a  shareholder  out  of  a  corporation’sproﬁts.
change The difference between the current price of a security and the price ofthe previous day.
Chicago  Board  of  Trade  (CBOT) Established  in  1886,  the  CBOT  is  the  oldestcommodity  exchange  in  the  United  States  and  primarily  lists  grains,  Treasury-bonds and notes, metals, and indexes.
Chicago Board Options Exchange (CBOE) The largest options exchange in theUnited States.
churning When a registered representative performs excessive trading in a cus-tomer’s account to increase commissions. This is deemed illegal by the SEC andexchange  rules,  since  the  registered  representative  is  not  seeking  improved  re-turns and does not have the customer’s interests in mind.
class of options Option contracts of the same type (call or put), style, and un-derlying security.
clearinghouse An  institution  established  separately  from  the  exchanges  to  en-sure timely payment and delivery of securities.
close The price of the last transaction for a particular security each day.
closing purchase A transaction to eliminate a short position.
closing range The high and low prices recorded during the period designated asthe ofﬁcial close.
closing sale A transaction to eliminate a long position.
commission A service charge assessed by a broker and his/her investment com-pany in return for arranging the purchase or sale of a security.
commodity Any bulk good traded on an exchange (for example, metals, grains,and meats).
Commodity Futures Trading Commission (CFTC) A commission created by theCommodity Futures Trading Commission Act of 1974 to ensure the open and efﬁ-cient operation of the futures markets.
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condor The sale or purchase of two options with consecutive exercise prices, to-gether with the sale or purchase of one option with an immediately lower exerciseprice and one option with an immediately higher exercise price.consolidation pattern A resting period where the price action is in equilibrium.Typically,  price  action  narrows  and  the  volume  drops  off  while  investors  andtraders attempt to get a better sense of the next move, up or down. Visually, a con-solidating market may resemble a triangle or a rectangle.consumer price index (CPI) A measure of price changes in consumer goods andservices. This index is used to identify periods of economic inﬂation or deﬂation.contract A unit of trading for a ﬁnancial or commodity future, or option.contrarian approach Trading against the majority view of the marketplace.correction A sudden decline in the price of a security or securities after a periodof market strength.covered call A short call option position against a long position in an underlyingstock or future.covered put A short put option position against a short position in an underlyingstock or future.cover the short To buy shares of stock to replenish those borrowed from yourbrokerage to place a short sale.credit spread The difference in value between two options, where the value ofthe short position exceeds the value of the long position.cross rate The current exchange rate between differing currencies.cycle The  tendency  for  price  action  to  repeat  uptrends  and  downtrends  in  arelatively predictable fashion over a prescribed period of time. Price cycles aremeasured  low  to  low,  high  to  high,  or  low  to  high.  Various  types  of  measure-ments are possible.daily range The difference between the high and low price of a security in onetrading day.day order An order to buy or sell a security that expires if not ﬁlled by the end ofthe day.day trade The purchase and sale of a position in the same day.day  trading An approach to trading in which the same position is entered andexited within one day.debit  spread The difference in value between two options, where the value ofthe long position exceeds the value of the short position.
deep in-the-money A deep in-the-money call option has a strike price well belowthe  current  price  of  the  underlying  instrument.  A  deep  in-the-money  put  option
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has a strike price well above the current price of the underlying instrument. Bothprimarily consist of intrinsic value.delayed-time quotes Quotes from a data service provider that are delayed up to20 minutes from real-time quotes.delta The amount by which the price (premium) of an option changes for everydollar move in the underlying instrument.delta-hedged An options strategy protecting an option against price changes inthe option’s underlying instrument by balancing the overall position delta to zero.delta  neutral A  position  arranged  by  selecting  a  calculated  ratio  of  short  andlong positions that balance out to an overall position delta of zero.delta position A measure of option or underlying securities delta.derivative Financial instruments based on the market value of an underlyingasset.descending triangle A sideways price pattern with two converging trend lines;the top trend line is declining (resistance), while the bottom trend line is relativelyﬂat (support). This is generally considered a bearish formation, since most of thetime it will break out to the downside.discount  brokers Brokerage  ﬁrms  that  offer  lower  commission  rates  thanfull-service  brokers,  but  do  not  offer  services  such  as  advice,  research,  andportfolio planning.divergence When  two  or  more  averages  or  indexes  fail  to  show  conﬁrmingtrends.dividend A sum of money paid out to a shareholder from the stock’s proﬁts.Dow  Jones  Industrial  Average  (DJIA) Used  as  an  overall  indicator  of  marketperformance, this average is composed of 30 blue-chip stocks that are traded dailyon the New York Stock Exchange.downside The potential for prices to decrease.downside breakeven The lower price at which a trade breaks even.downside  risk The  potential  risk  one  takes  if  prices  decrease  in  directionaltrading.each way The commission made by a broker for the purchase and sale sides of atrade.earnings The net proﬁt for a company after all expenses are deducted.earnings per share (EPS) The net proﬁt for a company allocated on an individ-ual share of stock basis.Elliott wave theory A technical tool based on R. N. Elliott’s work in the 1930s.Elliott believed the charted price activity of a market is the graphical representa-tion  of  mass  psychology.  In  other  words,  the  Elliott  wave  theory  organizes  the
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seemingly random ﬂow of market price action into identiﬁable, predictable pat-terns based on the natural progression of crowd psychology. Elliott wave theoryis based on the premise that markets will move in ratios and patterns that reﬂecthuman nature. The classic Elliott wave pattern consists of two different types ofwaves. The ﬁrst consists of a ﬁve-wave sequence called an impulse wave and thesecond  is  a  three-wave  sequence  called  a  corrective  wave.  Usually,  but  not  al-ways,  the  market  will  move  in  a  corrective  wave  after  a  ﬁve-wave  move  in  theother direction.end of day The close of the trading day when market prices settle.EPS Rank An Investor’s Business Daily list of companies ranked from 0 to 100by the strength of each company’s earnings per share.equilibrium A price level in a sideways market equidistant from the resistanceand support levels.Eurodollars Dollars deposited in foreign banks, with the futures contract reﬂect-ing the rates offered between U.S. banks and foreign banks.European-style option An option contract that can be exercised only on the ex-piration date.exchange The  location  where  an  asset,  option,  future,  stock,  or  derivative  isbought and sold.exchange rate The price at which one country’s currency can be converted intoanother country’s currency.exercise The process of implementing an option’s right to buy or sell the under-lying security.exercise price A price at which the stock or commodity underlying a call or putoption can be purchased (call) or sold (put) over the speciﬁed period. (Same asstrike price.)expiration The date and time after which an option may no longer be exercised.expiration date The last day on which an option may be exercised.explosive Refers to an opportunity that can yield large proﬁts with usually a lim-ited risk in a short amount of time.extrinsic  value The  price  of  an  option  less  its  intrinsic  value.  An  out-of-the-money  option’s  worth  consists  of  nothing  but  extrinsic  or  time  value.  (Same  astime value.)fade Refers to selling a rising price or buying a falling price.failed  rally The inability of a market to sustain an upward move, often associ-ated with a pattern that does not resolve itself in an expected upward direction.The most typical evidence of a failed rally is diminishing volume.fair market value The value of an asset under normal conditions.
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fair value The theoretical value of what an option should be worth, usually gen-erated by an option pricing model such as the Black-Scholes.fast market A stock with so much volume that the order entry systems have dif-ﬁculty processing all of the orders.Federal Reserve System The independent central bank that inﬂuences the sup-ply of money and credit in the United States through its control of bank reserves.Fibonacci series A mathematical series used in the markets that is produced byadding two sequential numbers to arrive at the next number in the series. Startingwith 1, the series is: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, . . . This series repre-sents common naturally occurring phenomena such as the reproduction rate of apair of rabbits and decay relationships, among others.ﬁll An executed order.ﬁll order An order that must be ﬁlled or canceled immediately.ﬁll or kill An order to buy or sell an exact number of units or none at all.ﬁnancial instruments The term used for debt instruments.ﬁxed delta A delta ﬁgure that does not change with the change in the underlyingasset. A futures contract has a ﬁxed delta of plus or minus 100.ﬂags Relatively short-lived, sideways patterns that form after a sharp rise or de-cline in price. They represent a pause in the current move that occurs at the ap-proximate  midpoint.  As  a  result,  these  formations  have  measuring  implications.By deﬁnition, ﬂags are continuation patterns. The ﬂag resembles a rectangle that isslightly trending up or down (similar to a parallelogram). The slope’s direction isoften the opposite of the move prior to formation. These formations typically takeone to three weeks to form, with volume diminishing into the pattern.ﬂoat The number of shares available for public trading in the markets.ﬂoor broker An exchange member who is paid a fee for executing orders.ﬂoor ticket A summary of the information on an order ticket.ﬂoor trader An exchange member who executes orders from the ﬂoor of the ex-change only for his or her own account.front month The ﬁrst expiration month in a series of months.fundamental  analysis An  approach  to  trading  research  that  aims  to  predictfutures and stock price movements based on balance sheets, income statements,past records of earnings, sales, assets, management, products, and services.futures contract Agreement to buy or sell a set number of shares of a commod-ity or ﬁnancial instruments in a designated future month at a price agreed on bythe buyer and seller.gamma The  degree  by  which  the  delta  changes  with  respect  to  changes  in  theunderlying instrument’s price.
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gap When the daily range is completely above or below the previous day’s dailyrange.going ahead Unethical brokerage activity whereby the broker trades ﬁrst for hisor her own account before ﬁlling the customer’s order(s).go long To buy securities, options, or futures.good till canceled order (GTC) An order to buy or sell stock that is good untilthe trader cancels it.go short To sell securities, options, or futures.gross domestic product (GDP) The total value of goods and services producedin a country during one year. It includes consumption, government purchases, in-vestments, and exports minus imports.guts A strangle where the call and the put are in-the-money.hammering the market The intense selling of stocks by speculators who thinkthe market is about to drop because they believe prices are inﬂated.head  and  shoulders  (H&S) The head and shoulders pattern is probably one ofthe best-known, most reliable patterns. The pattern resembles the silhouette of ahead with shrugged shoulders. Each outside peak, or shoulder, is about the sameheight, with the middle peak, or head, higher than both shoulders. All three peaksuse  the  same  support  line  (the  neckline)  and  a  speciﬁc  volume  pattern  is  seenwhen this reversal is valid. The pattern is not complete until there is a close belowthe neckline accompanied by increased volume. These reversals occur at markettops and are bearish. Price projections are possible with valid H&S patterns.hedge Reducing the risk of loss on an outright directional move by taking a posi-tion through options or futures opposite to the current position held in the market.high The highest price that was paid for a stock during a certain period.high and low Refers to the high and low transaction prices that occur each trad-ing day.highﬂier A speculative high-priced stock that moves up and down sharply over ashort period of time.high-tech  stock Stock  of  companies  involved  in  high-technology  industries,such as computers, biotechnology, robotics, electronics, and semiconductors.historical volatility A measurement of how much a contract’s price has ﬂuctu-ated over a period of time in the past; usually calculated by taking a standard devi-ation of price changes over a time period.holder One who purchases an option.HOLDRS Stands  for  Holding  Company  Depositary  Receipts,  which  are  ex-change-traded  funds  that  hold  baskets  of  stocks  from  speciﬁc  industry  groups.HOLDRS trade on the American Stock Exchange and can be bought or sold in lotsof  100  shares.  For  example,  investors  can  buy  or  sell  Biotechnology  HOLDRS
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(BBH), Semiconductor HOLDRS (SMH), or Oil Service HOLDRS (OIH). In all, theAmerican Stock Exchange offers trading in 17 different HOLDRS. Options are alsoavailable on these exchange-trade funds and can be used to proﬁt from trends re-lated to speciﬁc sectors or industry groups.illiquid market A market that has no volume; slippage is subsequently createddue to lack of trading volume.immediate/cancel order An order that must be ﬁlled immediately or canceled.income statement A ﬁnancial statement that shows a company’s revenues andexpenditures over a stated period (usually one quarter or year) resulting in eithera proﬁt or a loss.index A group of stocks that can be traded as one portfolio, such as the S&P 500.Broad-based indexes cover a wide range of industries and companies, and narrow-based indexes cover stocks in one industry or economic sector.index options Call options and put options on indexes of stocks are designed toreﬂect  and  ﬂuctuate  with  market  conditions.  Index  options  allow  investors  totrade in a speciﬁc industry group or market without having to buy all the stocks in-dividually.inﬂation Increases  in  the  general  price  level  of  goods  and  services;  it  is  com-monly reported using the consumer price index as a measure. Inﬂation is one ofthe major risks to investors over the long term as savings may actually buy less inthe future if they do not return an amount in excess of price increases.inside information Material information that has not been disseminated to, or isnot readily available to, the general public.institutional  investor A  person  or  organization  that  trades  securities  in  largeenough  share  quantities  or  dollar  amounts  that  it  qualiﬁes  for  preferential  treat-ment and lower commissions. These entities are assumed to be more knowledge-able investors who are better able to protect themselves from risk.interest  rate The  charge  for  the  privilege  of  borrowing  money,  usually  ex-pressed as an annual percentage rate.interest rate–driven Refers to a point in the business cycle when interest ratesare declining and bond prices are rising.intermarket analysis Observing the price movement of one market for the pur-pose of evaluating a different market.intermarket  spread A  spread  consisting  of  opposing  positions  in  instrumentswith two different markets.in-the-money  (ITM) When  exercising  an  option  would  generate  a  proﬁt  at  thetime. A call option is in-the-money if the strike price is less than the market priceof the underlying security. A put option is in-the-money if the strike price is greaterthan the market price of the underlying security.
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intrinsic  value The  amount  by  which  an  option  is  in-the-money.  Out-of-the-money options have no intrinsic value. Calls = underlying asset less strike price.Puts = strike price less underlying asset.inverse  relationship Two  or  more  markets  that  act  totally  opposite  to  one  an-other, producing negative correlations.investment Any purchase of an asset to increase future income.iron butterﬂy The combination of a long (or short) straddle and a short (or long)strangle. All options must have the same underlying asset and the same expiration.lagging indicator A technical indicator can lead or follow price action. A laggingindicator will move in a bullish or bearish direction after the same bullish or bear-ish  price  move.  The  extent  to  which  an  indicator  lags  is  dependent  upon  the“speed” of the indicator. Lagging indicators include moving averages, envelopes,and  channels.  Many  economic  indicators  are  also  considered  lagging  indicatorsthat follow the overall pace of the economy.leading indicator Technical indicators can precede or lag price action. A leadingindicator will move in a bullish or bearish direction prior to the same bullish orbearish  price  move.  It  is  important  to  note  that  leading  indicators  can  providefalse  signals;  therefore,  price  conﬁrmation  is  important.  Leading  indicators  in-clude volume and momentum, among other oscillators.leg One side of a spread.Level  II  quotes One  of  three  levels  of  the  National  Association  of  SecuritiesDealers Automated Quotations System (Nasdaq). Level I quotes provide basic in-formation  such  as  the  best  bids  and  asks  for  Nasdaq-listed  stocks.  Level  II  dataprovides investors with more detailed quotes and information. Level II users haveaccess  to  current  bids  and  offers  for  all  market  makers  in  a  given  Nasdaq-listedstock. Level III is the most advanced level and is used by market makers to entertheir own quotes to the system.limit move The maximum daily price limit for an exchange-traded contract.limit order An order to buy a stock at or below a speciﬁed price or to sell a stockat or above a speciﬁed price.limit  up,  limit  down Commodity  exchange  restrictions  on  the  maximum  up-ward or downward movements permitted in the price for a commodity during anytrading session day.line chart Line charts “connect the dots” of the closing prices. They offer noth-ing as to the price action in any given time period, but are useful in looking at theoverall price direction of a stock or index.liquidity The ease with which an asset can be converted to cash in the market-place. A large number of buyers and sellers and a high volume of trading activityprovide high liquidity.
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locked  market A  market  where  trading  has  been  halted  because  prices  havereached their daily trading limit.long The term used to describe the buying of a security, contract, commodity, oroption.long-term equity anticipation securities (LEAPS) Long-term stock or index op-tions that are available with expiration dates up to three years in the future.low The lowest price paid for a stock during a certain period.low-risk investing A trade that is hedged for purposes of limiting price loss, asopposed to a directional trade where loss is unlimited.make a market A market maker stands ready to buy or sell a particular securityfor his or her own account to keep the market liquid.margin A deposit contributed by a customer as a percentage of the current mar-ket value of the securities held in a margin account. This amount changes as theprice of the investment changes.margin  account A  customer  account  in  which  a  brokerage  ﬁrm  lends  the  cus-tomer part of the purchase price of a trade.margin call A call from a broker signaling the need for a trader to deposit addi-tional money into a margin account to maintain a trade.margin requirements of options The amount of cash the writer of an uncovered(naked) option is required to deposit and maintain to cover his or her daily posi-tion price changes.marked to market At the end of each business day the open positions carried inan account held at a brokerage ﬁrm are credited or debited funds based on the set-tlement prices of the open positions that day.market Used to refer to the entire stock market, a speciﬁc sector, or a speciﬁcasset, security, or commodity that is traded at an exchange.market-if-touched (MIT) order A price order that automatically becomes a mar-ket order if the price is reached.market maker An independent trader or trading ﬁrm that is prepared to buy andsell shares or contracts in a designated market. Market makers must make a two-sided market (bid and ask) in order to facilitate trading.market  on  close An  order  speciﬁcation  that  requires  the  broker  to  get  thebest price available on the close of trading, usually during the last ﬁve minutesof trading.market on open An order that must be executed during the opening of trading.market order Buying or selling securities at the price given at the time the orderreaches  the  market.  A  market  order  is  to  be  executed  immediately  at  the  bestavailable price, and is the only order that guarantees execution.
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market  price The  most  recent  price  at  which  a  security  transaction  has  takenplace.market value The price at which investors buy or sell a share of common stockor a bond at a given time. Market value is determined by the interaction betweenbuyers and sellers.mark  to  market Refers  to  the  daily  adjustment  of  margin  accounts  to  reﬂectproﬁts and losses. In this way, losses are never allowed to accumulate.mid-cap stocks Usually solidly established medium-growth ﬁrms with less than$100 billion in assets. They provide better growth potential than blue-chip stocks,but do not offer as wide a variety of investment attributes.momentum A  measure  of  the  rate  (velocity)  at  which  a  security  is  rising  orfalling. When a market continues in the same direction for a certain time frame,the market is said to have momentum.momentum indicator A technical indicator utilizing price and volume statisticsfor predicting the strength or weakness of a current market.momentum trading Investing with (or against) the momentum of the market inhopes of proﬁting from it.moving average Probably the best known and most versatile technical indica-tor, this is a mathematical procedure in which the sum of a value plus a selectednumber  of  previous  values  is  divided  by  the  total  number  of  values.  Used  tosmooth or eliminate the ﬂuctuations in data and to assist in determining when tobuy and sell.moving  average  convergence/divergence  (MACD) This popular lagging indica-tor, also known as the “Mack-D,” represents the difference between two movingaverages with differing time periods. One is shorter (commonly 12 days) while theother is longer (commonly 26 days). The shorter one is referred to as the fast linewhile the longer one is termed the slow line. When a stock is in an uptrend, thefast line will cross over the slow line. If a stock is trending down, the fast line willcross under the slow line.mutual  fund An open-end investment company that pools investors’ money toinvest in a variety of stocks, bonds, or other securities.naked option An option written (sold) without an underlying hedge position.naked position A securities position not hedged from market risk.narrowing  the  spread Refers  to  lessening  the  gap  between  the  bid  and  askedprices of a security as a result of bidding and offering.Nasdaq National  Association  of  Securities  Dealers  Automated  Quotations  sys-tem is a computerized system that provides brokers and dealers with the ability totrade approximately 3,300 securities over-the-counter. On average, Nasdaq tradesmore shares than any other exchange.
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near-the-money An option with a strike price close to the current price of theunderlying tradable.
net change The daily change from time frame to time frame—for example, thechange from the close of yesterday to the close of today.
net proﬁt The overall proﬁt of a trade.
New York Stock Exchange (NYSE) The trademarked name of the largest and old-est stock exchange in the United States. The NYSE operates as an auction marketin which orders are brought to the trading ﬂoor for execution.
note A short-term debt security, usually maturing in ﬁve years or less.
OEX This term, pronounced as three separate letters, is Wall Street shorthand forthe Standard & Poor’s 100 index.
offer The lowest price at which a person is willing to sell.
offer down The change of the offer of the market related to a downward pricemovement at that speciﬁc time.
off-ﬂoor trader A trader who does not trade on the actual ﬂoor of an organizedfutures or stock exchange.
offset To  liquidate  a  futures  position  by  entering  an  equivalent  but  oppositetransaction. To offset a long position, a sale is made; to offset a short position, apurchase is made.
on-the-money When the option in question is trading at its exercise price. (Sameas at-the-money.)
open interest The number of total outstanding contracts for a speciﬁc option orfutures contract.
opening The period at the beginning of the trading session at an exchange.
opening call A period at the opening of a futures market in which the price foreach contract is established by outcry.
opening range The range of prices at which the ﬁrst bids and offers are made orﬁrst transactions are completed.
open order An order to buy or sell a security at a speciﬁed price, valid until exe-cuted or canceled.
open  outcry A system of trading where an auction of verbal bids and offers isperformed on the trading ﬂoor. This method is slowly disappearing as exchangesbecome automated.
open trade A current trade that is still held active in a customer’s account.
opportunity costs The theoretical cost of using capital for one investment ver-sus another.
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option A security that represents the right, but not the obligation, to buy or sell aspeciﬁed amount of an underlying security (stock, bond, futures contract, etc.) ata speciﬁed price within a speciﬁed time.option holder The buyer of either a call or a put option.option premium The price of an option.option writer The seller of either a call or a put option.order A ticket or voucher representing long or short securities or options.order ﬂow The volume of orders being bought or sold on the exchanges.oscillators Technical indicators that focus on a variety of chart data, includingprice and volume. Oscillators provide insight on trending markets and are mostclosely associated with determining overbought and oversold conditions. Upperand lower ﬁxed bands are incorporated into an oscillator graph, and these bandswarn  of  extreme  market  conditions.  Oscillators  are  also  useful  in  sideways-trending  markets  since  certain  oscillators  will  lead  the  price  action  and  provideclues about a potential move from the sideways pattern, as well as the direction ofthat  move.  Oscillator  movement  relative  to  a  midpoint  line  can  provide  tradingalerts and signals.out-of-the-money (OTM) When an options exercise price has no intrinsic value.out-of-the-money (OTM) option A call option is out-of-the-money if its exerciseor strike price is above the current market price of the underlying security. A putoption is out-of-the-money if its exercise or strike price is below the current mar-ket price of the underlying security.overbought A  term  used  to  describe  a  security  or  option  in  which  more  andstronger buying has occurred than the fundamentals justify.oversold A technical term used to describe a market or security in which moreand stronger selling has occurred than the fundamentals justify.paper trading Simulating a trade without actually putting up the money