious metals or Treasuries. Some of the most common indices include the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500. For your convenience, all three are prominently displayed on our home page.

Interest Rate
The rate the issuer is obligated to pay you until maturity, expressed as an annual percentage of the CD's face or par value.

In-the-Money
A call option is in-the-money if the strike price is below the current market price of the underlying security. A put option is in-the-money if the strike price is above the current market price of the underlying security. The intrinsic value of an option is the amount by which it is said to be in-the-money.

Income Bond
Bonds that promise to repay principal but to pay interest only when earned. In some cases the unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due.

Income Statement
A report on a company's financial status over a period of time. It totals profits, subtracts expenses and pinpoints how much money the company can reinvest.

Income Stock
Common stocks that pay large dividends that an investor could use as income.

Index
Any comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements.

Inflation Rate
An important economic indicator. The rate at which prices are rising.

Inflation
Increase in the prices for goods and services.

Initial Public Offering
An issue of new stock by a once private company to transform itself into a publicly held one. IPOs are usually done to raise cash for growing young companies that need larger sources of capital than the private sector can provide. The new shares are sold to one or more investment banks, which then sell them to the public.

Institutional Investors
Organizations whose primary purpose is to invest their own assets or those entrusted to them by others. The most common are employee pension funds, insurance companies, mutual funds, university endowments, and banks.

Interest Rate
Another important economic indicator. The price, calculated as a percentage of the money loaned, that banks are charging borrowers for the use of the banks' money.

Interest
The cost of borrowing money. Because bonds represent a loan to a company, they receive interest, while stocks represent ownership and so only receive a share of earnings.

Investment Portfolio
A variety of securities owned by an individual or an institution.

J-L

LEAPS
Long-term Equity AnticiPation Securities are long-term stock or index options. LEAPS, like all options, are available in two types, calls and puts, with expiration dates up to three years in the future.

Leverage
For Corporations, it refers to the ratio of debt to equity.
For individuals, leverage involves debt, as when an investor borrows money from his broker " on margin".

Liabilities
All claims against the assets of a corporation. Liabilities can include accounts, wages and salaries payable dividends declared accrued taxes and fixed or long-term debt such as bonds and bank loans.

Limit Order Processing
The limit order system electronically files orders which are to be executed when and if the specific limit price is reached. The system accepts limit orders up to 99,999 shares and electronically updates the Specialist's Electronic Book. Good 'til Cancelled orders not executed on the day of submission are automatically stored until executed or cancelled.

Liquidity
(1) How easily one's assets can be converted back into cash. For example, money in an account that can't be withdrawn for ten years is not very liquid. (2) The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market.

Listed Stock
The stock of a company that is traded on a securities exchange. The various stock exchanges have different standards for listing. Some of the guides used by the New York Stock Exchange for an original listing are national interest in the company and a minimum of 1.1 million shares publicly held among not less than 2,000 round-lot stockholders. The publicly held common shares should have a minimum aggregate market value of $18 million. The company should have net income in the latest year of over $2.5 million before federal income tax and $2 million in each of the preceding two years.

Long Option Position
A position wherein an investor's interest in a particular series of options is as a net holder (i.e., the number of contracts bought exceeds the number of contracts sold).

Long
Signifies ownership of securities. "I am long 100 U.S. Steel" means the speaker owns 100 shares.

M-O

Manipulation
An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.

Margin Call
A demand upon a customer to put up money or securities with the broker. The call is made when a purchase is made; also if a customer's equity in a margin account declines below a minimum standard set by the Exchange or by the firm.

Margin
The amount paid by the customer when using a broker's credit to buy or sell a security. Under Federal Reserve regulations, the initial margin required since 1934 has ranged from 40% of the purchase price up to 100%. Since 1974 the current rate of 50% has been in effect.

Market Maker
A broker/dealer who is registered to trade in a given security on the NASDAQ.

Market Order Processing
SuperDot's market order system is designed to process member firms' market orders of up to 30,099 shares. The system provides for rapid execution and reporting of market orders. In 1994, market orders were executed and reported back to the originating member firm on average within 24 seconds.

Market Order
An order to buy or sell at the best price currently available on the Exchange/ECN.

Market Price
The last reported price at which the stock or bond sold, or the current quote.

Market Value
The current resale price of a security. The market value of a company is the closing price multiplied by the shares issued and outstanding.

Maturity Date
The date that a bond becomes due and must be paid off.

Merger
A combination of two or more companies to form one company.

Money Market Account
An account in which money is reinvested in short-term securities by the bank or investment firm managing the account.

Money Market Fund
A mutual fund whose investments are in high-yield money market instruments such as federal securities, CDs and commercial paper.

Mutual Fund
A portfolio of stocks, bonds, or other instruments managed by one or more managers from an investment company who make buy and sell decisions on the individual instruments. Capital is contributed by smaller investors who buy shares in the mutual fund rather than the individual stocks and bonds in its portfolio. The return on the fund's holdings is distributed back to its contributors, or shareholders, net of the administration costs, management fees and performance fees.

Naked Option
Naked Option is also called an uncovered option. A naked option is one where the writer does not maintain an equivalent position in the underlying security.

Nasdaq
An automatic information network that provides brokers and dealers with price quotations on securities traded over-the-counter.

NASD
The National Association of Securities Dealers is an industry association of broker/dealers in the over-the-counter securities business. The NASD is self-regulatory body and administers the NASDAQ stock market

National Market System
A national market system was mandated by the Securities Act Amendments of 1975. Nine markets -- the American, Boston, Cincinnati, Chicago, New York, Pacific, and Philadelphia and NASD over-the-counter market -- are linked electronically by ITS computers. This allows traders at any exchange to seek the best available price on all other exchanges that a particular security is eligible to trade on. The national market system also includes a consolidated electronic tape, which combines last-sale prices from all markets into a single stream of information.

Net Asset Value
An investment fund computes its assets by totaling the market value of all securities owned. Total liabilities are deducted from Total assets and the balance divided by the number of outstanding units. The resulting figure is the net asset value per unit.

Net Change
The change in the price of a security from the closing price of the previous day to the closing price of the next day on which the stock is traded.

New Issue
A stock or bond sold by a corporation for the first time.

NYSE
The New York Stock Exchange.

Non-Regular Way Settlement
The regular way settlement is the third business day after the trade occurs. A trade made with disclosed conditions, such as a cash sale, calls for delivery and settlement different from the standard procedures is called Non-Regular way settlement.

Non-cumulative Preferred Stock
A type of preferred stock on which unpaid dividends do not accrue. Omitted dividends are foregone forever.

NYSE Composite Index
In 1966, the NYSE established the NYSE Composite Index to provide a comprehensive measure of the market trend. The indices consist of a Composite Index of all common stocks listed on the NYSE and four subgroup indexes -- Industrial, Transportation, Utility, and Finance.

Odd Lots
Stock transactions that involve less than 100 shares

Off-Board
Refers to transactions over-the-counter in unlisted securities or to a transaction of listed shares that is not executed on a national securities exchange.

Off-Hours Trading
Trading that takes place before or after the close of the regular market session.

Offer
The price at which a person is willing to sell a security.

Open Interest
In options and futures trading, the number of outstanding option contracts at any given time which have not been exercised and have not yet reached expiration.

Opening Purchase
A transaction in which the purchaser's intention is to create or increase his holding of an option series.

Opening Sale
A transaction in which the seller's intention is to create or increase his short position in an option series.

Options
Options are derivative securities that give the holder the right but not the obligation to buy or sell a specified amount of the underlying security at a specific strike price and within a specified timeframe.

Order
An order is an intent to buy or sell a security.

Out-of-the-Money
A call option is out-of-the-money when the strike price is above the price of the underlying security. A put option is out-of-the-money when the exercise price is below the price of the underlying security. An out-of-the-money option is one that has no intrinsic value.

Over-The-Counter (OTC)
A market for securities made up of dealers who may or may not be members of a securities exchange.

Overbought
A stock that has risen sharply in price or a market as a whole that has risen sharply after a period of aggressive buying.

Oversold
A stock that has fallen sharply or a market that has fallen sharply after a period of heavy selling.

P-R

Paper Profit (Loss)
An unrealized profit or loss on a security still held. Paper profits (losses) become realized Profit (Losses) only when the security is sold.

Participating Preferred Stock
A preferred stock, that is entitled to its stated dividend, and, also, to additional dividends on a specific basis upon payment of dividends on the common stock.

Par
Equal to the nominal or face value of security.

Passed Dividend
The omission by a company's board of a regular or scheduled dividend payment.

Penny Stocks
Low-priced issues, often highly speculative, selling at less than $1 a share.

Preferred Stock
A type of stock that pays a fixed dividend. Preferred stock has priority over common stock in the payment of dividends. However, it carries no voting rights.

Premium
For bonds and preferred stock, the premium is the amount by which the price exceeds the face, or par, value. For options markets, the premium is synonymous with the option's price.

Price-Earnings Ratio
A relative measure for comparing stocks selling at different prices in order to single out over or undervalued issues. The P/E ratio is the price per share divided by the company's earnings per share.

Profit-Taking
Selling stock which has appreciated in value since purchase, in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices.

Program Trade
Program trading is defined as a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more.

Prospectus
The official document that, according to SEC regulations, must be provided by the issuer to potential purchasers of a new securities issue. It highlights the information on the financial well being of the issuer and the specifics of the issue itself.

Proxy Statement
Information given to stockholders in conjunction with the solicitation of proxies.

Proxy
A ballot by which stockholders can transmit their votes on corporate matters without needing to attend the actual shareholders meeting.

Put Option
A contract that gives the holder the right but not the obligation to sell the underlying stock, to the writer of the put, at a specified price within a fixed period of time.

Quote
The highest bid to buy and the lowest offer to sell any stock at a given time.

Rally
A brisk rise following a decline in the general price level of the market, or in an individual stock.

Rate of Return
In stocks and bonds, the amount of money returned to investors on their investments.

Recession
A period of no or negative economic growth and high unemployment.

Record Date
The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs.

Redemption Price
The price at which a bond may be redeemed before maturity, at the option of the issuing company. Redemption value also applies to the price the company must pay to call in certain types of preferred stock.

Regulation T
The federal regulation governing the amount of credit that may be advanced by brokers and dealers to customers for the purchase of securities

Regulation U
The federal regulation governing the amount of credit that may be advanced by a bank to its customers for the purchase of listed stock

REIT
Real Estate Investment Trust, an organization similar to an investment company in some respects but concentrating its holdings in real estate investments. The yield is generally liberal since REITs are required to distribute as much as 90% of their income.

Retained Earnings
Profits a company keeps for its operations, after paying taxes and dividends.

Rights
When a company wants to raise more funds by issuing additional securities, it may give its stockholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns. The piece of paper evidencing this privilege is called a right. Because the additional stock is usually offered to stockholders below the current market price, rights ordinarily have a market value of their own and are actively traded. In most cases they must be exercised within a relatively short period. Failure to exercise or sell rights may result in monetary loss to the holder.

S-U

Secondary Market
When stocks or bonds are traded or resold, they are said to be sold on a secondary market. The majority of all securities transactions take place on a secondary market.

Securities and Exchange Commission (SEC)
A watch-dog agency created by the U.S. Congress to monitor the securities industry and enforce punishments of those that violate the industry's regulations.

Settlement
The conclusion of a transaction in which parties pay for securities purchased and take delivery of securities sold

Shares Outstanding
The number of authorized shares in a company that are held by investors, including employees and executives of that company. Unissued shares or treasury shares are not included in this figure.

Short Covering
Buying stock to return stock previously borrowed to make delivery on a short sale.

Short Position
Stock options, or futures contracts sold short and not covered as of a particular date. On the NYSE, a tabulation is issued once a month listing all issues on the Exchange in which there was a short position of 5,000 or more shares and issues in which the short position had changed by 2,000 or more shares in the preceding month. Short position also means the total amount of stock an individual has sold short and has not covered, as of a particular date.

Short Sale
A transaction by a person who believes a security will decline and sells it, though the person does not own the security. For instance: You instruct your broker to sell 100 shares of XYZ. Your broker borrows the stock so delivery of the 100 shares can be made to the buyer. The money value of the shares borrowed is deposited by your broker with the lender. Sooner or later you must cover your short sale by buying the same amount of stock you borrowed for return to the lender. If you are able to buy XYZ at a lower price than you sold it for, your profit is the difference between the two prices - not counting commission and taxes. But if you have to pay more for the stock than the price you received, that is the amount of your loss. Stock exchange and federal regulations govern and limit the conditions under which a short sale may be made on a national securities exchange. Sometimes people will sell short a stock they already own in order to protect a paper profit. This is known as selling short against the box.

Speculation
The employment of funds by a speculator. Safety of principal is a secondary factor

Spin Off
The separation of a subsidiary or division of a corporation from its parent by issuing shares in a new corporate entity. Shareowners in the parent receive shares in the new company in proportion to their original holding and the total value remains approximately the same.

Split
The division of the outstanding shares of a corporation into either a larger or smaller number of shares, without any immediate impact in individual shareholder equity. For example, a 3-for-1 forward split by a company with 1 million shares outstanding results in 3 million shares outstanding. Each holder of 100 shares before the split would have 300 shares worth less, although the proportionate equity in the company would stay the same. A reverse split would reduce the number of shares outstanding and each share would be worth more.

Stock Dividend
A dividend paid in securities rather than cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.

Stock Exchange
An organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors.

Stock Index Futures
Futures contracts based on market indexes. e.g., NYSE Composite Index Futures Contracts.

Stockholder of Record
A stockholder whose name is registered on the books of the issuing corporation.

Stop Limit Order
An order to buy or sell at a specified price or better (called a stop-limit price), but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order.

Stop Order
An order to buy or sell at the market price once the security has traded at a specified price called the stop price. A stop order may be a day-limit order, a GTC order, or any other form of time-limit order. A stop order becomes a market order when the stop price is reached.
A stop order to buy must always be executed when the buy price is at or above the stop price.
A stop order to sell must always be executed when the sell price is at or below the stop price.

Street Name
Securities held in the name of a broker instead of a customer's name are said to be carried in "street name." This occurs when the securities have been bought on margin or when the customer wishes the security to be held by the broker.

Strike Price
The price at which the owner of an option may buy or sell the underlying security.

SuperDot
Super Designated Order Turnaround System - Transmits member firms'market and day limit orders, up to specified sizes in virtually all listed stocks, through the common message switch to the proper trading floor workstation. Specialists receiving orders through SuperDot execute them in the trading crowd at their posts, as quickly as market interest and activity permit, and return reports to the originating firm's offices via the same electronic circuit that brought them to the floor. Super Dot can handle daily volume exceeding 2 billion shares.

Swapping
Selling one security and buying a similar one at almost the same time to take a loss, usually for tax purposes

S&P 500
A capitalization weighted index of 500 stocks. Standard and Poor's 500 index represents the price trend movements of the major common stock of U.S. public companies. It is used to measure the performance of the entire U.S. domestic stock market.

Technical Research
Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effects of current market action or future supply and demand for securities and individual issues.

Tender Offer
A public offer to buy shares from existing stockholders of a company, usually made by another company attempting an acquisition. So-called because stockholders are asked to "tender" (surrender) their holdings for a premium above the current market price.

Third Market
Securities listed on a stock exchange that are also traded in the over-the-counter market by broker/dealers.

Ticker Symbol
A three or four letter abbreviation used to identify a security whether on the floor, a TV screen, or a newspaper page. Ticker symbols are part of the lore of Wall Street. They were originally developed in the 1800s by telegraph operators to save bandwidth. One-letter symbols were therefore assigned to the most active stocks. Railroads were the dominant issues at the time, so they retain a majority of the one-letter designations.
Ticker symbols today are assigned on a first-come, first-served basis. Each marketplace -- the NYSE, the American Stock Exchange, and others -- allocates symbols for companies within its purview, working closely to avoid duplication. A symbol used for one company cannot be used for any other, even in a different marketplace.

Tick
The tick is the direction in which the price of a stock moved on its last sale. An up-tick means the last trade was at a higher price than the one before it and a down-tick means the last sale price was lower than the one before it. A zero-plus tick means the transaction was at the same price as the one before, but still higher than the nearest preceding different price. The tick becomes especially important when large market movements trigger the implementation of certain circuit breakers meant to stabilize the market.

Time Value
The portion of an option's price or premium that is attributable to the amount of time remaining until it expires. The longer an option has until it expires, the more opportunities its price has to fall in-the-money. Time value is in addition to intrinsic value, which is the amount by which the option is in-the-money.

Trader
An employee of a broker/dealer or other financial institition who specializes in handling purchases and sales of securities for the firm or its clients.

Transfer
The legal change in ownership after the sale of a security. This task may involve the physical delivery of a stock certificate or the change of ownership on the books of the corporation by the transfer agent.

Treasuries
Debt obligations of the U.S. government. Treasuries are among the safest investments, since they are secured by the full faith and credit of the government. The interest on Treasuries is exempt from state and local taxes but is subject to federal income tax. There are three types of treasuries: Treasury Bills, with maturities of one year or less; Treasury Notes, with maturities ranging from one to 10 years; and Treasury Bonds, long-term instruments with maturities of 10 years or more.

Treasury Stock
Shares, formerly outstanding, that were repurchased by the issuing company. Companies often repurchase stock to benefit existing shareholders. Those who sell receive a premium price from the company for their shares, thus substituting a large capital gain for future dividends. This ploy is used when dividend taxes are higher than capital gains taxes. Remaining investors who keep their shares benefit from a tightened supply which raises the share price. Companies may later resell treasury stock, or retire it according to a shareholder vote.

Triple Witching Hour
The last trading hour on the third Friday of March, June, September and December when options and futures on stock indexes expire concurrently.

Turnover Rate
The volume of shares traded in a year as a percentage of total shares listed on an Exchange, outstanding for an individual issue or held in an institutional portfolio.

Underlying
The security that one has the right to buy or sell according to the terms of an option contract.

Up Tick
A term used to designate a transaction made at a price higher than the preceding transaction. Also called a plus tick". A zero plus tick is a term used for a transaction at the same price as the preceding trade but higher than the preceding different price. Conversely, a down tick, or minus tick is a term used to designate a transaction made at a price lower than the preceding trade. A plus sign, or minus sign, is displayed throughout the day next to the last price of each stock at the trading post on the floor of the New York Stock Exchange.

V-Z

Volatility
A measure of the fluctuation in market price of a security. A volatile issue has frequent and large swings in price. Mathematically, volatility is calculated as the annualized standard deviation of returns.

Volume
The number of shares or contracts traded in a security or an entire market during a given period. Volume is normally considered on a daily basis, with a daily average being computed for longer periods.

Writer
A person who assumes the obligation to sell (call) or buy (put) the underlying security at an option's exercise .

Yield to Maturity
The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium.

Yield
In stocks and bonds, the amount of money returned to investors on their investments. Also known as rate of return.

Zero Coupon Bond
A bond which pays no interest but is priced, at issue, at a discount from its redemption price.

Options & related terms

An option is a contract that allows the owner the right to buy or sell 100 shares of a specific company's common stock, at a specific fixed price, by a specific date, in the future. This contract freezes the price of the stock until the contract expires. Options are offered on only a limited number of stocks.
Underlying Stock: The specific company's common stock that the option is written for is the underlying stock. The market value of this stock will determine the options value in the market.
Strike price: The specified fixed price that the option contract allows you to buy or sell the stock for is called the strike price.
Exercised: When an option contract is executed or used to buy or sell the specific stock the option was written for is considered exercised.
Expiration Date: The third Saturday of the month an option is written for is the expiration date. Because the stock market is closed on Saturday all option transactions must be played out by the close of the stock market on Friday. The biggest difference between stock and options is the fact that options are time dependent and will expire with no value on the expiration date.
Increment: There are certain preset prices available for purchasing options known as increments. When a stock is priced $5 to $25 the increment is $2.50. When the stock is priced $25 to $200 the increment is $5, and when the stock is priced over $200 the increment is $10.
Call Option: A call option allows the owner the right to buy 100 shares of a predetermined stock on or before the expiration date at the strike price written in that contract. An August $150 call option would have an expiration date the third Saturday of August and a strike price or right to purchase stock at $150.
Put Option: A put option allows the owner the right to sell 100 shares of a predetermined stock on or before the expiration date at the strike price written in that contract. An August $150 put option would have an expiration date the third Saturday of August and a strike price or right to sell stock at $150.
Buying a Call Option: When you buy a call you pay a premium for the right to buy stock. If the decision is made to exercise the call option, you will purchase stock for the strike price written in the contract. The strategy for buying a call option is an up-trending stock chart or an increasing stock value.
Buying a Put Option: When you buy a put you pay a premium for the right to sell stock. If the decision is made to exercise the put option, you will sell stock for the strike price written in the contract. The strategy for buying a put option is a down-trending stock chart or a decreasing stock value.
Selling a Call Option: When you sell a call you receive a premium from the purchaser to have the right to buy stock from you. If the decision is made by the purchaser to exercise the call option, you will have stock purchased from you at the strike price written in the contract. The strategy for selling a call option is a down-trending stock chart or a decreasing stock value.