Glossary Stock Market Terms

Act of 1911 and 1915

These are used for developments within a particular district. These bonds are
secured by special assessment taxes set at a fixed dollar amount for the life of the
bond. 191 1 Act Bonds are secured by individual parcels. 1915 Act Bonds are
secured by all properties within the district.

Ad Valorem Tax

A tax based on the value of the property

Advance Refunding

The replacement of debt prior to the original call date via the
issuance of refunding bonds.

Authority (Lease Revenue)

A bond secured by the lease between the authority and another

agency. The lease payments from the "city" to the agency are equal
to the debt service.

Bond Anticipation Notes

Short term securities issued in anticipation of a larger bond issue.

The government may wish to combine several of these smaller
issues into one large issue.
Callable Bond

A bond that can be redeemed by the issuer prior to its maturity.

Usually a premium is paid to the bond owner when the bond is
called.

Certificate of Participation (COP)

Financing whereby an investor purchases a share of the lease

revenues of a program rather than the bond being secured by those
revenues. Usually issued by authorities through which capital is
raised and lease payments are made. The authority usually uses the
proceeds to construct a facility that is leased to the municipality,
releasing the municipality from restrictions on the amount of debt
that they can incur.

Convertible Bond
 A bond, which is convertible into common stock

Securities And Exchange Commission (SEC)

A self-regulatory organization with jurisdiction over certain broker-

dealers. The NASD requires member brokers to register, and
conducts examinations for compliance with net capital requirements
and other regulations. It also conducts market surveillance of the
over-the-counter (OTC) securities market. NASDAQ is a subsidiary of
the NASD, which facilitates the trading of approximately 5,000 of the
most active OTC issues through an electronically connected network.

Over-the-counter (OTC) Stocks

Stocks not traded on a national securities exchange.

OTC Margin Bond

A debt security not traded on the national securities exchange,

which meets certain Regulation T requirements as to size of original
offering, available information, and status of interest payments.

Purpose Credit

Credit used for the purpose of buying, carrying, or trading in

securities.

An independent agency of the U.S. government consisting of five

members appointed by the President that administers
comprehensive legislation governing the securities industry.

Self-Regulatory Organizations (SRO)

Non-government organizations that have statutory responsibility to

regulate their own members such as the NYSE, AACX, and NASD.

Street Name

Securities held in the name of brokers, or banks, or their nominees,

instead of in the customer's name.

Glossary of Options And Futures Related Terms

American-Style Option

An option contract that may be exercised at any time between the

date of purchase and the expiration date. Most exchange-traded
 options in the United States are American-style.

Arbitrage

The simultaneous purchase and sale of identical or equivalent

financial instruments or commodity futures in order to benefit from a
discrepancy in their price relationship.

Assignment

Price moves in a single direction and it usually closes on an extreme

for the day.

A measurement of how much an options price changes for a 1%

change in volatility.

Glossary of Securities Credit Terms

Trend line

Constructed by connecting a series of descending peaks or

ascending troughs. The more times a trend line has been touched
increases the significance of a break in the trend line. It may act as
either support or resistance.

Uncovered Option

This is sometimes referred to as a naked option. It is when a trader

writes an option without owning the underlying security. It is a
position with large risk.
Variable Ratio Write

An options strategy in which a trader writes 2 or more options

contracts for every 100 shares owned. Each option has a different
strike price.

Vertical Spread

An options strategy, which is also, a spread where the options have

different strike prices but the same expiration dates.

Volatility

The measurement of how much an underlying security fluctuates

over a period of time.

Warrant
 A long-term security, which is similar to an option. A stock warrant
usually allows a trader to purchase one share of stock at a fixed
price for a certain period of time.

Write

To write an option is to sell an option. The person who sells the

option is considered to be the writer.

Broker-Dealer

Any person, other than a bank, engaged in the business of buying or

selling securities its own behalf or for others.

Brokers' Loans

Money borrowed by brokers from banks for uses such as financing

specialists' inventories of stock, financing the underwriting of new
issues of corporate and municipal securities, and financing customer
margin accounts.

Day Trade

Also know as a "daylight trade." The purchase and sale or the short
sale and cover of the same security in a margin account on the same
day.

Exempted Security

A security that is exempted from most provisions of the securities

laws, including the margin rules. Such securities include U.S.
government and agency securities, and some municipal securities
designated by the SEC.

Federal Margin Call

A brokers demand upon a customer for cash, or securities needed to

satisfy the required Regulation T down payment for a purchase or
short sale of securities. The word federal is usually omitted from the
phone call. Generally, the broker will call up and say, " margin call ".
Anyone receiving a margin call has to transfer additional funds into
his account to meet the Regulation T minimum margin requirements.

Futures

Contracts that require delivery of a commodity of specified quality

and quantity, at a specified price, on a specified future date.
Commodity futures are traded on a commodity exchange and are
 used for both speculation and hedging.

Margin

With regard to securities, this term refers to a fractional amount of

full value, or the equity outlay (down payment) required for an
investment in securities purchased on credit. Different exchanges,
and investment instruments have different margin requirements.
Additionally, brokerage firms may use the minimum exchange level
for their clients margin accounts or they may have higher levels.
Refer to each specific exchange, broker, and investment vehicle, for
the specific margin requirements.

Margin Stock

Any stock listed on a national securities exchange, any over-the-

counter security approved by the SEC for trading in the national
market system, or appearing on the Boards list of over-the- counter
margin stock and most mutual funds. There are certain requirements
a stock must meet before it can be margined. The most important of
which is that the price must be greater than $5.00

National Association Of Securities Dealers (NASD)

The receipt of an exercise notice by an option writer (seller) that

obligates him to sell (in the case of a call) or purchase (in the case
of a put) the underlying security at the specified strike price.

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. Back Months the futures
or options on futures months being traded that are farthest from
expiration. Bear One who believes prices will move lower.

Call

An Option contract that gives the holder the right to buy the
underlying security at a specified price for a certain, fixed period of
time.

Bear Market

A market in which prices are declining.

Bid

The price that the market participants are willing to pay

Bull

One who expects prices to rise.

Bull Market

A market in which prices are rising.

Buy On Close

To buy at the end of a trading session at a price within the closing

range.

Buy On Opening

To buy at the beginning of a trading session at a price within the

opening range.
Capped-Style Option

A capped option is an option with an established profit cap. The cap

price is equal to the options strike price plus a cap interval for a call
option or the strike price minus a cap interval for a put option. A
capped option is automatically exercised when the underlying
security closes at or above (for a call) or at or below (for a put) the
Options cap price.

Class Of Options

Option contracts of the same type (call or put) and Style (American,
European or Capped) that cover the same underlying security.

Close, The

The period at the end of the trading session, Sometimes used to

refer to the Closing Range (or Range)
The high and low prices, or bids and offers, recorded during the
period designated as the official close

Closing Purchase

A transaction in which the purchaser's intention is to reduce or

eliminate a short position in a given series of options.

Closing Sale

A transaction in which the seller's intention is to reduce or eliminate

a long position in a given series of options
Commission (or Round Turn)

The one-time fee charged by a broker to a customer when a futures

or options on futures position is liquidated either by offset or
delivery.

Contract

Unit of trading for a financial or commodity future. Also, actual

bilateral agreement between the parties (buyer and seller) of a
futures or options on futures transaction as defined by an exchange.

Contract Month

The month in which futures contracts may be satisfied by making or

accepting delivery.

Covered Call Option Writing

A strategy in which one sells call options while the underlying

security or strategy in which one equivalent position in the
underlying security.

Simultaneously owning an equivalent position in sells put options

and simultaneously is short an

Day Order

An order that is placed for execution during only one trading session.
If the order cannot be executed that day, it is automatically
canceled.

Day Trading

Establishing and liquidating the same position or positions within one

day's trading. The day is ended with no established position in the
market.

European-Style Options

Another term for "back months." Delivery The tender and receipt of
an actual commodity or financial instruments or cash in settlement
of a futures contract.

Derivative Security

A financial security whose value is determined in part from the value

and characteristics of another security. The other security is referred
 to as the underlying security.

Equity Options

Options on shares of an individual common stock.

An option contract that may be exercised only during a specified

period of time just prior to its expiration.

Exercise

To implement the right under which the holder of an option is

entitled to buy (in the case of a call) or sell (in the case of a put) the
underlying security.
Exercise settlement amount

The difference between the exercise price of the option and the
exercise settlement value of the index on the day an exercise notice
is tendered, multiplied by the index multiplier.
Expiration Cycle

An expiration cycle relates to the dates on which options on a

particular underlying security expire. A given option will be assigned
to one of three cycles, the January cycle, the February cycle or the
March cycle, LEAPS are not included in this cycle.

Expiration Date

Date on which an option and the right to exercise it, cease to exist.

Expiration Time

The time of day by which all exercise notices must be received on

the expiration date.

Floor Broker

An exchange member who is paid a fee for executing orders for

Clearing Members or their customers. A Floor Broker executing
orders must be licensed by the exchange he is working on.

Floor Trader

An exchange member who generally trades only for his/her own

account or for an account controlled by him/her. Also referred to as
a "local."

Futures
 A term used to designate all contracts covering the purchase and
sale of financial instruments or physical commodities for future
delivery on a commodity futures exchange.

Futures Commission Merchant

A firm or person engaged in soliciting or accepting and handling

orders for the purchase or sale of futures contracts, subject to the
rules of a futures exchange and, who, in connection with solicitation
or acceptance of orders, accepts any money or securities to margin
any resulting trades or contracts. The FCM must be licensed by the
CFTC.

Hedge

A conservative strategy used to limit investment loss by effecting a

transaction, which offsets an existing position.

Holder

The party who purchased an option. Initial Performance Bond the

funds required when a futures position (or a short options on futures
position) is opened. Sometimes referred to as Initial Margin)

In-the-money

A call option is in-the-money if the strike price is less than the

market price of the underlying security. A put option is in-the-money
if the strike price is greater than the market price of the underlying
security.

Intrinsic Value

The amount by which an option is in-the-money.

LEAPS

Long-term Equity Anticipation Securities are long-term stock or index options.

LEAPS are available in two types, calls and puts. They have expiration dates up to
three years in the future.

Limit Order

An order given to a broker by a customer that specifies a price; the

order can be executed only if the market reaches or betters that
price.

Liquidation
 Any transaction that offsets or closes out a long or short futures or
options position.

Long Hedge (futures)

The purchase of a futures contract in anticipation of an actual

purchase in the cash market. Used by processors or exporters as
protection against and advance in the cash price

Long Position

An investor's position where the number of contracts bought

exceeds the number of contracts sold. He is a net holder.

Maintenance Performance Bond (Previously referred to a Maintenance Margin)

A sum, usually smaller than, but part of, the initial performance
bond, which must be maintained on deposit in the customer's
account at all times. If a customer's equity in any futures position
drops to, or under, the maintenance performance bond level, a
"performance bond call" is issued for the amount of money required
to restore the customer's equity in the account to the initial margin
level.

Margin Requirement For Options

The amount an uncovered (naked) option writer is required to

deposit and maintain to cover a position. The margin requirement is
calculated daily.

Mark-To-Market

The daily adjustment of margin accounts to reflect profits and

losses.
Market Order

An order for immediate execution given to a broker to buy or sell at

the best obtainable price.

Maximum Price Fluctuation (futures)

The maximum amount the contract price can change, up or down,

during one trading session, as stipulated by Exchange rules.

Minimum Price Fluctuation

Smallest increment of price movement possible in trading a given

contract, more commonly referred to as a "tick."
Nearby

The nearest active trading month of a futures or options on futures

contract. It is also referred to as "lead month."

Offer

The price at which an investor is willing to sell a futures or options

contract. Offset buying if one has sold, or selling if one has bought, a
futures or options on futures contract.

Open Interest

Total number of futures or options on futures contracts that have not

yet been offset or fulfilled by delivery, An indicator of the depth or
liquidity of a market (the ability to buy or sell at or near a given
price) and of the use of a market for risk- and/or asset-
management.

Open Order

An order to a broker that is good until it is canceled or executed.

Opening Purchase

A transaction in which the purchaser's intention is to create or

increase a long position in a given series of options.

Opening Sale

A transaction in which the seller's intention is to create or increase a

short position in a given series of options.

Open interest

The number of outstanding option contracts in the exchange market

or in a particular class or series.

Out-Of-The-Money

A call option is out-of-the-money if the strike price is greater than

the market price of the underlying security. A put option is out-of-
the-money if the strike price is less than the market price of the
underlying security.

Out-Trades

A situation that results when there is some confusion or error on a

 trade. A difference in pricing, with both traders thinking they were
buying, for example, is a reason why an out-trade may occur.

Performance Bond Call

Previously referred to as Margin Call. A demand for additional funds

because of adverse price movement.

Premium (options)

An options price has two components. They are the intrinsic value
and time value. Premium is often referred to as time value. In the
money call option - option strike 65. Underlying security is 67.
Option price is 3. This is two points of intrinsic value and I point of
premium. An out of the money call where the strike, price is 65 and
the underlying security is at 63 and the price of the option is I- 1/2.
The premium would be I- 1/2. As there is no intrinsic value.

Premium (futures)

The excess of one futures contract price over that of another, or

over the cash market price. Or, The amount agreed upon between
the purchaser and seller for the purchase or sale of a futures option.
Remember that purchasers pay the premium and sellers (writers)
receive the premium.

Put

An option contract that gives the holder the right to sell the
underlying security at a specified price for a fixed period of time.

Rally Reaction

A decline in prices following an advance. The opposite of rally. An

upward movement of prices following a decline; the opposite of a
reaction.

Registered Representative

A person employed by, and soliciting business for, a commission

house or a broker dealer. Many times referred to as a broker.

Round-Turn (futures)

Procedure by which a long or short position is offset by an opposite

transaction or by accepting or making delivery of the actual financial
instrument or physical commodity.
Scalp

To trade for small gains. Scalping normally involves establishing and

liquidating a position quickly, usually within the same day, hour or
even just a few minutes.

Secondary Market

A market that provides for the purchase or sale of previously sold or

bought options through closing transactions. Stock exchanges and
the Over The Counter market are examples of the secondary
market.

Series

All option contracts of the same class that also have the same unit of
trade, expiration date and strike price.

Settlement Price (futures)

A figure determined by the closing range that is used to calculate

gains and losses in futures market accounts. Settlement prices are
used to determine gains, losses, margin calls, and invoice prices for
deliveries.

Short Hedge

Redevelopment Agency (Tax Allocation)

Bonds used to finance the construction of manufacturing or

commercial facilities for a private user. These bonds are arranged
through an Industrial Development Authority. Their safety is related
to the credit worthiness of the corporate guarantor.

Mello Roo's

Bonds used for developments that benefit a particular district

(schools, prisons, etc.) and are secured by special taxes based on
the assessed value of the properties within the district. Tax
assessment is included on the county tax bill.
Moral Obligation Bonds

Bonds sold by the states without voter approval, which are used for
specific purposes. In the event of a shortfall, it is implied that the
state will make up the difference

Par Value
 The face value of a bond, generally $ 1,000.

Premium Bond

A bond that is valued at more than its face amount.

Principal

The amount owed; the face value of a debt.

Bonds secured by all of the property taxes on the increase in

assessed valuation above the base, on properties in the project.

Revenue Anticipation Notes

Securities issued in anticipation of future revenue typically from the

federal or state governments.

Revenue Bonds

Bonds secured by the revenues derived from the earnings of a

particular service provided by the issuer.

Senior

Describes the order of priority of a claim. Instruments, which are

senior to other instruments, receive priority in repaying debt in the
case of a default.

Sinking Fund

The sale of a futures contract in anticipation of a later cash market

sale. Used to eliminate or lessen the possible decline in value of
ownership of an approximately equal amount of the cash financial
instrument or physical commodity.

Short Position

An investor's position where the number of contracts sold exceeds

the number of contracts bought. The person is a net seller.

Stop Order (Stop)

An order to buy or sell at the market when and if a specified price is

reached.

Strike price

The stated price per share for which the underlying security may be
 purchased in the case of a call, or sold in the case of a put, by the
option holder upon exercise of the option contract.

Time value

The portion of the option premium that is attributable to the amount

of time remaining until the expiration of the option contract. Time
value is whatever value the option has in addition to its intrinsic
value. This is often referred to as premium.

Type

Describes either a put or call.

Uncovered call writing

A short call option position in which the writer does not own an
equivalent position in the underlying security represented by his
option contracts.

Uncovered put writing

A short put option position in which the writer does not have a
corresponding short position in & underlying security or has not
deposited, in a cash account, cash or cash equivalents equal to the
exercise value of the put.

Underlying security

The security subject to being purchased or sold upon exercise of the

option contract.

Volatility

The measure of the fluctuation in the market price of the underlying

security. Mathematically, Volatility is the annualized standard
deviation of returns. See the sections in 'Options', which describes
implied and historical volatility.

Writer

A bond with special funds set aside to retire the term bonds of a
revenue issue each year according to a set schedule. Usually takes
effect 15 years from date of issuance. Bonds are retired through
calls, open market purchases, or tenders.

Tax Anticipation Notes (TAN)

 Securities issued in anticipation of future tax collections.

Taxable Equivalent Yield

The taxable equivalent yield is equal to the tax-free yield divided by

the sum of 100 minus the current tax bracket. For example the
taxable equivalent yield of a 6.50% tax free bond for someone in the
32% tax bracket would be: 6.5/(100-32) = 0.0955882 or 9.56%

Yield

A measure of the income generated by a bond. The amount of

interest paid on a bond divided by the price.

Yield to Maturity

The rate of return anticipated on a bond if it is held until the

maturity date.