Well-Timed Strategy
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Glossary
A
ASK PRICE: The price that a security holder is willing to sell a security, at a given time.
ASSET TURNOVER: The ratio of net sales divided by total assets.
ASSET/EQUITY RATIO: The ratio of total assets divided by stockholders'' equity.
AT-THE-MONEY: An option that has a strike price, which is nearest to the underlying futures price.
B
BOOK VALUE: The price at which the buyer purchased the asset for.
BUY-AND-HOLD STRATEGY: A passive investment strategy where investor buys a security and holds on to it for a long term.
BUY-SELL AGREEMENT: An agreement between shareholders or business partners where both parties agree to purchase or sale a stock in.
BETA: A statistically generated number used to measure volatility of a security in comparison to the market and determine the risk of the security compared to market risk, which is always 1.
BID PRICE: The price that a buyer is willing to pay for a security.
BOND: “A certificate of indebtedness issued by a government entity or a corporation, which pays a fixed cash coupon at regular intervals.” The coupon is paid on the face value of the bond, which is usually one thousand dollar.
C
CALL OPTION: An option that gives the right to a buyer to buy the underlying stock or futures contract at the strike price. It is a liability for the writer of the call option to sell the stock or future at the strike price on the option.
COMMISSION: The fee a broker charges for administering a trade, also known as brokerage fees.
COMMON STOCK: A security that represents ownership in the corporation.
CONTRACT: A term that describes the unit of trading for a stock option, future option or future.
CONVERTIBLE BONDS: Bond that can be converted into common stock usually at the maturity of the bond.
CONVERTIBLE PREFERRED STOCK: Preferred stock that can be converted into common stock at a particular time frame.
COUPON: The periodic interest payment made to a bondholder during the life of the bond. (Usually semi-annual)
COUPON RATE: The rate of interest paid on a bond, expressed as a percentage of the bond’s face value.
COVERED CALL WRITING STRATEGY: A strategy that involves writing a call option on securities and own the underlying security. This strategy allows investors to make a gain of the option price.
CURRENCY RISK: The risk an investor is exposed to when investing in international markets. Currency risk is mainly associated with the fluctuations in exchange rates of the various world currencies.
CURRENT RATIO: The ratio of current assets divided by current liabilities.
CALL OPTION: An option that gives the right to buy the underlying security at the strike price. It obligates the writer to sell the stock at the strike price regardless of the market price.
D
DAY TRADING: Establishing and liquidating the same position or positions within one trading day.
DELTA: "Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock."
DISCOUNT It is referring to the selling/buying price of a bond, a price below its par value. Related: Premium
DIVERSIFICATION: "Spreading investment risk among a number of different securities, properties, companies, industries or geographical locations. Diversification does not assure against market loss." However, it minimizes the industry or company related risk.
DIVIDENDS: A distribution of the earnings or part of a company to its shareholders. Dividends are declared by the company based on profits and can change from time to time.
E
EARNINGS PER SHARE (EPS): Total net profits divided by the number of outstanding common shares of in the market.
EXCESS RETURNS: The returns in excess of those required by the shareholder based on the beta of the company.
EXPECTED RETURN: The return expected on a based on the Beta (risky) of the company.
EXPIRATION DATE: The last day upon which an option can be exercised or the future can be traded.
F
FUTURES CONTRACT: A standardized, transferable legal agreement to make or take delivery of a specified amount of a certain commodity, currency, or an asset at the end of specified time frame. The price is determined when the agreement is made. Future contracts are always marked to market.
I
IN-THE-MONEY: When the it is profitable to exercise the option. For example: Stock price is lower than the strike price specified in the put option contract.
L
LEVERAGED PORTFOLIO A portfolio that invests in the risky assets with borrowed funds.
LIMIT ORDER An order given to a broker by a customer where the order is not executed until the price reaches that price limit set by investor. Limits buy sets a price ceiling where as limit sell sets a price floor for the investment price.
M
MARGIN "The amount of money supplied by an investor as a portion of the total funds needed to buy or sell a security, with the balance of required funds loaned to the investor by a broker, dealer, or other lender."
MARKET ORDER: An order for immediate execution place with a broker to buy or sell.
MARKET RISK: The general risk for investing in the any security. Every industry in the market is affected by this risk. Examples: depression, war, inflation etc.
MUTUAL FUNDS: "A mutual fund is a pooling of investor (shareholder) assets, which is professionally managed by an investment company for the benefit of the fund’s shareholders. Each fund has specific investment objectives and associated risk. Mutual funds offer shareholders the advantage of diversification and professional management in exchange for a management fee."
O
OFFER PRICE: The price that an investor is willing to pay for a security or future.
OPTIONS CONTRACT: It is contract where an investor buys a call or put option for Hunderd stocks for the stock option contract. On the other hand, the size of the future contract depends on the future, which is usually same as the size of futures contract.
OUT-OF-THE-MONEY "A put option with a strike price lower than the underlying futures price, or a call option with a strike price higher than the underlying futures price. Related: In-the-Money"
P
PAR VALUE: The amount that the issuer agrees to pay at the date of maturity.
PREFERRED STOCK: A class of stock that shares characteristics of both common stock and debt, the preferred stock holder gets first priority for the dividend and usually the dividend is fixed like the interest on the stocks based on par value.
PUT: An option giving the right to sell the underlying stock or futures contract at the strike price.
R
RETURN "The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period."
S
SELLING SHORT: A traded in which the investor borrows a security and sells it to another investor in market. To close the short position an investor has to cover (purchase the same security from market) and return it to the person they borrowed it from.
STOP-LOSS ORDER: This is a similar order to the limit order where investor sells or covers the long or short position, respectively to stop incurring any loss on their position.
STRIKE PRICE: The price at which an option can be exercise into the underlying futures contract or stock.
SYSTEMATIC RISK "Also called undiversifiable risk or market risk, the minimum level of risk that can be obtained for a portfolio by means of diversification across a large number of randomly chosen assets. Related: Unsystematic risk"
T
TICK "Refers to change in price, either up or down. "
TICKER SYMBOL A ticker symbol is a combination of letters that identifies a stock, bond, option or the future contract.
TREASURY BILL "Treasury bills, often referred to as T-bills, are short-term securities (maturities of less than one year) offered and guaranteed by the federal government. They are issued at a discount and pay their full face value at maturity."
U
UNSYSTEMATIC RISK "Also called the diversifiable risk, residual risk, or company-specific risk, the risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe. Related: Systematic risk"
Y
YIELD RATIO The quotient of two bond yields.
YIELD TO MATURITY "The interest rates that will make the present value of a bond’s remaining cash flows (if held to maturity) equal to the price (plus accrued interest, if any)."
Z
ZERO-COUPON BOND "A zero-coupon bond is a bond sold without interest-paying coupons. Instead of paying periodic interest, the bond is sold at a discount and pays its entire face amount upon maturity, which is usually a one year period or longer."
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