STOCK MARKET TERMS

STOCK MARKET TERMS RELATING TO OPTIONS TRADING

The stock market terms listed in this section relate to understanding different types of options, aspects of the options trading process, and conditions affecting options contracts.

Abandon
To abandon an option means allowing it to expire without either exercising or selling the option contract. This is frequently a decision made by a trader when the option is expiring out-of-the-money.

At-the-Money
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if a company's stock is trading at $68, then the company's $68 option is at-the-money.

Call
A call option is an option contract than increases in value in relation to an increase in value of the underlying security on which it is based.

Exercise
To exercise an option means to act on the right granted by the purchase of an option contract to either buy (in the case of a call option), or sell (in the case of a put option) the underlying security.

Expiration
Expiration date in the date on which a specific option contract becomes void.

In-the-Money

An option is described as being in-the-money when the exercise of the contract would result in a profit. This condition occurs when the strike price of a call option is lower than the market price of the underlying security, or when the strike price of a put option is higher than the market price of the underlying security.

Open Interest
The term open interest refers to the number of outstanding option contracts at a given time for a specific class or series of options.

Option Contract

An option contract gives the holder of the option the right (but not the obligation) to purchase, and obligates the writer to sell a specific number of shares of the underlying asset at the listed strike price on or before the expiration date of the contract.

Out-of-the-Money

An option is described as out-of-the-money when the exercise of the contract would result in a loss. This condition occurs when the strike price of a call option is higher than the market price of the underlying security, or when the strike price of a put option is lower than the market price of the underlying security.

Put
A put option is an option contract than increases in value in relation to a decrease in value of the underlying security on which it is based.

Strike Price
The strike price is the predetermined price at which the options contract may be exercised. This means that the underlying asset may be bought or sold at the strike price according to the type of options contract.

Time Value
Time value refers to the value of the amount of time remaining prior to expiration. This time value is one of the factors involved in the calculation of an option’s premium.

Underlying
An underlying in stock market terms means the stock or other security upon which the corresponding option is based.

STOCK MARKET TERMS RELATING TO  TRADING in GENERAL

These stock market terms relate to the practical aspects of trading options or other securities on the stock market. The terms refer to buying, selling, placing orders, trading accounts and different types of trading.

After-hours Trading
After-hours trading refers to buying and selling securities during times outside of market hours. After hours trades are executed using computer systems known as ECNs (electronic communication networks). These ECNs match buyers and sellers in order to facilitate after-hours trading.

Ask (Asked Price)
In trading terms, “Ask,” or “Asked Price” refers to the lowest price at which the holder will sell a security.

Bid
The “Bid,” means the highest price that buyers have indicated they are prepared to pay for a security.

Buying Power
Buying power is a term used to refer to a margin account. This indicates the highest dollar value of marginable securities that the client can purchase or sell short without being required to deposit additional funds.

Close
The ”Close” refers to the price of the final transaction of a security on a trading day.

Day Order
A day order is an order that is open for the duration of the trading day on which it was placed. A day order then expires at the close of trading on the same day if it has not been completed.

Day Trade
A day trade involves buying and then subsequently selling the same security within the same trading day.

Execution
Execution means the completion of the trade of a security.

Fill or Kill (FOK)
The term “Fill or Kill” refers to a type of order. Placing this order requires the immediate execution of the entire order quantity at the specified price. If this execution is not possible, then the order is cancelled or “killed” automatically.

Fundamental Analysis
Fundamental analysis is used to evaluate the intrinsic value of a company and its listed securities. One goal of fundamental analysis is to identify stock which is undervalued, and therefore may present a worthwhile buying opportunity. Fundamental analysis examines a company’s financial and operational data, with particular attention to sales and earnings, management and growth potential.

Good 'Til-Canceled (GTC)
A “Good ‘Til Canceled” order is an order that will not automatically be canceled. Once placed, the order will remain open until it is executed or unless it is canceled by the trading account holder.

Immediate-or-Cancel (IOC)
An “Immediate-or-Cancel” order is used when a trader requires immediate execution of a trade at a specific price. This order ensures that as much of the order as possible will be filled immediately at the stated price, and that any unfilled portion of the order will then be canceled.

Limit Order
A limit order specifies the highest price that a buyer is willing to pay, or alternatively, the lowest price that a seller is willing to accept. If the security becomes available at the price stated on the limit order, or better, it will be executed.

Margin Account
A margin account is an account that provides additional leverage to the account holder. The brokerage firm allows the holder to use borrowed funds to purchase eligible securities. Securities held by the account holder are used as collateral, and therefore, if those securities decline in value, the account holder will be required to either deposit additional funds, or to sell a portion of the securities to maintain the stipulated balance.

Market Order
A market order is an order which specifies immediate execution at the current market price.

Spread
A spread in stock market terms refers to the difference between the bid price and the ask price of a quote.

Stop Limit Order
A stop limit order is similar to a stop-loss order, but is used to trigger the execution of a limit order when a security reaches or passes a designated price.

Stop-Loss
A stop-loss is used to protect a portion of a trader’s investment, and becomes an order to sell if a price drops to a set point below the price at which the trade was entered.

Technical Analysis
Technical analysis involves examining the potential profitability of stocks using stock market data which can be applied to various types of charts. There are many different tools and techniques used in technical analysis, and the study of chart patterns seeks to identify points at which a price may break out or reverse, or the likelihood of continuation of a trend.

GENERAL STOCK MARKET TERMS

The stock market terms listed in this section include terms relating to financial conditions affecting the stock market, and definitions of types of securities and entities involved in the world of stock market trading.

Average
An “Average” is also referred to as an “index.” An average or index takes a group of securities, and applies a mathematic equation to the group in order to indicate its value. The Dow Jones Industrial Average (DJI) is an example of one of the most frequently quoted averages.

Breakout
A breakout is a rise in the price of a security which takes it above a resistance level, commonly the previous high price, or below a support level which is typically the previous low price.  A breakout is often a signal of a continuation of price movement in the direction of the breakout.

Derivative
A derivative is any type of financial instrument the value of which is determined by the value of an underlying asset, such as a stock or bond.

Downgrade
A downgrade indicates a negative change in the ratings given by analysts for a specific security. Downgrades are often based on economic news which threatens the potential profitability of a stock.

Earnings Report
An earnings report, in stock market terms,  is a publically released financial statement which is provided by a listed company. Earnings reports are given quarterly or annually, and indicate the amount of net profit or loss.

Exchange
An exchange is a physical or virtual marketplace where stocks, bonds, options, futures or commodities are traded. The New York Stock Exchange (NYSE) is one of the most important exchanges for the stock market in the USA.

High

The high in trading terms refers to the highest price at which a stock was traded within a specific period of time. In general, the high of a trading day is higher than the closing price, and may be equal to, if not greater than, the opening price.

Initial Public Offering (IPO)
An Initial Public Offering is the first time that shares in a company are offered to the public. In most cases, this IPO is undertaken by a fairly new company and is used to obtain the capital needed for further expansion.

Liquidity
Liquidity describes the level of ease with which an asset can be converted to cash.

Low
The low in stock market terms means the lowest closing price of a stock within a certain time frame.

Market Capitalization
Also called market cap, market capitalization is the total dollar value of all outstanding shares. This value fluctuates to some degree, as it is calculated by multiplying the outstanding shares by the current market price per share.

Pivot
A pivot point is defined as the price level at which the direction of the price movement is expected to either reverse, or to break through, with an accompanying burst of increase in volume.

Range
“Range” in stock market terms describes the difference between the high and the low trading prices during a certain time-frame.

Securities
The term “securities,” describes financial instruments used for investment purposes, including stocks and bonds.

Stock
A stock is the same as a share in the ownership of a company. It corresponds in value with the increasing or decreasing value of the company in which it is held.

Volatility
Volatility is a term used to describe the amount of price movement experienced by a security within a particular time period.

Volume
Volume refers to the total number of shares of a stock traded during a specific period of time.