Adjustment
This term ‘adjustment’ refers to the buying and selling of financial securities or instruments in such a way as to bring the position delta to zero. As a result, profits are also increased.
All Ordinaries Index
The All Ordinaries Index is a major index in the Australian stock market that is representative of the approximately 500 publicly traded companies.
AMEX (American Stock Exchange)
AMEX is also known as the American Stock Exchange. It is a private, non-profit entity that aids in the process of 20% of all financial securities traded in the USA.
American-style option
An American-style option is a type of option contract which can be exercised between the time it was purchased and the expiration date. The majority of exchange traded options are American-style options.
Amortization
The term ‘amortization’ refers to the systematic spreading of the fixed asset’s cost( cost of plant, machinery and equipment) over the life of the asset. This is reflected in the income statements of a company. Amortization could also refer to the systematic reduction of debt through regular debt repayments over a span of time.
Analyst
An analyst is a specialist in valuing a company based on its fundamentals and publicly available information. The analyst then makes a buy or sell recommendation based on the analysis of the company. Usually, analysts work for fund management firms and brokerage firms.
Annual earnings change
The annual earnings change measures the percentage increase or decrease in earnings between the preceding year’s earnings and the latest year’s earnings where the preceding year is the base year.
Example
Year 1 –Company XYX earns $1 million net profit
Year 2 – Company XYZ earns $3 million in net profit
The annual earnings change is thus:
($3 million – $1 million)/ $1million x 100%
= 200%
There is thus an earnings increase of 200%.
Annual net profit margin
The annual net profit margin is measured in percentage. It is the net earnings as a percentage of sales revenue or gross sales for a particular year.
For example, if the gross sales of a company is $10 million and its net profit for that year is $1 million, its annual net profit margin can be calculated as:
1/10 x 100% = 10%
APR (Annual Percentage Rate)
The Annual Percentage Rate is the simple interest rate that is paid on a loan.
Annual return
The rate of return earned by an investment in a particular year is known as the annual return.
Annuity
An annuity is a fixed sum of money paid out in regular intervals.
Appreciation
Appreciation represents the increased value of an asset. It is also known as capital gains or capital appreciation.
Arbitrage
Arbitrage is the simultaneous and opportunistic buying and selling of a certain financial instrument to capitalise on price discrepancies such that a profit is made. An arbitrage consist of a high selling price and a low selling price of the same financial instrument simultaneously. As a result, profits are locked in.
Arbitrageur
An arbitrageur is a company or an individual that is involved in the simultaneous and opportunistic buying and selling of a certain financial instrument to capitalise on price discrepancies, where the selling price is higher than the buying price. As a result, the arbitrageur earns a profit from doing so.
Ask
The ask price is the price at which market makers, specialists and floor brokers are willing to selling a financial instrument at.
ATM (at the money)
When the price of an underlying security is equal to the strike price of an option, the option is considered to be at the money. For example, when the price of XYZ Corporation is trading at $10, a July 10 call ( this option has a strike price of $10) is at the money.
at-the-opening order
An at-the-opening order is an order that is executed when the market is opened. If not, the order is cancelled.
auction market
An auction market is a market where bids and offers are placed simultaneously by buyers and sellers respectively. The majority of bond and stock markets function in this way. In general, the prices of financial instruments increase when there is greater demand.
Automatic exercise
The clearing firm conducts an automated procedure of exercising an in the money option at expiration.
average
A mathematical measure of an index or a segment/sector of a market. A classic example is the Dow Jones Industrial Average.
back months
It refers to futures contracts on financial instruments which are traded furthest away from expiration.
backspread
A backspread is a type of spread that occurs when less options are sold than purchased. These options are derived from the same underlying instrument and have the same expiration date.Typically, backspreads are delta neutral.
back-testing
This refers to the validation of a strategy against historical data to check the strategy’s efficacy. If the strategy is to be relied on, then, the results of the strategy must be consistent.
bear
This refers to a scenario in which asset prices in general are expected to fall. The investor or trader acts appropriately to earn a profit or protect the value of his assets.
bear call spread
A limited profit and limited risk strategy in which a trader buys a higher strike call while simultaneously selling a lower strike call. The value of the spread increases when the price of the underlying financial instrument falls. The bear call spread results in a net credit. The maximum profit is equal to the net credit while the maximum loss is equal to the difference in the strike prices less the net credit. The bear call spread usually requires margin to be executed.
bear market
A bear market is a scenario where the stock market is falling, usually over an extended period of time. This is generally caused by a weak economy, rising interest rates and poor corporate profits.
bid
The bid price is the highest price at which a trader, dealer or floor broker is willing to buy a financial security at.
bid and ask
The bid and ask represents a financial security’s quotation at a point in time. The ask price represents the lowest price that a seller is willing to sell at while the ask price represents the highest price a buyer is willing to buy at.
bid/ask spread
The bid/ask spread is the difference between the bid and the ask prices.
bid up
A financial instrument’s price of bidded up if there the demand for it causes the price to increase.
block trade
A block trade is a trade that involves a large number of securities. It is typically transacted between 2 parties without the transaction being conducted in an auction market.
blow-off top
A blow-off top is a scenario in which there is a rapid rate of price increase followed by a rapid rate of price decline, leading to a reversal in asset prices. This is a technical indicator used in technical analysis to anticipate reversals in asset prices.
blue chip
blue chip companies are companies with a large market capitalisation, justified by stability in earnings power and a good track record of giving dividends to its shareholders. These companies also have very stable operating histories and are the first to recover from recessionary asset prices.
board lot
A board lot represents the smallest and standardised quantity of shares which can be traded on an exchange on standard commission rates. The purpose of board lots is to facilitate the ease of trading.
bond
A bond is a financial instrument that represents a debt obligation that promises to pay a coupon( a fixed rate) and also to repay the principal value at maturity.
breakeven
Breakeven refers to a price point at which the gains are equal to the losses. As a result, there is neither profit nor loss if the option is exercised. The breakeven is calculated differently for call options vs put options. For a call option, the breakeven is the premium paid plus the strike price. For a put option, the breakeven is the strike price less the premium paid.
breakout
A breakout is represented by a price increase in a financial instrument above the resistance level or below the support level.
broad-based index
A broad-based index is an index that represents the price movements of a market. An example of an index is the S&P 500.
broker
A broker is a firm or an individual who charges a commission for the execution of trades.
bull
The term “bull” refers to a scenario in which asset prices are expected to rise.
bull call spread
The bull call spread is a limited risk and limited profit strategy. The trader executes a bull call spread by buying a lower-strike call and simultaneously selling a higher- strike call. When the price of the underlying financial instrument increases in value, the value of the bull call spread increases as well. The bull call spread is a net debit transaction. The maximum profit can be calculated as the difference between the strike prices less the net debit created. The maximum loss is equal to the net debit.
For a bull call spread, no margin is required.
bull market
A bull market is a rising stock market over an extended period of time. A rising stock market is a result of strong corporate earnings and good economic growth.
bull put spread
A bull put spread is a limited profit and risk strategy and it is constructed by selling a higher-strike put and buying a lower-strike put. This results in a net credit. The rise in the price of the underlying instrument will cause the spread’s value to increase. The maximum profit is equal to the net credit while the maximum loss is equal to the difference between the strike prices less the net credit.
butterfly spread
The butterfly spread refers to the sale of 2 identical options with middle strike prices, buying of 1 option with an immediately higher strike price and 1 option with an immediately lower strike price. The options are derived from the same underlying instrument and have the same expiration date.
buy on close
When a trading session ends, a buy order is initiated at a price within the closing range.
buy stop order
A buy stop order is an order to purchase a financial security at a price above the current market price. This order is automatically triggered when a certain price level is met. For example a trader places a buy stop order at a price of $10. When the the market price of the security reaches $10 or goes beyond $10, a market order is executed and the security is bought at a price of $10.50.
The trader who executes a buy stop order wants to capitalise on the momentum of a financial security. An example of this would be a resistance level of $10. The trader may predict that if the price reaches or breaches $10, there is a chance that it will hit the next resistance level of $18 in 3 months. So, he places a buy stop order.
CAC 40 Index
The CAC 40 Index is reflects the largest 40 publicly traded companies in the Paris stock exchange.
calendar spread
A calendar spread consists of a long option position and a short option position of the same underlying security, same strike price but with different expiration months. Calendar spreads could be constructed with either call or put options.
call option
A call option is an option contract which gives the buyer(the buyer pays an option premium) the right but not the obligation to buy a specified number of an underlying security within a certain time frame( till expiry of option contract).
call premium
The call premium is the price that a trader/investor has to pay for a call option contract.
capital
The capital refers to the amount of resources/money that a trader/investor/business has available for investment purposes. If a trader has a capital of $10000 in his trading account, that is the amount of money he has for investment/trading purposes.
capital gain
A capital gain occurs when a financial security/asset is sold for higher than its purchase price, thereby, realising a profit from the sale. If an investment which costs $10000 was sold for $12000, a capital gain of $2000 is realised.
capitalization
The capitalization of a company refers to the number of outstanding shares multiplied by the current market value per share.
capital loss
a capital loss is the opposite of capital gains. It refers to the loss realised when an asset is sold at a price lower than the acquisition price. An asset which is acquired at $10000 and sold at $8000 has made a capital loss of $2000.
cash account
A cash account if an active brokerage account in which the customer has to pay cash in full to fund purchased securities.
cash dividend
A cash dividend represents cash paid to the shareholders of a company.
change
“Change” refers to the increase or decrease in the price of a financial security measured from the preceding trading session.
Chicago Board of Trade(CBOT)
The Chicago Board of Trade or the CBOT is an options exchange in the United States.
class of options
The term “class of options” refers to option contracts of the same type(call or put), same underlying security and style.
clearing house
A clearing house is an entity, separate from the exchanges, whose function is to ensure the efficient delivery of securities and payments.
close
This refers to the last transacted price of a security at the end of a trading session.
closing purchase
This refers to the covering of a short position.
closing range
It is a range of high and low prices during the period known as official close.
closing sale
It is a transaction to sell off and offset a long position.
commission
The fees paid to a broker for executing buy and sell orders on financial securities.
commodity
This refers to bulk goods traded on an exchange. Some examples include grains and metals.
Commodity Futures Trading Commission(CFTC)
The CFTC was set up in 1974. It’s main function is to ensure efficient and open operations of the futures market.
condor
A condor refers to the purchase or sale of 2 options with consecutive strike prices with the purchase or sale of an option with an immediately lower strike price with the purchase or sale of an option with an immediately higher strike price. Hence, options of 4 different strike prices are needed to construct a condor.
consumer price index(CPI)
The consumer price index is also known as the CPI is reflective of the price changed in consumer goods. It is an index which is used to measure inflationary or deflationary periods in an economy.
contract
A contract can refer to a standardised set of terms and conditions agreed upon by 2 parties. One American option contract represents an underlying of 100 shares.
correction
A correction is a sudden decline in the price of a financial security after a period of significant increase.
covered call
A covered call is a written call against an ownership of underlying stock or futures.
covered put
A covered put is a written put against a short position in the underlying stock or futures.
credit spread
A credit spread is a spread in which the option premium collected from the short position exceeds the option premium paid. As a result, the trader receives a net credit.
cross rate
The cross rate is the exchange rate between 2 currencies, with reference to a third currency.
daily range
The difference between the highest price and the lowest price of a financial security in a trading session.
day order
A day order is an order to sell or buy a financial security within the day. If the order is not filled within the day, the order expires.
day trade
“Day trade” refers to the buying and selling of securities within the same day in the hope of profiting from the trade.
day trading
“Day trading” refers to the buying and selling of positions within the same day in the hope of profiting from the trade.
debit spread
A debit spread is a spread where the option premium collected from the short option does not exceed the option premium paid for the long option, resulting in a debit to the trader’s account.
delayed-time
The phrase “delayed-time” usually refers to a time lag in quotes of a financial instrument. Hence, delayed-time quotes are not as accurate real-time quotes as they may be 20 minutes later than real-time quotes.
delta
Delta refers to the amount of price change of an option measures against the price change of the underlying financial instrument.
delta-hedged
The term “delta-hedged” refers to an options strategy that protects the value of the options against price movements of the underlying financial instrument. And by doing so, an overall delta position of zero is achieved.
delta neutral trade
To achieve an overall delta of 0 by carefully choosing selective short and long positions.
delta position
Delta position refers to the delta of the underlying financial instrument or it could also refer to option’s delta.
derivative
A derivative is a financial instrument which is based and derived from another underlying financial asset. The underlying security could be futures or stock. An example of a derivative is an option.
discount brokers
Discount brokers typically offer low commissions to trades. The low commission rates are attributable to a no frills broking service without providing research, portfolio management strategies and advice.
divergence
The term divergence refers to a scenario where an indicator does not confirm a trend in the price of a security.
dividend
Dividends are sums of money are paid out to shareholders of a company out of the company’s profits. The amount of money paid out per share annually as a percentage of the price per share is called the dividend yield.
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is a broad based , overall indicator of market performance which consists of 30 large cap, blue chip stocks. These stocks are highly liquid and are traded on the New York Stock Exchange.
downside breakeven
The term “downside breakeven” refers a lower price point at which a trade suffers no loss or gains no profit. Relative to “upside breakeven”, the price point is lower.
downside potential
This refers to the probability of a decrease in prices.
downside risk
The downside risk refers to the potential decrease in prices.
each way
The term “each way” refers to the charging of brokerage commissions as positions are opened and closed. Hence, commissions are charged when trades are opened. Commissions are also charges when trades are closed.
end of day
The term “end of day” refers to close of a trading day when trading stops.
EPS Rating
This refers to a list of companies ranked according to the earnings per share strength and growth. This list is compiled by Investor’s Business Daily.
equilibrium
The price level that is mid-way between the resistance and support levels.
Eurodollar
This refers to US dollars that has been deposited in foreign banks outside of the United States.
European-style option
This is a type of option contract that can only be exercised on the expiration date.
exchange
An exchange is a physical location where financial instruments are traded. These financial instruments include stocks, options, futures and other derivatives.
exchange rate
The exchange rate refers to the current market rate at which one currency can be converted to another.
execution
Execution refers to the process of buying or selling of financial securities.
exercise
The term “exercise” refers to the utilisation of the right( for buyers of option contracts) to buy or sell the underlying financial security.
exercise price
Exercise price refers to the strike price at which a buyer of an option contract can buy or sell the underlying security at.
expiration date
The expiration date refers to the last day on which an option is exercisable. Beyond this date, the option expires.
fade
The term fade refers to the selling an asset with an increasing price of buying an asset with a decreasing price.
fair market value
This refers to the market value of an asset under conditions at which a willing buyer and seller is willing to transact at.
fair value
This refers to the a price at which an asset is worth under normal conditions.
fast market
A scenario in which there is so much volume in a particular stock. This makes it very hard for all orders to be processed.
fill
This refers to an order that has been executed.
fill-or-kill(FOK)
This refers to the execution of an order at a specified quantity, failing which, the order is not executed at all.
financial instruments
This refers to assets that can be tradable.
fixed delta
A delta that does not change with the change in the underlying asset.
floor broker
A floor broker is a member of an exchange who executes orders for a particular fee.
floor ticket
A floor ticket is used by floor traders for order tracking as it contains a summary of information.
floor trader
A member of an exchange working on the floor of the exchange, executing orders for his own account.
fluctuation
This refers to the changes in the price of a security.
front month
This refers to the the expiration month of a financial instrument which is closest to the current date.
fundamental analysis
Fundamental analysis refers to the research and study of a company’s income statements, balance sheets and operating cash flows to make reasonable projections of a company’s stock price.
futures contract
This is a contractual agreement to buy or sell the underlying asset in a specified month at an agreed price
gamma
The measure of changes in delta with respect to changes in the price of an underlying security.
Gap day
A gap day refers to the daily trading range of a security which is above the previous day’s range or below the previous day’s range.
Going ahead
This refers to a broker who prioritizes trades by trading for his own account before executing orders for his clients. This is an example of an unethical broker.
Go long
To go long is to buy securities, futures, stock and options.
Good till canceled order (GTC)
The good till canceled order or GTC is an order to buy or sell securities and remains valid and executable until it is canceled.
Go short
To go short refers to the selling of securities, futures, options and stock.
Guts
It is a strategy that uses in the money calls and puts.
Hammering the market
This is a scenario where there is pressured selling of stocks in the markets by speculators who feel that prices are generally overvalued.
Hedge
To protect the value of a portfolio of securities by taking positions in options or futures.
High (hi)
This refers to the highest transacted price paid for a stock over a period of time.
High and low
This refers to the highest and lowest prices of a security in a single trading session.
High flyer
A high flyer refers to a high priced stock of a speculative nature which moves drastically upwards and downwards with a short duration of time.
High-tech stock
A high-tech stock refers to a company that is in the technology industry.
Historical volatility
This is a measure of how much fluctuation there is in the price of a particular stock over a duration of time.
Holder
A trader who buys an option.
Illiquid market
A market with very little trading volume.
Immediate or cancel order (IOC)
This refers to a type of order which must be filled instantly in part or whole. If not, it has to be canceled.
Index
An index consists of a group of stocks. The performance of the group of stock determines the performance of the index.
Index options
Index options are call or put options on the indexes as the underlying security. The price movements of the index affect the prices of the index options.
Interest rate
This refers to the cost of borrowing money.
Interest rate driven
This refers to a scenario in which interest rate declines cause bond prices to rise.
Intermarket analysis
This refers to the study of asset prices in different markets in order to understand the relationship between them.
Intermarket spread
This refers to a spread that is derived from the long and short positions on a financial instrument in 2 different markets.
In-the-money
This is a scenario where the price of the underlying security is above the strike price of the call option or below the strike price of the put option. When that happens, the options are said to be “in-the-money”.
Intrinsic value
This refers to the difference between the strike price of the option and the price of the underlying security when an option is in-the-money. The intrinsic value of a call option is equal to the price of the underlying security less the strike price. The intrinsic value of a put option is equal to the strike price of the put option – price of underlying security.
Inverse relationship
An inverse relationship depicts a relationship that shows that when one variable moves in one direction, another variable moves in an opposing direction. When the stock markets increase, the bond markets typically decrease. Hence, the stock markets and the bond markets is said to have an inverse relationship.
investment
This refers to the acquisition of an asset with the prediction that the asset’s future value will be greater than the acquisition price.
iron butterfly
This refers to a combination of long straddle and short strangle or short straddle and long strangle. The options involved are based on the same underlying security and have the same expiration date.
leg
This refers to one side on an options trade. For example, when a trader executes a long straddle, he could first buy a call. After that, he buys a put. Instead of executing the trade at once, he executes part of the trade, or 1 side of the trade. The process of executing 1 side of the trade first is known as “legging”. This is sometimes done to get favorable prices for the trade.
limit move (limit up or limit down)
A limit move is a daily price limit set on an exchange- traded commodities contract which prevents the contract from making significant price move upwards or downwards. When the limit move occurs, trading around the contract will cease.
limit order
A limit order is an order to buy at a specific price or lower. It also refers to an order to sell at a specific price or higher. This ensures that the trader gets the best price for his trades.
liquidity
Liquidity refers to the ease of converting an asset into cash. When a trading asset has many sellers and buyers( a high volume scenario) in a market, that asset is said to be liquid as it can easily be converted to cash.
locked market
When prices reach the daily trading limit, trading ceases. This is known as a locked market.
long
This refers to the buying of a financial instrument such as options, stocks or futures.
Long-term Equity Anticipation Securities(LEAPS)
These refer to options that have expiration dates of up to 3 years into the future. These options are either index options or stock options.
low(lo)
This refers to the lowest price paid for a stock over a duration of time.
low-risk investing
This refers to a hedged trade to protect against potential losses.
Margin
This is the amount of money deposited into a trading account which could be used as collateral to purchase market securities in amounts exceeding the amount of money deposited. As the prices of the market securities fluctuate, the margin required will also be re-calculated. The margin is often a fraction of the value of the market securities held in the account.
Margin account
This is a trading account in which the broker finances the trades of the trader by lending the trader a certain percentage of the value of the purchase trades.
margin call
A margin call refers to the need for a trader to deposit additional sums of money into the margin account to maintain the portfolio of trades. This usually happens when the price of the market securities fall below a certain threshold set by the broker.
margin requirement
This refers to the amount of money which the trader must deposit with the broker for the purposes of maintaining a naked option trade. For writers of uncovered or naked options, there is an unlimited potential risk.
market
This refers to the trading(buying and selling) of a certain asset in an organised exchange.
market-if-touched order (MIT)
An order that becomes a market order conditional on a specific price being reached.
market maker
A trading firm or individual that is willing to facilitate two sided trades in a certain market, thereby earning a spread which is the difference between the bid and ask prices.
market on close order
This is an order that is executed when the market is about to close.
market on open order
This is an order that is executed when the market opens for trading.
market order
A market order is an order to buy or sell a security at the best prevailing market price.
market price
This refers to the current price at which a security is traded at.
market value
The market value is the price at which an asset is traded in a market at an instance in time.
mark to market
This refers to an adjustment of the price of an asset to fully reflect the gains or losses that have occurred. This normally applies to commodities trading where additional money must be deposited into the trading account when there is a lack of margin. A lack of margin is preceded by losses caused by mark to market adjustments.
mid-cap stocks
Mid-cap stocks are companies with market capitalisations of between two to ten billion.
momentum
This refers to the continuation of a price trend in a certain direction within a certain duration of time.
momentum indicator
A momentum indicator is a technical indicator to gauge the strength of a price trend. This is validated with price and volume of the traded asset.
momentum trading
This refers to the trading of an asset within a trend, in the hopes of profiting from the trade.
Moving average
The moving average is a technical indicator calculated by finding the mean of a set of data. This helps a trader determine buy or sell signals in the market.
Mutual fund ( managed fund)
A mutual fund is an organised and open-ended investment entity that manages a pool of funds contributed by investors. These funds are invested in a variety of financial instruments such as stocks and bonds.
naked option
This refers to the writing of an option without any hedge in the underlying security.
narrowing the spread
When a security is actively traded, it becomes very liquid. As a result, the bid and ask spread is narrowed to reflect that. Market makers require a wide bid and ask spread to compensate them for the risk of creating markets for illiquid assets.
Nasdaq
The Nasdaq is a a highly functional computerised system that provides continuous quotes on NYSE securities and over OTC securities. NASDAQ stands for National Association of Securities Dealers.
near-the-money
This refers to an option with a strike price that is very close to the market price of the underlying security.
net change
This refers to the change in price of a financial instrument. An example of this is the difference in price of a financial instrument from today’s closing price compared to yesterday’s closing price.
NYSE ( New York Stock Exchange)
The NYSE is a stock exchange in the USA. In fact, it is the largest stock exchange in the United States.
note
This refers to a debt security with a short-term time frame. Typically, it has a maturity of less than 5 years.
OEX
This refers to the Standard & Poor’s 100 stock index.
offer
This refers to the lowest price at which a seller is willing to sell an asset.
offer down
This refers to the act of reducing the offer price to entice more buyers to be interested in the asset which is for sale.
off-floor trader
This refers to a trader that does not trade on the floor of the exchange.
offset
This refers to the liquidation of a position. A long purchase is offset with a sale while a short position is offset with a purchase.
on-the-money (at-the-money)
This refers to an option in which the strike price is very close or equal to the price of the underlying tradable security.
opening
This refers to the starting period of a trading session.
opening call
The price for each futures contract is determined by outcry in the opening period of a futures market.
open order
This refers to an order to sell or buy a security at a determined price and it is valid till cancelled or executed.
opportunity cost
This refers to the sacrificing of one option over another and by doing so, forgoes the benefits related to that forgone option.
option
An option is a contract that gives the holder the right but not the obligation to buy or sell the underlying security at a certain price within a specified time frame.
option holder
The option holder is the buyer of an option.
option premium
The option premium is the price that a buyer must pay for an option to the option seller.
option writer
An option writer is one who sells a call or put option.
order
An order is a customer’s set of instructions to a broker to buy or sell securities.
order flow
Order flow is the total number of buy or sell orders sent to a specialist or market maker on an exchange.
out-of-the-money (OTM)
This refers to an option that has no intrinsic value by virtue of the the price of the underlying security in relation to the strike price.
overvalued
This term describes that the value of a security that is above its fair value.
paper trading
paper trading refers to the simulated trading of investment securities without involving real money. Traders who paper trade want to gain experience or may want to experiment with a certain strategy.
par
This refers to the nominated value of the security that has to be returned to the holder of the security when it reached maturity.
perceived risk
This refers to the perceptions or outlook on risk related to a certain course of action taken.
points
A point is descriptive of a certain value to a security.
point spread
This refers to the price movement of a security in an upward or downward fashion, from one full point level to another.
position
This refers to the open contracts of the trader.
position delta
This refers to the summation of all the negative and positive deltas in a hedged position.
position limit
Position limit refers to the maximum exposure allowed to a single security. This is determined by the exchanges.
premium
This refers to the maximum amount of cash outlay that an option buyer pays to an option seller.
price/earnings(P/E) ratio
This is a value that is determined by taking the price per share of a stock and dividing it by the earnings per share. This value is an indicator on whether a stock is undervalued or overvalued.
principal
This refers to the amount borrowed by the issue of bonds.
private company
A private company issues stock that is not publicly traded in a stock exchange.
public company
A public company refers to a company whose stock trades publicly in an exchange.
put option
The holder of the put option has the right but not the obligation to sell a specified amount of underlying security at a certain price within a certain time frame.
quickie
This refers to a fill-or-kill order.
quote
A quote refers to the price being offered or bid by a market participant on a traded security.
quoted price
The quoted price refers to the most recent transaction price which took place on a traded security.
ratio backspread
The ratio backspread is a delta neutral spread where an unequal number of option contracts are bought and sold.
ratio call spread
A ratio call spread is an unlimited risk and limited profit strategy that involves the selling of 2 higher-strike call contracts and the buying of a call contract with a lower strike price. This is a bearish to stable option strategy.
ratio put spread
The ratio put spread is an unlimited risk and limited profit option strategy executed to capitalise on bullish and stagnating or stable conditions in the market. It involves the selling of 2 lower-strike puts and the buying of 1 higher-strike put.
real-time
This refers to live data on a security’s price. It reflects the price changes in a particular security, received from a quote service.
relative strength
This refers to a stock’s price movements as compared to the price movements of a broad market index or a comparable sector.
Relative strength index
The relative strength index is a technical indicator that is used to identify oversold and overbought conditions. High readings indicate strength while low readings indicate weakness.
resistance
Resistance refers to a price level that a security’s price has difficulty breaking above.
return
This refers to the profits earned on an investment.
reversal stop
A reversal stop reverses the current position from long to short or from short to long when the stop is reached.
rich
The term rich refers to a price level that is higher than expected. For example, tech stocks were considered rich just prior to the dot com bubble.
risk
This refers to the potential loss in an investment
risk graph
The risk graph is the risk profile. This tells a trader the potential profits and losses that could occur in an investment.
risk manager
A risk manager minimizes the risk of a portfolio by hedging against it.
risk profile
A risk profile is a graphic representation of the potential risk and reward of a trade.
risk-to-reward ratio
This refers to a mathematical measure of the maximum potential risk versus the maximum potential profits that a trade can earn.
round turn
This refers to the offsetting of a long or short position by closing the trade.
running stops
This refers to a situation where traders intentionally push asset prices up to prices where buy stop orders are triggered, causing share prices to move upwards. These buy stop orders are usually created by short sellers.
seasonal market
This refers to a market where there are periodic rises and declines in activity, normally affected by changes in weather or climate.
seat
This refers to a membership in a futures or stock exchange.
SEC ( Securities and Exchange Commission)
An organisation created to protect investors and to regulate financial markets.
security
This refers to a traded asset.
series
This term refers to option contracts of the same class which have the same underlying security, same expiration date and exercise price.
shares
This refers to certificates officially certifying ownership in a company.
short
This refers to the selling of a security without ownership.
short premium
The term “short premium” refers to the expectation that movements in the underlying security will cause the premium in the of the option to decrease.
short selling
This refers to the selling of securities not already owned by the trader.
small-cap stocks
Small-cap stocks are stocks which have a lower market capitalization that mid-cap stocks and large-cap stocks.
smoothing
This refers to the removing of extraneous data so as to identify a trend correctly.
specialist
This refers to a trader on the floor of the exchange, that fills orders on a particular stock out of his own account.
speculator
This refers to a trader who makes directional bets on a security so as to profit.
spike
This refers to a sharp and sudden price rise in a security.
spread
This refers to the difference between the bid and the ask prices of a security. It could also refer to a trading strategy that aims to minimise risk by simultaneous buying and selling of option or futures contracts.
S&P (Standard & Poor’s Corporation)