Glossary

a | b | c | d | e | f | g | h | i | j | k | l | m | n | o | p | q | r | s | t | u | v | w | x | y | z

A
Accounts Receivable money owed by customers for received goods or services. Customers must have been billed for items to be included in receivables.
American Depository Receipt (ADR) negotiable certificates held in an U.S. bank representing shares of a foreign stock traded on an U.S. stock exchange.
American Depository Share (ADS) shares issued under an ADR agreement, which is actually traded.
American-Style Option an option contract that can be exercised at any time between the date of purchase to expiration. Most exchange-traded options are American-style.
Analyst person working for a brokerage house, who publishes buy/hold/sell recommendations and earnings forecasts for a stock. Buy side analysts work for institutional buyers, and sell side analysts work for brokerages.
Annual Percentage Rate (APR) the total cost of a loan per year, including both interest charges and most or all fees.
Annual Report the audited report of a corporation’s year-end financial results and operations filed annually with the SEC. The report contains information on the company’s financial condition, legal liabilities and future plans.
Arbitrage the act of taking advantage of the difference in price of the same security traded on two different markets.
Arms Index (TRIN) a market indicator used in technical analysis, calculated as follows: Arms Index = ((# of advancing issues / # of declining issues) / (Total up volume / Total down volume)). A value of less than 1 is considered bullish, greater than 1 bearish.
Ask Price the price you are asked to pay when you buy a stock.
Asset Allocation the process of dividing your funds among different classes of investments such as stock, bond, or real estate. You could also allocate your stock funds into value, growth, foreign, etc.
At-the-Money (Option)
 option is at-the-money if the strike price of the option is equal to the market price of the underlying security.
Auction (Treasury) issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.
Average Daily Volume average number of shares traded per day over a specified period. We typically use the 40 Day Simple Moving Average to look at the trend of Average Daily Volume.
back to top
B
Back-End Load sales charge you pay when selling a mutual fund.
Balance Sheet a financial statement listing a company’s assets (what it owns) and liabilities (what it owes) as of a specific date. The difference between a company’s assets and liabilities is termed its net worth or shareholder’s equity.
Basis the total cost an investor pays to acquire a security or asset. It is used to determine capital gains or losses when the asset is sold.
Basis Points one basis point is 0.01 percent. Usually used to describe changes in bond yields. For instance, a ten basis point increase means the interest rate went up 0.10 percent. A 100 basis point change is 1 percent.
Bear Market a market in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. Although figures can vary, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
Benchmark Index indicators used to compare and evaluating a fund’s performance. If a fund does better than the benchmark then it is said to outperform it. The most common benchmark for equity-oriented funds is the S&P 500 Index. For fixed-income funds it is the Lehman Brothers Aggregate Bond Index.
Beta a comparison ratio of a fund or stock’s volatility to a benchmark (typically the S&P 500 Index). A beta greater than 1 is more volatile than the index. For example, a beta of 1.4 means the fund or stock is 40% more volatile than the index.
Bid Price the price you’re offered when you’re selling a stock.
Big Board the New York Stock Exchange (NYSE).
Block Trade a single purchase or sale of a stock involving 10,000 or more shares.
Blow-Off Top a rapid increase in price with very high volume after an extended uptrend. It is followed by a steep and rapid drop in price with high volume. An extended downtrend usually follows and it can be a good trade setup.
Bond a long-term promissory note issued by a corporation.
Book Value total shareholder’s equity from balance sheet divided by the number of shares outstanding.
Bottom Line after-tax earnings. Literally, the bottom line on an income statement (i.e., net income or profit).
Breakout a charting (technical analysis) term meaning a stock price has moved above or below a previous trading range, typically on above average volume. This is a good momentum stock trade setup that often happens with a gap in the price from the previous day.
Bull Market a market in which the prices of securities are rising, and widespread optimism causes the positive sentiment to be self-sustaining. Although figures can vary, an upturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bull market.
Bulletin Board System stocks that don’t qualify for a major market listing are traded here or by Pink Sheets. These are very speculative companies in most cases with low volumes.
Buy-Write an advanced option order that combines the purchase a security and the sale of the corresponding call options.
back to top
C
Call Date date when callable bonds are eligible to be redeemed before maturity.
Call Option an option to buy 100 shares of a specified stock at a predetermined price and date (see LEAPs and put options).
Call Spread the simultaneous buying and selling of a call options contract on the same underlying security but with different expiration dates, different exercise prices, or both.
Callable a securities feature of some bonds or convertible securities that allow the issuer to retire the issue prior to the original maturity date. If the current interest rate falls below the yield paid on the security, it is in the issuer’s best interest to call and retire the security, then reissue at the new lower rate. To reflect this risk for the holder of the security, a callable security is usually priced lower than a non-callable security.
Capital Expenditures an expenditure incurred during a particular period to acquire long-term assets such as land, plant, or equipment.
Capital Gain the amount by which an asset’s selling price exceeds its original purchase price. A realized capital gain is an investment that has been sold at a profit, an unrealized capital gain is an investment that would result in a profit if sold. IRS levies capital gains tax for realized capital gains from the sale of mutual funds, bonds, options, homes, and businesses.
Capitalization total dollar value of all stocks and bonds issued by a corporation.
Carry Trade profiting on interest rate differentials. For instance, borrowing money at a relatively low short-term rate and lending it out a higher long-term rates. Or recently, it has been a big institutional play to borrow money in one type of currency and to buy notes in another currency. This way they can profit on the higher interest rate and the currency pair differential.
Cash Flow it is the net earnings before depreciation, amortization and non-cash charges, useful in determining the solvency of a company. Cash flow is calculated by adding depreciation to net earnings then subtracting preferred dividends.
Charting making buy and sell decisions based entirely on stock price and volume history (same as technical analysis).
Closed-End Fund a fund that does not offer new shares after the initial offering. Share price is determined by supply and demand for fund shares (as opposed to Net Asset Value for open-end Funds).
Commission fees paid to a broker to execute a stock or mutual fund trade.
Commodities minerals such as gold, coal, copper, silver; food such as corn, sugar, wheat; oil products such as crude, heating oil, and natural gas
Common Stock shares of a publicly held corporation, usually includes voting rights. Common stock has lower priority in event of liquidation than preferred shares.
Consensus Estimate or Rating
 the average of analysts individual earnings forecasts or buy/sell ratings.
Consolidation a charting term meaning a stock price is in a trading range, not moving significantly up or down.
Consumer Price Index (CPI) inflationary indicator published monthly to reflect the upward price movement of a fixed basket of common goods and services.
Coupon Rate the interest rate on a bond.
Coupon Yield bond’s coupon payment divided by par value. Also called nominal yield.
Covered Call a call option position where the writer sells a call option while simultaneously owning the number of shares represented by the option contracts. Covered calls can limit the risk for the writer buy providing a hedge with some income for the calls.
Cyclicals stocks whose performance is heavily influenced by the business cycle. An example would be the heating oil industry, where sales pick up during winter and typically slow down during the warmer months.
back to top
D
Day Trade buying and selling of the same security on the same day.
Debt/Equity Ratio comparison of the assets provided by creditors to the assets provided by shareholders. It is calculated by dividing long-term debt by common stockholders’ equity, and serves as an indicator of financial leverage.
Declaration Date date on which a firm’s directors meet and announce the date and amount of the next dividend payout.
Defensive Stocks stocks whose prices stay stable when the market declines. Defensive stocks are usually those of industries that are less affected by recessions, such as stocks of food and utility companies.
Depreciation a non-cash accounting charge representing the loss in value of hard assets such as buildings and machinery over the accounting period.
Derivatives is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. Derivatives are often highly leveraged, such that a small movement in the underlying value can cause a large difference in the value of the derivative. Traders can use derivatives to hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out. The use and over-leverage of derivatives (in most cases with an “paper” asset only with no real value) was a signficant contributor to the 2008 market collapse.
Diagonal Spread spread of the same class of options but with different exercise prices and different expiration dates.
Dilution decrease in the proportion of income each share is entitled to when new shares are issued.
Discount Broker a stockbroker charging lower commissions than full-service brokers. Discount brokers are not allowed to give investment advice.
Discount Rate interest rate at which member banks may borrow short term funds from the Federal Reserve Bank.
Distributions payments of dividends or capital gains. Funds are required to distribute gains (if any) to shareholders at least once per year.
Divergence when two or more averages, indicators, or indices move in different directions. We use divergences quite a bit for forecasting market or stock moves.
Diversification process of dividing investments among a variety of securities to lower or even eliminate risk. We are big believers in both traders and investor using diversification. It is important for short term and long term trading to avoid single event or class risks.
Dividends cash or stock paid to shareholders, usually on a quarterly schedule. Dividends have played a large role in the stock market returns that have accounted for up to 50% historically of the total market return.
Dividend Reinvestment Plan (DRIP)
 a plan implemented by a corporation to allow investors to collect dividends in shares (usually fractions of shares) of stock rather than in cash. This has actually been an inexpensive and profitable way for people with little money to get involved with the stock market. There are numerous high quality blue chip companies that offer this type of program.
Dividend Yield total of 12-month’s dividends paid (historical or forecast) divided by the latest share price. Sometimes you can find beaten down securities with “artificially” high dividend yields (lower prices rasie the yield). These situations should be weighed carefully with the quality of the underlying security or company. A very high yield doesn’t always mean it is a good investment and weak stocks are usually weak for a reason.
Dollar Cost Averaging an investment strategy used by which clients invest a fixed dollar amount periodically, regardless of the performance of the fund. Since mutual funds permit the buying of fractional shares, the fixed amount will acquire more shares when the fund decreases in price, and fewer shares when the price rises. This is normally not a sound investing strategy and it is especially bad in a bear market.
Dow Jones Industrial Average (DJIA) unweighted index of thirty of the largest U.S. corporations. While many people look at the DOW as a measure of the stock market’s health, we believe this is a mistake. We much prefer using the chart analysis of the S&P 500. It is a much better and larger representation of the economy’s health. The chart’s technicals are also better for timing your exits and entries.
Downgrade a negative change in the ratings for a rated security. This usually results in subsequent selling.
Downtick a stock trade executed at a lower price than the previous trade. The opposite is called an uptick. There use to be a uptick rule before you could short a stock but that no longer exists.
Downtrend when the stock price is heading down in the “timeframe that you are trading.” This qualification is an important part of our system and you should better understand it. It is not sufficient to just say the market is in a downtrend unless you qualify it with the timeframe. For example, the market could be in a downtrend of 3 days but it could be in a monthly uptrend.
back to top
E
Earnings per Share (EPS) after tax 12-month’s earnings divided by the number of shares outstanding.
Earnings Report
 corporate financial statement released by the company quarterly or annually netting all earnings and expenses to a profit or loss.
EBITDA earnings before interest, taxes, depreciation and amortization. Similar to operating cash flow, except operating cash flow also considers changes in levels of inventories and receivables.
European-Style Option option contract that can only be exercised on the expiration date.
Exchange Traded Fund (ETF) type of fund that tracks an index or sector, but can be traded like a stock. Great way of diversifying with lower fees than mutual funds. We used these funds extensively for both trading and investing.
Ex-Dividend Date
 1) day on which the price of a security is reduced to reflect dividend payout. 2) first day on which the buyer of a security will no longer be entitled to receive the recently announced dividend payment.
Expense Ratio all expenses incurred by mutual fund management in operating and marketing the fund. Includes management and 12b-1 fees. Doesn’t include loads or redemption fees. Expense ratios are deducted before computing fund returns.
Expiration Date (Option) the day the right to exercise the option expires
Expiration Option Cycle the cycle of 3 months on which options on a particular security expire. Options are placed in one of three cycles: the January cycle (January, April, July, October), the February cycle (February, May, August, November), or the March cycle (March, June, September, December).
back to top
F
Fair Market Value the “true value” of a stock based on criteria of the user’s choosing. A stock is said to be overvalued when the share price exceeds the fair market value. We use FMV as a fundamental target based on our own proprietary system. This FMV is provided to our customers for stocks we select in many of our portfolio services.
Fed (The) the 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. also called the Federal Reserve Board.
Federal Funds Rate interest rate that banks charge each other for the use of Fed funds. The Feds control this rate indirectly through setting the yield of Treasury security issues.
Federal Open Market Committee (FOMC) the Fed’s monetary policy committee, currently chaired by Ben Bernanke.
Financial Leverage Ratio the leverage ratio, which is total assets divided by shareholders’ equity, is an all-purpose debt gauge. A company with no debt would have a ratio of one, and the higher the ratio, the more the debt. The average leverage ratio of S&P 500 stocks is around 2.5. Most banks have ratios in the 10 to 15 range.
Financial Industry Regulatory Authority (FINRA) (formerly known as National Association of Securities Dealers or NASD) FINRA, a nonprofit, self-regulating association supervised by the Securities and Exchange Commission (SEC), sets standards and establishes rules for the way that its members, including brokerage firms active in the over-the-counter (OTC) market and investment banks, operate. FINRA is responsible for licensing of individuals and brokerage firms.
Fiscal Year any 12-month period designated by a corporation as their accounting year. Once set up, a corporation’s fiscal year does not change. This is not necessarily the calendar year.
Fixed Annuity guaranteed payments of a specified fixed dollar amount annually for the period covered under the contract.
Float shares outstanding less shares held by insiders. Insiders cannot readily trade shares, so float is considered to be the number of shares available for trading. Stocks with a small float can be very volatile.
Forex is a worldwide decentralized financial market for the trading of currencies. Forex markets trade much higher volumes than the stock markets and these currency trades and moves are starting to drive the stock markets more in recent years. The markets are open 24 hours except on weekends.
Free Cash Flow operating cash flow minus amounts spent on plants and equipment and minus dividends.
Front-End Load sales charge paid when purchasing a mutual fund. We prefer no load mutual funds.
Fundamental Analysis analyzing stocks by looking at earnings, sales, profit margins, etc. You don’t need to be an expert in reading balance sheets to be a good trader or investor. Looking at simple PEG ratios and EPS growth are sometimes sufficient to assess a stock’s reasonable fair value.
Futures agreement to buy or sell a set amount of a commodity or financial instrument at a certain price on a predetermined date.
Futures Contract agreement to buy or sell a set number of shares of a specific stock in a predetermined future month at a price agreed upon by both sides of the transaction. The contracts themselves are traded on the futures market. The difference between a futures contract and an options contract is that the futures contract is an agreement to actually make a transaction, whereas the option contract is the right to buy or sell.
back to top
G
Good til Canceled (GTC)
 buy or sell limit order remains active until you cancel it.
Gross Margin gross profit divided by sales.
Gross Profit net sales before tax minus cost of sales.
Growth Stocks companies with consistent annual earnings and sales growth of at least 10%. We frequently invest in growth stocks, especially in emergin markets.
back to top
H
Hedge to reduce the risk in one security by taking an offsetting position in a related security.
High-Yield Bond bond is one that is rated poorly by a credit rating system. These bonds offer higher yields compared to bonds of financially sound companies, justifying the greater credit risk. However, sometimes these can be good investments, especially coming up out of a recession as we saw in 2009.
House Maintenance Call brokerage firm requesting the client for additional funds because the equity in the client’s margin account has fallen below the minimum amount set by the brokerage.
Hypothecation pledging of assets as collateral
back to top
I
Income Statement a record of a company’s sales and expenses over a particular year or quarter.
Industry Group companies in related businesses. It is usually determined by the corporations largest source of revenue.
Inflation rate at which the general level of prices for goods and services is rising, usually measured by the Consumer Price Index or Producer Price Index.
Inflation Risk risk that the yield of an investment will be diminished by rising inflation rates.
Inflation-indexed Bonds (TIPS) treasuries are designed to keep pace with inflation. The principal is adjusted to match changes in the consumer price index, while the interest rate remains fixed. In this way, inflation cannot erode the value of your principal. This will probably be used more extensively by money managers in the coming years based on the huge money supply increase in the US.
Initial Public Offering (IPO) first sale of stock to the public by a corporation. We are a big believer in investing in promising new issues but the intial price of the IPOs are sometimes sold down for a short period after the pre-IPO buyers sell out for a quick profit.
Insider Trading shares bought and sold by company insiders. It’s legal as long as they follow the SEC’s reporting requirements. However, sometimes there is illegal insider trading where the company officials or outside traders illegally profit from “insider information”.
Institutional Investor entities with large amounts of funds to invest, such as investment companies, mutual funds, brokerages, insurance companies, and endowment funds. Institutional Investors account for the majority of overall market volume. Watching the volume flows helps keep on eye on what the institutions are doing and it helps us find the momentum stocks and ETFs.
Institutional Ownership shares owned by pension funds, mutual funds, banks, etc. We typically like to see strong institutional ownership for our longer term stock selections.
Interest Rate the rate charged by a lender for borrowing money. Interest rates are generally fixed at a certain level for the entire length of a loan, though they can also vary over time.
Intermediate-Term Bonds bonds with maturities of four to 10 years.
In-the-Money (Option) an option is in-the-money when the holder would profit from exercising the contract. For example, a call option is in-the-money if the exercise price is less than the market price of the underlying security, and a put option is in-the-money if the strike price is greater than the market price of the underlying security.
Intrinsic Value a term favored by value oriented fundamental analysts to express the actual value of a corporation, as opposed to the current value based on the stock price. Usually calculated by adding the current value of estimated future earnings to the book value.
Inventory raw materials, work in process, and finished goods that haven’t been shipped to customers.
Investment Bank an organization, usually a stock brokerage firm, involved in taking a new company public (IPO), consulting on mergers and acquisitions, handling corporate borrowing, etc.
back to top
J
January Effect the tendency of the stock market to rise between December 31 and the end of the first week in January.
Junk Bonds corporate bonds with poor credit ratings
back to top
K
Keogh Plan a tax-deferred qualified retirement plan for unincorporated businesses and self-employed individuals.
back to top
L
Ladder a strategy where an investor creates a portfolio consisting of various fixed-income securities that are approximately the same value, but each with different lengths until maturity. This helps reduce interest rate risk.
Large-Cap company with market capitalization greater than $5 billion.
LEAP a long-term put or call option (as long as three years). This can be a nice vehicle for leveraging your money with a smaller risk than a short term option due to a lack of time decay.
Limit Order order with broker to buy stock at limit price or less, or to sell stock at limit price or higher. We strongly believe in using limit orders vs market orders. The few pennies you lose on market orders for a large block can be big and it will add up over time.
Liquidity a measure of the number of shares, or dollar value of shares traded daily. Mutual funds and other institutional buyers prefer high liquidity stocks so they can easily move in and out of positions. We also prefer high liquidity and a high volume of shares traded daily in order to get good anf fast fills. This is especially important for option traders.
Load a sales commission paid when you buy (front-end) or sell (back-end) a mutual fund.
Lockup Period time after IPO, typically 180 days, when insiders are prohibited from selling their shares.
Long-Term Bond bonds that mature in more than ten years.
Long-Term Liabilities amount owed for interests, bond repayment, and other debt that are due after one year.
back to top
M
Margin borrowing funds from your broker to trade stock. There is a cost of that margin capital and it should only be used by very experienced traders in our opinion.
Margin Requirement amount of cash and equity that clients must deposit in the brokerage account to be able to purchase using borrowed capital or sell short.
Mark-to-Market tracking the price of a security, portfolio, or account daily, to calculate gains and losses or confirm that margin requirements are being met.
Market Capitalization latest stock price multiplied by number of shares outstanding (shares issued).
Market Cycle period between the two most recent highs or lows of the S&P 500. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market).
Market Maker intermediary for stocks traded on NASDAQ, and for off-hours trading in NYSE stocks. When you trade NASDAQ stocks, you buy your shares from the market maker. When you sell shares, you sell them to the market maker. The market maker keeps the difference between the bid and asked prices.
Market Order order with broker to buy or sell stock at current market price.
Master Limited Partnership (MLP) similar to a real estate investment trust (REIT), except MLPs are not limited to a specific industry compared to REITs which must invest in real estate. Both types trade like stocks on the New York Stock Exchange, and both types must distribute most of their earnings in the form of dividends. We really like the MLPs in the commodity industries – oil and gas, shipping, industrial metals, etc. They offer both the stock appreciation potential with the falling dollar and rising commodity prices along with some very high dividends.
Maturity date on which a bond or other debt instrument becomes due and payable.
Merger combining of two or more companies into one, either through the purchase of one by the other, or a pooling of interests. The resulting synergies are expected to increase the company’s efficiency.
Micro-Cap a company with a market capitalization less than $250 million
Mid-Cap a company with market capitalization typically between $1 billion and $5 billion.
Momentum Analysis usually involves looking for stocks in a strong uptrend (high relative strength), strong earnings growth, and increasing earnings forecasts. We also look at the underlying techncials and volume flows to pick longs. The opposite would be true for short picks.
Money Supply the amount of money in circulation. The Federal Reserve Board attempts to control the growth of the US economy by regulating the increase in money supply.
Mortgage-Backed Securities (MBS) collection of mortgages pooled into a security that can be retailed and traded by private or institutional investors. The large amounts of MBSs were certainly a major contributor to the 2008 crash based on their over-leverage and on derivates and insurance written against them as assets.
Mortgage REIT a real estate investment trust (REIT) whose primary business is investing in real estate loans.
Moving Average (MA) the average closing price of a stock over a specified period. For instance, the 10-day MA is the average closing price for the past 10 days. Stocks are said to be in an uptrend when above their MA and in a downtrend when below in that specified timeframe. The most widely followed MAs are the 10, 20, 50 and 200 days. Long-term investors tend to look at the 200-day MA while active traders are more likely to pay attention to the 10 and 20-day MAs. As a general rule, it’s best to avoid going long on stocks for any duration when trading below both their 50- and 200-day MAs.
Municipal Bond (Muni) a long-term debt instrument issued by a state or municipal government. These can be very good investments in your own state if you can find AAA rated bonds. You can get over 5% income returns double tax-free.
back to top
N
NASDAQ 100 Index index of 100 largest companies on NASDAQ. The NASDAQ 100 trades like a stock under the symbol QQQQ.
Net Asset Value (NAV)
 value of all stock and other assets owned by a fund divided by the total number of shares the fund has outstanding.
Net Earnings (Net Income) also known as the bottom line, this is the profit a company realizes after all costs, expenses and taxes have been paid. It is calculated by subtracting business, depreciation, interest and tax costs from revenues. Also called net income or net profit.
New Issue company issuing security to the market for the first time or issuing additional shares.
No Load Mutual Fund no sales commission is charged if you buy shares directly from the fund. There may or may not be a commission charged if you buy the fund through a broker.
New York Stock Exchange (NYSE) the oldest and most famous market for the buying and selling of securities. Located at 11 Wall Street, New York, New York.
Note general name for agency security with a maturity of less than 10 years.
back to top
O
Odd Lot quantity of securities smaller than 100 shares, which is considered the standard unit of trading.
Offer lowest price at which an investor or dealer is willing to sell shares of a security.
On-Balance Volume (OBV) this the ratio of volume to upward price movement, used in technical analysis to determine if a security is seeing accumulation or distribution.
Open trade price of the day’s first transaction.
Open Interest number of outstanding option contracts for a particular class or series currently in the exchange market. It is important to have this number high for good options liquidity.
Operating Cash Flow surplus cash generated from company’s basic operations without regard to income tax entries such as depreciation and amortization. Changes in levels of inventories, accounts receivable and accounts payable also affect cash flow.
Operating Income sales minus all expenses except income taxes and other items not related to basic business.
Operating Margin operating income divided by sales.
Out-of-the-Money (Option) an option is out-of-the-money if the price of the underlying security is below the strike price of a call option, or above that of a put. The holder would suffer an immediate loss if he was to exercise the right and purchase or sell the underlying security.
Over-the-Counter-Market (OTC)
 older name for stocks traded on NASDAQ. Also refers to bulletin board and Pink Sheet stocks.
back to top
P
Par Value face value of a bond.
PEG Ratio
 price to earnings ratio divided by the forecast annual earnings growth rate. Traditionally, stocks were said to be fairly valued when the p/e and the forecast growth rate were equal. Lower PEG ratios, below 10, tend to offer better value entries.
Penny Stocks securities typically priced less than $3 per share. Many are not very liquid and they are highly speculative. We recommend avoiding these stocks unless they are liquid and you can trade them from looking at a chart. If you can’t get a chart on the stock then don’t trade it.
Pink Sheets daily publication providing dealer names and quotes on over-the-counter penny stocks that are not included in NASDAQ listings. It is actually printed on pink paper.
Pit (The) circular area on a trading floor, where futures and options are bought and sold.
Pivot price level where the market finds a near term high or low in the timeframe you are trading.
Poison Pill steps taken by a corporation to thwart a hostile takeover attempt. For instance, a company could issue rights to purchase shares at a substantial discount after a merger, or it might issue preferred shares giving holders the right to redeem their shares at a discount after a merger.
Portfolio a group of stocks, mutual funds, or other securities.
Preferred Stock debt instruments. Preferred shareholders are paid ahead of common stock holders in the event the corporation is liquidated. Convertible preferred shares can be converted into common stock according to predetermined conditions.
Premium (Options) the price paid by the buyer to the option writer for the rights to the option contract.
Price-to-Book Ratio latest share price divided by book value stated in latest report.
Price to Earnings Ratio (PE) latest share price divided by 12-month earnings per share (EPS).
Price to Sales Ratio (P/S) latest share price divided by 12-month sales per share.
Program Trading trades entered into a computer program to be executed automatically.
Prospectus a document circulated to potential investors prior to an IPO describing a company’s business plan.
Proxy Statement material given to stockholders when the corporation solicits shareholder votes. The proxy statement usually contains details on the corporation’s executive compensation plans.
Put Option an option to sell 100 shares of a specified company’s shares at a predetermined price (also see LEAPs and call options).
back to top
Q
Quarterly Report unaudited financial report submitted every quarter to the SEC by public companies, containing the company’s financials and other relevant information.
Quick Ratio cash and cash equivalents plus accounts receivables divided by current liabilities (aka Acid Test Ratio)
Quiet Period time after IPO, typically 25 days, when all parties involved in IPO are prohibited from commenting on the company’s future prospects. Analysts employed by underwriters are free to make buy/hold/sell recommendations after the Quiet Period expiration.
Quote information on the last trade, and current bid and asked prices. Most quotes are delayed about 20 minutes unless you have a real time service.
back to top
R
Range (Trading) high and low trade prices for the day, week, or month.
Rate of Return percentage gain or loss within a specific time period, assuming that all distributions are reinvested at the current rate of return.
Rating (Bond) alphabetical evaluation of a bond’s investment quality (AAA highest increasing to lower number of A’s and then B’s, C’s, etc.). We really like your own state’s AAA muni bonds for a conservative investment.
Real-Time Quotes stock trading price reports that have not been artificially delayed.
Redemption retiring of a debt instrument by repaying the principal balance to the investors.
Redemption Fee fee charged when you sell a mutual fund, if you haven’t held the fund for the prescribed minimum time.
REIT real estate investment trust. A special form of mutual fund investing only in real estate. REITs must pay out most of their earnings as dividends to share owners.
Relative Strength stock price performance compared to the S&P 500, or to the entire stock market. Can measure performance over any time span. Stocks that are stronger than the market’s performance have high relative strength and are good
Resistance the inability of a stock to rise above a certain price. This is a ceiling on the stock price. If a stock breaks above the resistance then that level becomes support.
Retracement a price movement in the opposite direction of the previous trend. Buying retracements back to support on low volume can be good entries.
Return the money earned by investments over a period of time. Earning an annualized return over 12% should be a minimum goal for good investors.
Return on Equity (ROE) an indicator of a company’s profitability, calculated by dividing net income from the past fiscal year by shareholders’ equity, showing how efficiently the company uses shareholder’s money.
Reverse Stock Split a plan instituted by a corporation to proportionally reduce the number of shares outstanding while maintaining the value of shares held by shareholders. This usually ends up being a poor idea in most cases.
Rights Offering an offer to existing shareholders, giving them rights to buy newly issued shares at a discount from the price at which shares will later be offered to the public.
Round Lot a standard trading unit. In common stocks, 100 shares make up a round lot. For bonds, a round lot in the over-the-counter market is five bonds.
Russell 3000 (and 2000) is an index of the 3,000 largest US publicly traded corporations. The Russell 2000 is a capitalization-weighted index of the 2,000 smallest companies of the Russell 3000.
back to top
S
S&P 500 capitalization weighted index of 500 of the largest US corporations
Same Store Sales sales at retail stores open at least one year. A chain’s same store sales growth excludes gains due to increases in the number of stores. Same store sales growth greater than 5% is considered good.
Savings Bonds a registered, non-callable, non-negotiable bond sold at a discount, redeemable at face value upon maturity. Savings bonds can be purchased for $50 up to $10,000, with a maximum of $30,000 each year per individual.
Screening the process of searching securities (stocks, bonds, mutual funds, ETFs, …) based on a certain set of criteria. We perform fundamental and techncial screening in all of these catergories in an attempt to outperform the market. This is one of the essential keys to our service.
Secondary Offerings a company selling additional stock to the market after its initial offering, attempting to raise additional capital.
Secular Trend a very long trend that typically is multi-year.
Securities the general term used to describe investment products, including any stock, treasury stock, bond, debenture, etc. Excludes fixed annuities and insurance policies.
Settlement the process of paying for stocks you purchase, or receivng credit from your broker for the stocks you sell. Most transactions must be settled within 3 business days.
Share Repurchase a program by which a corporation buys back some of its own shares in the open market, reducing the shares outstanding and thus increases earnings and dividends per share, driving up the stock price.
Shares Outstanding the total number of shares issued by a corporation.
Sharpe Ratio the look at a fund’s return compared to the risk taken. A higher Sharpe Ratio of one fund compared to another means it performs better compared to the same risk taken.
Short Interest Ratio (SIR) the number of days it would take to cover the short interest (number of shorted shares) at the average daily volume
Short Position a trade used by investors who believe the price of a stock is going down, selling stocks he does not yet own, then later buying it back at a lower price to close out (cover) the transaction.
Short Squeeze a strong move up in the stock price with a high SIR. Stocks hitting new highs with a high SIR can be good setups for short squeezes and beats on expected earnings with high SIR stocks are also good for short squeezes.
Short-Term Bond a bond that matures within five years.
Short-Term Bond Funds funds that invest in bonds with average maturities of three years or less.
Short-Term Government Bond a government bond that matures within five years.
Slippage the difference between estimated transaction costs and actual transaction costs.
Small-Cap a company with a market capitalization between $250 million and $1 billion
Specialists (System) a person on the New York or American stock exchanges that matches buy and sell orders
SPDR (Spider) a security representing one-tenth the value of the S&P 500 Index.
Spin-off the selling of a portion of an existing firm to form another independent company, through the sale or distribution of new shares.
Spread the difference between the bid and ask prices for a stock. This is extremely important to look at especially on options. The spread is typically smaller with a higher volume of shares traded.
Standard Deviation a measure of a mutual fund or stock’s historical volatility. A higher standard deviation means a higher volatility. Bollinger Bands are a technical indicator that typically uses a 20 period moving average and 2 surrounding bands that are 2 standard deviations away.
Stock Splits the exchange of existing shares for more newly issued shares from the same corporation. Splits do not increase or decrease the capitalization of the company, shareholders equity is simply redistributed over more shares, making the price of each individual share cheaper. These splits can be traded before and after they first occur, typically with profit on the long side.
Stop Order (stop loss) an order with a broker to sell stock at a market price when it goes down or below a specified limit price.
Stop Limit Order a combination of a stop order and a limit order. The limit order becomes effective when the stock price hits the stop price.
Straddle an option strategy involving a simultaneous long or short position of both put and call option contracts, on the same underlying security and with the same series designation.
Strangle an option strategy that involves writing a call and a put with different strike prices on the same underlying security.
Strike Price also known as the exercise price, it is the stated price per share at which the underlying asset may be purchased or sold by the option holder upon an exercising of the options contract.
Support (Support Level) a term used in technical analysis, describing a price level which a security has had difficulty falling below. It serves as a price floor. Once the support level is broken, it becomes resistance on the way back up.
Surprise (Earnings) the difference between reported earnings and analysts’ concensus forecasts. It’s a positive or upside surprise if the reported earnings exceed forecasts, and a negative or downside surprise when the reported earnings come in below forecasts.
Symbol (Stock) an abbreviation used for publicly traded companies, to make it easier to identify the security in exchanges. A symbol of one to three characters are listed and traded on an exchange, while symbols 4 or 5 characters designate securities traded on the NASDAQ.
back to top
T
Technical Analysis making buy and sell decisions based on price and volume history. There are many technical indicators that are used in technical analysis. It is the primary method we use in our system when you look for momentum stocks.
Tender Offer an offer made by one company or individual for shares of another company, in the form of cash or stock.
Tick Indicator an indicator of a market trend, based on the number of stocks whose last trade was on an uptick or a downtick.
Time Value (Option) the portion of an option’s premium that is attributed to the amount of time remaining until the expiration date of the option contract. We prefer that most people buying options minimize any time value decay by buying options at least 3 months, and preferably 6 months out.
TIPS Treasury Inflation-Protected Security. A security identical to a treasury bond except that principal and coupon payments are adjusted to account for inflation.
Top Line a reference to a company’s sales or revenues.
Total Return the price change (capital gains) plus dividend return for a stock over the last year. We have a specialty portfolio that is specifically designed using only strong Total Return stocks.
Trading Range the difference between the high and low prices at which a security was traded during a period of time.
Trailing P/E Ratio the ratio of a stock’s latest closing price divided by the last reported annual earnings per share.
Treasuries debt obligations issued by the U.S. Department of Treasury, so interest and principal is guaranteed by the U.S. Government. Income from Treasuries is taxable at the federal level, but exempt from state and local taxes.
Treasury Bills (T-Bills) government issued negotiable debt obligations with maturity of one year or less. T-Bills are purchased at a discount to the full face value which is payable when they mature. T-Bills are issued for a minimum of $10,000 with $1,000 increments thereafter.
Treasury Bonds (T-Bonds) government issued negotiable debt obligations that mature in 10 to 30 years. Interest is paid semi-annually and they can be purchased in denominations of $1,000 or multiples thereof.
Treasury Notes (T-Notes) government issued debt security that pays interests semi-annually, maturing in two to ten years.
Triple Witching the third Friday of March, June, September, and December is the day when index futures, index future options, and certain stock options all expire. These Triple Witching days are typically known for increased volatility.
Turnover Ratio how often a mutual fund changes its portfolio holdings. A 100% turnover means all of the stocks in the portfolio have been changed in the year.
back to top
U
Underlying Security the security on which options are being bought or sold.
Undervalue a stock that is trading at below its fair market value
Underwriter a brokerage house backing a new company’s IPO
Uptick a stock trade that is executed at a higher price than the previous trade
Uptrend a stock this is trending higher with higher low’s and higher highs in the timeframe of consideration
back to top
V
Volatility a relative measure of a security’s price movement during a specific time period, calculated mathematically using the standard deviation of daily price changes. A high volatility means the stock has big daily price swings. A convenient way of expressing it is using BETA (see above).
Volume the total number of shares of a stock traded during a specific time period. High volumes associated with big price moves usually correspond to news announcements regarding the company or some technical breakout or breakdown. In either case, scanning for these events can be a very good way of identifying good momentum trades.
back to top
W
Wash-Sale Rule the rule enforced by the IRS to prevent taxpayers from selling securities at a loss and reacquiring near identical securities within a 30-day period before or after a loss. A violation of the rule will void the loss from the sale of the security.
W-Type Double Bottom two consecutive price bounces off the same support level on a price or indicator chart, resembling the alphabet W. This can be an excellent buy entry when it occurs near primary moving averages. A buy after a breakout from the apex of the “W” can also be a decent entry.
back to top
X
back to top
Y
Yield (Bond) the interests earned on a bond investment. If the security was bought on the primary market, the yield will be equal to the interest rate. If the bond was acquired on the secondary market, the yield could be higher or lower depending whether the bond was bought at a premium or discount to face value.
Yield (Stock) the annual rate of return on a stock as paid in dividends, calculated by dividing the latest dividend rate by the latest closing price, expressed as a percentage.
Yield Curve this is a graph showing the yields for different bond maturities.
Yield to Maturity the yield received by the holder of a debt security at maturity, taking into account any gain or loss of principal.
back to top
Z
Zero-Coupon Bonds bonds that do not pay interest during the life of the bonds. Instead, investors buy them at a deep discount from their face value, which is the amount a bond will be worth when it “matures” or comes due. When a zero coupon bond matures, the investor will receive one lump sum equal to the initial investment plus the imputed interest.
Zero-Coupon CD a certificate of deposit that pays interest only upon maturity.
back to top