Category Archives: N-T

Naked Short Selling

The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver the borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but “fail to deliver.”

Offer Price

The offer price, or the Bid price is what an investor is willing to pay for an investment. It is only an offer and will not be accepted if the seller is not willing to let go at the offer price.

OHLC (Bar) Chart

“OHLC” stands for “Open, High, Low, Close”, and this is a chart designed to help illustrate the movement of a stock’s price over time (typically a trading day, hour, or minute).

Oligopoly

An oligopoly is characterized by a small number of sellers who dominate an entire market. All of the firms who partake in an oligopoly are considered to be very large in terms of profit, size and client base.

Open Interest

Open Interest is the total number of options or futures contracts that are “open”, meaning currently owned by an investor and not yet expired.

Opportunity Cost

“Opportunity Cost” is what needs to be given up to get something. This is different from an item’s price – it refers to what you give up in order to get something. The opportunity cost for going to school is that you can’t stay home and nap. The opportunity cost of staying home to nap is not getting your diploma!

Option Spreads

Options Spreads are option trading strategies which make use of combinations of buying and selling call and put options of the same or varying strike prices and expiration dates to achieve specific objectives (hedging, arbitrage, etc.).

Options Contract

An Options Contract is a contract which specifies how much of the underlying asset can be bought or sold at a specific price. An option contract to buy the underlying is a call option, and to sell the underlying is a put option. Most stock options contracts represent 100 underlying shares.

Order Types

Market Orders, Limit Orders, Stop Market Orders, Stop Limit Orders and Trailing Stop Orders! Each one is used differently to balance a trading strategy – usually so you can place your orders and wait for prices to match your conditions

OTC (Over The Counter) Stocks

There are also thousands of companies that want to sell shares to the general public, but are not able to sell on exchanges like NASDAQ, or the NYSE. Therefore, other exchanges exist to allow these companies to sell public shares. Stock traded on these “Over The Counter” exchanges are known as OTC stocks.

Penny Stocks

This term is generally used to refer to stocks with a price below $5. The name also comes from the fact that most penny stocks have either started or will end at $0.01 (a penny).

Pink Sheet

Pink Sheets refer to the trading of stocks that are not listed on a major exchange or the OTCBB due to a lack of minimum listing requirements or filing financial statements with the SEC (Securities Exchange Commission)

Poison Pill

A “Poison Pill” is a way to give shareholders more time to evaluate a hostile takeover bid and to give management the opportunity to make better informed business decisions. It was created in the 1980’s, a period rife with hostile takeovers and corporate raids.

Preferred Stock

Preferred stock is a special class of stock issued by a company that pays dividends. Preferred stock is more like a bond than true stock because the main appeal is dividend income. Most preferred stocks are limited in the total profit they can earn.

Price Ceilings

A price ceiling is a government-mandated limit on the price that can be charged for a given product, such as a utility or electricity. The intended purpose of a price ceiling is to protect the consumers from conditions that would make a vital product from being financially unattainable for consumers.

Price Controls

“Price Controls” are artificial limits that are put on prices. If the limit is put in place to prevent prices from getting too high, they are called Ceilings. If they are in place to prevent the price from getting too low, they are called “Floors”.

Price to Earnings Growth (PEG)

Price/Earnings To Growth, is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected future growth. It can be useful when looking at the future earning growth.

Price to Sales (P/S Ratio)

The price-to-sales ratios (Price/Sales or P/S) take the company’s market capitalization (the number of shares multiplied by the share price) and divide it by the company’s total sales over the past 12 months. The lower the ratio, the more attractive the investment.

Put Option

A Put Option gives the holder the right to sell the underlying stock or futures contract at a specified strike price.

Quick Ratio

Quick Ratio is the ratio that measures the ability of a firm to cover its current liabilities with their most liquid current assets. Quick Ratio = (Current Assets – Inventory) / Current Liabilities

Ratio Strategy

A ratio strategy is an option strategy that is created by having X amount of call options at Strike Price 1 and shorting Y amount of call options at Strike Price 2. This strategy is used when the investor thinks the price won’t move much, but they want to get a bigger profit based on a slight movement up or down.

Reading Stock Quotes

A stock quote represents the last price at which a seller and a buyer of a stock agreed on a price to make the trade. Stock quotes also contain information about the volume, high and low prices of the day and year, and more.

REITs

An REITs or Real Estate Investment Trusts own, and often operate, real estate but are publicly traded like stock. Profit is paid as dividend to stock owners.

Reserve Requirement

The Reserve Requirement is how much of all deposits that a bank is required to keep “on hand”, meaning in its vaults, or on deposit at the Federal Reserve Bank (in the United States).

Retained Earnings

Retained Earnings is calculated by adding the net income to (or subtracting it from) the beginning retained earnings and then subtracting the dividends that were paid to shareholders.

Return on Equity

This post describes, Return on Equity (ROE), which is used to measure how much profit a company is able to generate from the money invested by shareholders.

Risk Level

Your “Risk Level” is how much risk you are willing to accept to get a certain level of reward; riskier stocks are both the ones that can lose the most or gain the most over time.

Risk Management

Most traders do not learn about stock trading Risk Management until it is too late, and they experiences losses of varying degrees. Insurance, options, and other tools exist – learn to use them!

Scarcity

Scarcity refers to the fact that resources are finite – people and organizations need to allocate their finite resources between their infinite wants.

Screeners

Screeners are a tool that investors and traders can use to filter ETFs based on user-defined metrics. ETF screeners are offered on many websites and trading platforms, and they allow users to select trading instruments that fit a certain profile set of criteria.

Seasonal Indicators

Many stock analysts have identified market trends related to specific times of the year. The success ratios of these trends are often far stronger than most other indicators.

Sell Short

Short selling is the act of borrowing a security from someone else, usually a broker, selling it and later repurchasing the stock in the hopes that it will be cheaper.

Sharpe Ratio (Beginner)

The Sharpe Ratio is an important tool for evaluating a stock, or a portfolio, based on how risky it is to get a higher return. You can use it to determine how consistent the returns of a stock or portfolio are, so you can determine if the returns are stemming more from wise investing, or “getting lucky”.

Sherman Antitrust Act

US federal legislation of 1890 that prohibited the creation of monopolies by outlawing direct or indirect attempts to interfere with the free and competitive nature of the production and distribution of goods. Amended by the Clayton Act of 1914. Also called Sherman Act.

Short Call

A short call is a term used when you sell a call option for an underlying asset. If you use this type of option, you’re selling someone else the right to buy a stock from you at a certain price in the future. If the stock’s price goes down, you keep the money you made by selling the option. If the stock’s price goes up, you are required to sell the stock at the agreed upon price, taking a loss.

Short Proceeds

The cash received from the short sale of a security. The interest return from investment of the short proceeds is usually divided between the short seller, who gets partial “use of proceeds,” and the securities lender.