Terms
Investment terms
- 10-K
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A comprehensive summary report of a company's performance that must be submitted annually to the Securities and Exchange Commissioni. Typically, the 10-Ki contains much more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc.
- 10-Q
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A comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commissioni. In the 10-Qi, firms are required to disclose relevant information regarding their financial position. The form must be submitted on time, and the information should be available to all interested parties.
- 8-K
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A report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the Securities and Exchange Commissioni.
- Acquisition
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The purchase by one company of another, for cash, an exchange of shares, or a combination of both. The process, also known as a takeover, can be friendly and have the agreement of the acquired company. Or it can be hostile, when the target rejects the approach and tries to resist being acquired. A takeover or acquisitioni is usually done with the help of an investment bank and its M&A, or mergers and acquisition, division.
- ADR
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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.
- After hours trading
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After-hours trading is the trading of securities, such as stocksi and bonds, on organized markets and exchanges after regular business hours. These after-hours, electronic transactions explain why a security may open during regular business hours at a price that is different from the one it closed at the day before. Some interpret the level of activity and the direction the after-hours trading – up or down – as an early indicator of what may happen in the market the following day.
- All-or-none order (AON)
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An option order that must be executed completely or not at all. An AON order may be either a day orderi or a GTC (good til cancel) order.
- Arbitrage
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A trading technique that involves the simultaneous purchase and sale of identical assetsi or of equivalent assets in two different markets with the intent of profiting by the price discrepancy.
- Ask / Ask Price
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The price a seller is willing to accept for a security, also known as the offer pricei. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price.
- Assets
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Assetsi are tangible items of value to a business such as factories, machinery, and financial instruments and intangible items such as goodwill, the title of a newspaper or a product's brand name. They appear on the company's balance sheeti.
- Assignment
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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.
- At-The-Money
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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.
- Average True Range
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Average true rangei is a technical analysisi indicator developed by J. Welles Wilder, based on trading ranges smoothed by an N-day exponential moving average.
- Averaging down
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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.
- Balance Sheet
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An accounting statement of a company's assetsi and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.
- Breakout
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A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.
- Bull (or bullish) spread
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One of a variety of strategies involving two or more options (or options combined with an underlying stock position) that may potentially profit from a rise in the price of the underlying stock.
- CAGR
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Compound Annual Growth Rate. Year-over-year growth rate of an investment over a certain period of time.
- Day order
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A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.
- EBITDA
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EBITDAi can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. However, this is a non-GAAPi measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.
- Fibonacci arc
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A charting technique consisting of three curved lines that are drawn for the purpose of anticipating key support and resistance levels, and areas of ranging.
- Form 144
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A form that must be filed with the SECi when an executive officer, director, or affiliate of a company places an order to sell that company's stock. Also known as Rule 144.
- GAAP
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Generally Accepted Accounting Principlesi are procedures and rules that define accounting practice. The United States uses GAAP, whereas Europe uses IAS, International Accounting Standards.
- Hedge Fund
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A private investment fund which typically aims to produce high returns from rapid, short-term market movements, often by taking very leveraged positions and using aggressive strategies such as short selling, swaps, derivatives, program trading and arbitragei. Usually restricted to financial institutions and wealthy individuals
- Immediate-or-cancel order (IOC)
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A type of option order which gives the trading crowd one opportunity to take the other side of the trade. After being announced, the order will be either partially or totally filled with any remaining balance immediately cancelled. An IOC order, which can be considered a type of day orderi, cannot be used as part of a GTC order since it will be cancelled shortly after being entered. The difference between fill-or-kill (FOK) orders and IOC orders is that a IOC order may be partially executed.
- Junk Bonds
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High-riski high-yield bonds, which are rated below investment grade by credit agencies. Also known as speculative grade bonds.
- Knockout Option
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An option that is knocked out, or nullified, when the underlying instrument reaches a certain price. The option writer sets the limit, with the aim of restricting his losses if the price of the underlying financial instrument moves move very sharply. In exchange the buyer pays less for an option which offers only limited opportunities for profit.
For example, an option writer might sell an option on a share now trading at $95 giving the option buyer the right to buy or “call” the share at $100, but with a knockout limit of $109. If the share price rises above $100 the buyer will exercise the option. If the price rises sharply, above $109 then the option is nullified and the option writer has removed his exposure to large D622. - LEAPS
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In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPSi have two series at any time with a January expiration.
For example, in October 2000, LEAPS are available with expirations of January 2002 and January 2003. - MACD
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Moving Average Convergencei/Divergence is technical analysisi tool showing the relationship between two exponential moving averages of a share price for different periods. The two exponential moving averages are plotted on a chart, producing two lines that oscillate above and below a zero line. Sell and buy signals are generated when the two lines derived from moving averages of different periods cross. Overbought and oversold signals can be indicated when both lines are significantly above or below the zero line respectively. The exponential moving average is worked out by applying a percentage of the closing price today to the moving average calculated yesterday. This gives more weight to the most recent price changes compared with a simple moving average.
- NASD
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The National Association of Securities Dealersi is an industry association of broker/dealers in the over-the-counter securities business. The NASD is a self-regulatory body and administers the NASDAQ stock market.
- Offer
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In the options business this means the same as ask / ask pricei, or the price at which a seller is offering to sell an option or a stock.
- P/E_Ratio
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The P/E Ratio (PER) is the latest closing share price divided by the net profit per share (Eps). Note: P/E ratios are only really valuable when comparing the latest price with expected or forecast earnings, rather than last year's earnings, because an investor who bought the stock today could not buy last year's earnings. If a company has forecast EPS of 10 and a share price of 150, its P/E is 15. In other words, it would take fifteen years for the stock investment to pay for itself. The P/E Ratio is also known as the P/E multiple. The reverse of the P/E ratio is the 'earnings yield', or 1/PER. A company with a P/E of 15 has an earnings yield of 6.66 percent (1 divided by 15).
Price-earnings is one of the most common measures of investment value and is widely used by the media and markets as an indicator of whether a stock is expensive or cheap. The higher the PER, the higher the market values the company's expected earnings flow. A high PER may be a sign that the market expects the company's earnings to grow rapidly, or it may be a sign that earnings have slumped and the share price does not yet fully reflect that fall. A relatively low P/E suggests investors' outlook for the company is gloomy. As P/E ratios are a measure of relative value, not absolute, they cannot be considered in isolation: one company should be compared against its rivals, or industry or national averages. Low-growth companies such as steel makers, shipyards and construction companies often trade at relatively low P/Es (10 or less) while high-tech firms often command P/E multiples of 40 or more. - Quantitative Analysis
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The statistical study of historic returns, price volatility and price correlations of different assetsi in order to construct optimal portfolios. QA relies heavily on mathematical models such as the capital asset pricing model (CAPM) and the dividend discount model (DDM). More generally, quantitative analysisi is any statistical analysis based on numerical data, as opposed to qualitative analysis, which is based on values and opinions.
- Risk
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The probability that an investment or venture will make a loss or not make the returns expected. This probability can be measured. There are many different types of riski including: basis risk, country or sovereign risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systematic risk, settlement risk, systemic risk
- SEC
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The SECi is an agency of the federal government which is in charge of monitoring and regulating the securities industry.
- Stocks
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Stocksi represent individual ownership in a company. A share of stock is equivalent to a proportional share of ownership in a company. The goal of stock ownership is to see the value of the company increase over time. As the value of the company changes, the value of the share in that company rises and falls.
- Technical analysis
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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.
- Uncovered call option writing
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A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.
- Value Date
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The date on which either the security or cash equivalent is settled on completion of a trade.
- W/I
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When Issued, or more exactly When, As and If Issued. W/Ii trading starts immediately after the formal announcement or authorization of a planned issue of shares or bonds but before they are delivered. Trading takes place on what is known as the grey market. No interest accrues during this period.
- YTM
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Yield To Maturityi is the rate of return expected on a bond if it is held until maturity and is a key consideration when comparing bond investments. It is calculated by taking into account its coupon, current market price and time to maturity. The yield to maturity, expressed as an annualized rate of return, assumes all coupons from the bonds will be reinvested at the same rate. The calculation is necessarily complicated but can be done rapidly by software to allow the market to instantly compare the yield to maturity of various instruments. The principal repayment due on maturity, plus the present inflation-adjusted value of all future coupon payments should, in theory, equal the current market price of a bond.
