— I —
ILO: Int’l Labour Organisation. A UN organisation to promote employment, improve labour conditions & living standards. Very socialist-oriented & probably creates more problems than it solves.
IMF: International Monetary Fund. See World Bank.
In-the-Money: Phrase used to describe any option in which there is intrinsic value. See also Intrinsic Value.
Intervention: see Central Bank.
Intrinsic Value: For call options: The amount the market price of the underlying security is above the option’s strike price. Eg, an IBM call option with a strike price of 100 with IBM stock at 110, has an intrinsic value of 10 & is “in-the-money.” If IBM were at 95, the call option would have no intrinsic value & would be “out-of-the-money.” If IBM were at 100, there would still be no intrinsic value, but the option would be “at-the-money.” For put options: The amount the market price of the underlying security is below the option’s strike price. Eg, a Xerox put with a strike price of 35 with Xerox at 30, has an intrinsic value of 5. If Xerox were at 35 or higher, the put option would have no intrinsic value. See also Premium, Strike Price & Time Value.
— L —
Leverage: In the financial sense, making a given amount of money do more work than is normal for its “size,” in exactly the same way a properly applied lever can lift a very heavy weight. Getting “more bang for your buck.” The more leverage used, the more speculative is the investment. Buying stock on 50% margin is using more leverage than paying in full for the stock. Buying stock options is more leveraged than buying stock on margin. And then there’s futures... welcome to hyperspace.
LIFFE: London International Financial Futures Exchange on which the FTSE-100, Italian & German bonds, long Gilts, Euro Swiss Franc & Eurodollars are traded, amongst others.
Line & Bar: Charts in which the prices of the security are posted to show the highest & lowest price of the time period (day, week, etc.) joined as a vertical line. The closing price is shown as a small horizontal bar extending to the right from the vertical bar. Many times the opening price will also be included & if so, is shown as a small horizontal bar extending to the left from the vertical bar. Volume is often included as a subgraph just below the prices. This is the most popular & flexible type of price chart. See also Point & Figure.
Long: Having bought & not yet sold. Eg, “I’m long 2000 shares of Gevaert.” Verb form is used to indicate the action of purchasing. Eg, “Go long Woodside Petroleum above 8.”
Long Bond: A bond maturing in more than 10 yrs. See also Bond.
Long-term: A subjective term indicating the longest time period used in terms of investments. At a minimum, it applies to a timeframe of 1 year, but usually at least 2 years or more. Wags define a long-term investment as a short-term investment that is showing a loss. See also Medium-term & Short-term.
— M —
Maastricht: Treaty on European Union, ratified Nov 1993, at Maastricht, Netherlands, official birth of EU. Not all individual EU members have ratified all provisions. It will transform Europe without citizen understanding or consent.
MATIF: Marche A Terme International De France exchange on which CAC-40, Italian bonds, Matif Pibor & O.A.T. govt bonds are traded, amongst others.
Margin: 1) A loan from a broker to buy stock, hence buying stock “on margin.” Loan is usually up to 50% of the price of the stock purchased; 2) Good-faith deposit on a futures contract.
Margin Call: A broker’s wake-up call that something is very wrong. More academically, a notice for additional funds to meet initial margin requirements for a security purchase or shortsale. It is usually a sign of one or more of the following: 1) account is undercapitalised (very common in futures trading); 2) not using stop-losses to limit losses on positions that aren’t doing what you expected; 3) buying too much stock on margin or in futures, trading too many contracts.
Market order: An order filled as soon as possible & at the best obtainable price at that time. It has the highest priority & will be filled before any other type of order. There is no guarantee at what price you will be filled, just that you will be filled. Eg, “Buy 1000 shares of Lonrho, at the market.”
Medium-term: A timeframe between short-term & long-term. Sometimes referred to as intermediate term. In stocks, usually refers to a 6-12 month period. In bonds, 3-10-year period. See also Short-term & Long-term.
Merc: See Chicago Mercantile Exchange.
MIT order: Market-If-Touched. Used mainly in futures markets. A MIT order becomes a market order when the specificed price is reached. An MIT order to buy must be placed at a lower price than the market is at when the order is placed. An MIT order to sell must be placed at a higher price than the market is at when the order is placed.
MOC order: A Market-On-Close order is a market order that is filled at the end of a session. Usually the last 30 seconds of trading in equities or last 2 minutes in futures. It does not mean you will be filled at the exact closing price of the day. The “closing” is a range of prices, any of which you might be filled at.
MOO order: A Market-On-Open order is a market order that is filled at the beginning of a trading session. (In futures, this is usually the 1st 2 minutes of trading). It does not mean you will be filled at the “open” price listed in the next day’s newspaper. The “opening” consists of a range of prices, any of which you might be filled at.
Moving Average: Abbreviation: mvg. Average price of a security/index/futures contract/bond over a fixed period of time. Any aspect of price can be used, but the most popular is the closing price. Eg, a 39-week moving average is the sum of the last 39 weeks’ closing prices divided by 39. Each week the oldest price is dropped & the current price added before the average is recalculated. It is usually represented by a line on a chart with each plot on the line being one 39-week average figure. Moving averages are used to smooth out the fluctuations in price action so the underlying trend can more clearly be seen. Some hold a stock if it remains above its 50-day moving average. This “smoothing out” comes at a price. It can obliterate the fine details & clues markets leave & which experienced technicians can use to their advantage. Solution: use the moving average, but only as 1 tool among many.
Multiple: See Price-Earnings Ratio.
— N —
NAFTA: North American Free Trade Agreement. Effective Jan. 1, 1994, it seeks to establish tariff-free trade & remove most cross-border investment barriers among Canada, US & Mexico by 2005. Contains provisions to add more members. Its benefits are debateable.
NATO: Military alliance of West European nations, Canada & US, created in 1949, to serve as Cold War deterrent to threat from USSR/Warsaw Pact nations. One of the most effective military alliances ever created, it’s now groping to redefine its mission. Its effectiveness will be neutralised if NATO becomes the military arm of the socialist, bureaucratic UN.
New York Mercantile Exchange: Abbreviation: NYMEX. US futures exchange on which the Oil Complex (Crude Oil, Heating Oil, etc), platinum, palladium & CRB Index are traded among others.
New York Stock Exchange: Abbreviation: NYSE. The oldest, largest & most well-known stock exchange in the US. Generally, stocks listed on the NYSE are larger companies. Sometimes referred to as the Big Board.
Not-Held: 1) A stipulation by a broker that s/he is not held responsible if an order is not executed, or not executed at the desired price. The order is accepted solely on a “best efforts” basis with no guarantees whatsoever; 2) A qualifier that allows a floor broker to use their discretion with respect to the time & price of an order’s execution.
NYMEX: See New York Mercantile Exchange.
— O —
OCO order: A One-Cancels-the-Other order is an order with 2 parts. Eg, “Sell 5 June Gold at 380-stop OCO 382-MIT.” Assuming a current price of 381, if June Gold declines to 380 before it advances to 382, you will sell 5 contracts at 380-stop. The other 1/2 of the order, selling 5 at 382 will automatically be cancelled. Should June Gold advance to 382 before it declines to 380, you will sell 5 contracts at 382-MIT. The other 1/2 of the order, selling 5 at 380-stop will automatically be cancelled.
OECD: Organisation for Economic Cooperation & Development. Paris-based organisation of 25 of world’s leading industrial nations, pledged to promote economic growth, aid developing nations, & expand world trade.
Offer: See Ask.
Offset: Selling of the same option or futures contract originally purchased or buying of the same option or futures contract originally sold so that one is flat.
OPEC: Organisation of Petroleum Exporting Countries. Group of oil-producing nations which attempts to set world oil prices by controlling production. Powerful in the 1960s & 70s, but has lost clout due to internal squabbling & shoddy discipline.
Open order: An order that doesn’t expire at the end of each trading session. An open order will remain active until the order is executed or cancelled/changed. (Some brokerages limit the time they’ll keep an open order, eg, 30 days. If so, you’ll have to place the open order again at the end of the time limit. Be sure to record when an open order “expires”).
Open profits: Any gain existing in a position which hasn’t been liquidated/closed. Also called “paper profits.”
Open-End (Mutual) Fund: A management investment company in which new shares are issued according to supply & demand of investors. Not listed on stock exchanges. Biggest drawback is inability to place stop-loss orders to automatically exit if price drops below critical areas of support. See also Closed-End (Mutual) Fund.
Open Interest: Total number of options or futures contracts that have not been liquidated. An open interest of 1 represents both the buyer & seller of a particular option or futures contract.
Option: See Call (Option) & Put (Option).
Out-of-the-Money: Phrase used to describe any option with no intrinsic value. See also Intrinsic Value.
Overbought: Term used to describe a security that has advanced appreciably & in which the probability of a corrective decline is high. Many technical oscillators, such as RSI & Stochastics, are used to try to determine at what point an overbought condition exists. The stronger the uptrend, however, the more likely an oscillator will give the technician a false signal.
Oversold: Term used to describe a security that has declined appreciably & in which the probability of a corrective rally is high. Many technical oscillators, such as RSI & Stochastics, are used to try to determine at what point an oversold condition exists. The stronger the downtrend, however, the more likely an oscillator will give the technician a false signal.
— P —
Paper profits: See Open profits.
P/E: See Price-Earnings Ratio.
Penny Stock: A relatively low-priced, highly speculative security. Many brokers define any stock under US$5 a “penny stock.”
Point & Figure (P&F): Charts in which prices are posted without regard to time or volume. Usually only closing prices are used. X’s are used for advancing prices & O’s for declining prices. The 2 parameters used for plotting are box size & reversal amount. The box size refers to the minimum increase in price needed to add an X to the top of a column of X’s, & the minimum decrease in price needed to add an O to the bottom of a column of O’s. Eg, if the value of one box was 5 points & the last plot in a column of X’s was 70, a move to 73 would not be plotted. It’d take a move to 75 before another X would be added to the column of X’s.
Reversal amount refers to the change in price, up or down, needed to create a new column. Using a standard 3-box reversal in the example above, prices would have to decline to 55 before the chart would begin a column of O’s. P&F charts make support & resistance levels easy to see. They also save space. Often years of price action can be shown in a small area on a single page rather than several pages as with line & bar charts. The main drawback is the elimination of smaller price moves along with the fine details & clues included with them.
Ponzi Scheme: Investment swindle in which high profits are promised & early investors are paid off from funds raised from later ones. Named after Italian speculator Charles Ponzi, who organised such a scheme in 1919-1920. Excellent modern-day example is US Social Security system.
Position: Noun: The number of shares or units owned in a particular security if long, the number of shares or units owed, if short. Eg, “My position in Tiger Oats is 2000 shares.” Verb: To buy or sell a particular security. Eg, “Try to position yourself in Sandoz between 1400 & 1450.”
Preferred Stock: Part of the stock of a corporation that has priority over common stock in the distribution of dividends. In the event of a bankruptcy, preferred stock holders are ahead of common stock holders with regard to the distribution of assets.
Premium: The price of an option consisting of the sum of its time value & intrinsic value.
Price-Earnings Ratio: The quotient obtained by dividing a stock’s current market price by the current yearly earnings per common share. Also called “multiple.” Eg, “Intel is trading at a multiple of 26” or “Intel has a P/E of 26.”
Price order: An order that states the price you want to buy/sell at. There’s no guarantee the order will be filled, but if it is, it will be at the stated price or better (more favourable price). Eg, “Buy 5000 shares of Bic at 600.”
Profit-protecting stop order: A stop order placed above your entry price in a long position to “protect” some of the open profit. If short, the stop order is placed below your entry price.
PT: Permanent Traveler, Partime Taxpayer, etc. A semi-nomadic to nomadic lifestyle & philosophy in which individuals take full advantage of all legal options available to avoid Big Brother. Eg, frequent travel to different countries (normally spending about 3-6 months in each) means a person is not subject to income taxes & many other regulatory requirements of full-time residents. PT’s often have business, banking, investing, residency & citizenship each in different nations to minimise taxes & maximise freedom & liberty.
Put (Option): A type of option. A put option gives the buyer the right but not the obligation to sell a stated number of shares of a security at a stated price on or before a specified date. (Also used for bonds & futures contracts). Eg, a Dec 85 Eastman Kodak put option gives the owner the right to sell 100 shares of EK on or before the December expiration date of the option (usually the 3rd Friday of the month) at 85 regardless of the actual price of EK at the time. The owner can sell the option at any time before the expiration date. Eg, if EK is trading at 80 in mid-November, the owner could sell the put option & collect the current premium. He would get $500 for the option’s intrinsic value (strike price of 85 minus current market price of 80 = 5) & additional premium for the remaining time value of the option. On US exchanges each option represents 100 shares of the underlying stock. See also Call (Option).
Pyramiding: Adding to your position in a particular security, often using open profits from an earlier purchase(s). Eg, “I bought Coca-Cola at 30 & bought more at 40.”
— Q —
Quote: The current price. To “get a quote” is to get the current price.
— R —
Record Date: Date on which a shareholder must own shares in order to receive the next dividend. Currently in the US, a stock goes “ex-dividend” 2 days before the record date. See also Ex-Dividend Date.
Relative Strength Index: Or RSI. A technical indicator developed by Welles Wilder. It functions as an overbought/oversold oscillator. In trending markets it’s often used to identify buying opportunities during corrections in uptrends or selling opportunities during corrections in downtrends. Also used to signal divergences. Works best in non-trending markets.
Resistance: A price level or range of prices at which a security stopped advancing in the past or is anticipated to stop advancing should it rise to that level in the future. Using price charts you can see at what price level(s) a security previously stopped advancing. These are the most likely levels of “resistance” to further price advances if price returns to those levels again. See also Support.
RSI: See Relative Strength Index.
— S —
Sell More: See Add.
Sell-stop: See Stop order.
Semi-numismatic: Coins which have a “collector” value in addition to underlying bullion value. Bullion coins have little numismatic value & numismatic coins have little bullion value.
Settle: To complete a securities transaction between broker & customer.
Short: Having sold & not yet covered/bought back. Eg, “I’m short 500 shares of Texas Instruments.” Verb form indicates the action of selling. Eg, “I’m shorting the S&P 500.” You sell short if you expect the price to fall.
Shorting-Against-The-Box: A short sale. So why the strange expression? Well, the box referred to is a safe-deposit box—yours. If near the end of a tax year you feel a certain stock you own might go down in price & ought to be sold but if you sell you’ll be hit with a big capital gains tax bill you don’t want this year, you can short-against-the-box. You sell short the same number of shares as you hold “in the box.” Thus you lock-in a profit if the price does drop, but you haven’t actually sold your shares. At some later date, when you feel able to take the tax bite or you find it advisable for any reason, you simultaneously sell your shares & cover your short sales.
Short Squeeze: A situation in which traders who have sold short are forced to buy to cover their short positions. The amount of “forced” buying drives prices even higher than they would normally go & creates even more losses for the traders who are short, which in turn creates more buying.
Short-term: A subjective term indicating the shortest time period used in terms of investments. Usually refers to less than 6 months in stocks & 3 years in bonds. But in futures trading, can be less than 1 day. See also Long-term & Medium-term.
Slippage: The difference between the price stated in your order & the price at which you are filled. Slippage can occur in stop orders & MIT orders, but not price or stop-limit orders.
Soft commodities: Cocoa, Coffee, Orange Juice, Rubber, Sugar & Tea.
Spread: Simultaneous purchase & sale of 2 different securities & often future contracts.
Stochastics: A technical indicator that functions as an overbought/oversold oscillator. It consists of 2 lines (%K & %D). Based on the premise that when price is rising, it will tend to close near the high of the day on daily charts (but can be used on charts of any time period from 1-minute & up). For an advance to stop, it must first slow down. Thus a change in the momentum of an advance occurs before price reverses. Stochastics attempts to identify this change in momentum. Also used to signal divergences. Works best in non-trending markets.
Stock Split: Forward split: An increase in the number of shares of a corporation without any change in the shareholder’s equity. Usually done to make a stock more marketable by reducing its price. Eg, if XYZ stock is trading at 100 & does a 2/1 forward split, each shareholder will have twice as many shares with the stock now priced at 50. Reverse split: A decrease in the number of shares of a corporation without any change in the shareholder’s equity. Done to raise the price of a stock, usually to above the level of a “penny stock.”
Stop-Limit order: A particular type of Stop with Limit order (see below) in which the specified price & limit price are identical. It functions like a price order. Eg, “Buy 3 Mar S&P 500s at 780-stop limit.”
Stop-Loss order: A stop order that “protects” you from further loss by liquidation of your position at the market once the specific stop price is hit. Also called “protective stop order” or “protective stop-loss order.”
Stop order: A stop order is an order that becomes a market order once the stated price is reached. A stop order to sell (sell-stop) must be placed at a lower price than the market is at when the order is placed. A stop order to buy (buy-stop) must be placed at a higher price than the market is at when the order is placed. Eg, you place an order to sell 100 shares of Netscape at 50-stop. Once Netscape trades at 50 or lower, your stop order is activated & becomes a market order to be filled immediately at the best available price.
Stopped Out: Having a long position sold or a short position covered by the execution of a stop order.
Stop with Limit order: An order that becomes a market order once the specified “stop” price is hit, but that will not be filled at a worse price than the “limit” price specified. Eg, “Sell 5 March Swiss Francs at 77-stop, 76.98-limit.” That means when 77 is “hit” (reached) it becomes a market order. But in no event will you be filled at a worse price than 76.98. As with the price order, there’s no guarantee you will be filled.
Strike Price: The stated price of an option at which the owner can buy the underlying security in the case of a call option or sell in the case of a put option. Eg, a Jan 110 Citicorp option has a strike price of 110.
Support: A price level or range of prices at which a security stopped declining in the past or is anticipated to stop declining should it drop to that level in the future. Using price charts you can see at what price level(s) a security previously stopped declining. These are the most likely levels of “support” if price returns to those levels again. See also Resistance.
— T —
T-Bill: See Treasury Bill.
T-Bond: See Bond.
Tax & Money Havens: Tax havens are countries or offshore jurisdictions where taxes are minimal or non-existent. They are “islands of financial freedom” or “non-penalty colonies” in a sea of tax Big Brotherism. But some tax havens aren’t politically or financially stable, & not safe places to store money. Money havens, on the other hand (eg, Switzerland), are private, secure & safe sanctuaries to store money, but may not be tax havens. The rarest & most valuable havens are those which are both tax & money havens.
Tax-Loss Selling: Selling of securities that are lower than the original purchase price to establish capital losses, especially to offset any capital gains.
Technical Analysis: One of the two broad categories of market analysis (other is fundamental), which is used to obtain indications of future price movements. It is primarily concerned with charts of price & volume (& open interest in the futures markets). There are many techniques applied to historical price charts, including pattern recognition (eg, Head & Shoulders, symmetrical triangle) moving averages, & oscillators (eg, RSI, Stochastics) amongst others. The underlying assumption in technical analysis is that anything that could affect a security or market is already reflected in the price of that security or market. The ultimate goal of a technician is to let the market via the price chart tell him or her which way price movement is most likely to occur in the future. See also Fundamental Analysis, Line & Bar, & Point & Figure.
Technical Indicator: Any index, average, oscillator, etc., used by a technical analyst that is constructed using price, time, volume or open interest.
Time Decay: Term used to describe the decreasing time value in an option. It is not a straight-line relationship.Time decay increases exponentially as the expiration date is approached. As a rule of thumb, time decay increases rapidly from 30 days before expiration to expiration. Therefore, as a general rule of thumb, to minimise the adverse effects of time decay when buying options, purchase options that have at least 2-3 months left before expiration. And, if long an option, sell it when the 1-month to expiration date is reached. If you still want to be in that market, it’s wiser to buy another option with more time left. If selling (writing) options, try to sell options with 30 days or less left before expiration so time decay works for you. Obviously, the more time left in the option, the more premium you’ll receive when selling, so the above is a guideline. There are other factors, especially the historical volatility of an option compared to current volatility, that also must be factored into any option buying/selling.
Time Value: The part of the price of an option that is due to the time remaining between the current date & the expiration date of the option. See also Intrinsic Value & Time Decay.
Transports: See Dow Jones Transportation Average.
Treasury Bill: Govt promissory note having a maturity of less than 1 year. They’re sold at a discount so that the difference between the face value & purchase price is the interest received.
Treasury Bond: See Bond.
Trend: Basic direction of a market or security: up, down or sideways. However, timeframe must also be included because the long-term trend can be up, while the short-term trend is down & vice versa. It’s the lack of inclusion of time that causes many disagreements about the “trend” of a market or security.
Trendline: A straight line drawn to connect significant high or low prices of a security or index. If the security is advancing the low prices are used to construct the line (uptrendline). If the security is declining, high prices are used to construct the line (downtrendline). The theory is that a violation of the trendline shows a change in trend. Eg, if price has been advancing & then drops below the trendline, it is a sign that a trend change from up to down may be imminent. The weakness in trendlines is the subjectivity of deciding which high or low prices should be used to connect the lines. This is one of many areas at which the art & science of technical analysis meet.
Trilateral Commission: Int’l arm of CFR (see CFR) made up of global power brokers in finance & govt. Brainchild of David Rockefeller, head of CFR. Often called a “secret govt.”
2-Day Close: Abbreviation: 2dc. A stop-loss tactic which instructs liquidation of a position only on 2 consecutive closes below the stated stop price for long positions & above the stated stop price for short positions. An HSL invention.
— U —
UK: United Kingdom (Great Britain & Northern Ireland).
UN: United Nations. Created as successor to League of Nations in 1945, it currently has 184 member nations. Purpose is to maintain int’l peace & security & to achieve cooperation in solving economic, social, cultural & humanitarian problems. In practice, UN’s mandate is so broad & ill-defined that it has simply grown into a bloated, ineffective global bureaucracy badly in need of downsizing and redefinition—or total disbandment. It’s a black hole for tax dollars & an ineffectual cure for most global problems.
Unable: Used to indicate that an order couldn’t be filled/executed. Eg, “Your order in the Bonds was ‘unable’.”
Underlying Security: The security upon which a derivative (option, index, futures contract) or other security is based. Eg, an ASA option is based upon the price of ASA stock. The S&P 500 futures index is based upon the S&P 500 stock index.
UNESCO: UN Educational, Scientific & Cultural Organisation, whose aim is to promote collaboration among nations through education, science & culture.
— V —
Volatility: Term used to describe the size & frequency of price fluctuations of a security, index, etc. See also Beta.
— W —
World Bank: IBRD or Int’l Bank for Reconstruction & Development, a UN agency. Funded by “developed” (rich) nations taxpayers, it provides loans & technical assistance for both govt & private economic projects in “developing” (poor) nations. Political correctness aside, it’s a 3rd world welfare agency. All World Bank member nations are required to be IMF (Int’l Monetary Fund) members. Since World Bank & IMF are UN agencies duplicating most functions, they should merge to cut costs & bureaucracy.
Writing: Selling options. For every option someone buys, there has to be someone who sells an option. The seller is called the “writer” of the option. The seller is “short” the option because s/he’s sold it & doesn’t have it. Same principle as short-selling a stock or futures contract that you don’t presently own.
WTO: World Trade Organisation. Successor organisation to GATT (General Agreement on Tariffs & Trade), it’s an int’l forum designed to reduce world trade barriers. Unlike obsolete GATT, the 124-founding member WTO is not a UN agency & is permanent, not interim.
— Y —
Yield: General term for the percentage return on an investment.