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Bid, Ask, Bid-Asked
Spread
bid is the price in which the buyer is willing to
pay (what price you can sell your stock for) ask is what the amount the
seller is offering ( what price you can buy the stock for). the
bid-asked spread is the difference between the ask and buy price.
Bonds (Junk) Junk bonds are issued
by the company that is in poor financial condition. Those
bonds have interest rates about 3-4% higher than regular bonds to
compensate buyers for the higher risk taken.
Book Value is the company's assets
minus the liabilities plus liquidation price of any preferred issues.
Buying to Cover after someone
shorts shares of a stock, they repay back the shares they borrowed by
buying the same shares back on the open market.
Call option the right to purchase
stock at a strike price at any time before the predetermined
deadline. After the deadline, the option is expires. The
advantage of a call option is the ability to control a large amount of
shares with just a little bit of money. If the option never makes
the call price though, you lose all of your money paid for the option.
(such as a call option to buy WMT at 50 at $2 a option with a May
deadline. Your cost is 2 dollars for every option you take. So
if you take 10 options and WMT makes it to 55 in May u make $3 a option)
Correction a move down in the DIJA
of more than 10% which can be over a short period of time (a week or
two) or all in one day.
Cyclical Stocks stocks that do
well when the economy is in a recovery and do bad when in a recession.
Dilution of Shares happens when
you
add shares to the shares outstanding for a stock.
Dividend A portion of the net
profits paid directly to the stockholders paid at a fixed amount.
Diversification reducing risk by
investing in many securities and investments. (such as 25% in bonds, 25%
in mutual funds, 50% in stocks)
Dollar Cost Averaging a method of
investing in a particular equity by investing a fixed amount at regular
intervals. (such as monthly buying $1000 worth of MSFT every
month. You buy it at 71, 83, 76, 90. Your dollar cost average is
80)
Dow Jones Industrial Average the
average of 30 bull chip stocks hand picked by the Wall Street Journal
editors. The dow is an indication of the well being of the overall
market.
Earning Per Share Net income
divided by the shares outstanding
Float the number of shares available for
trading by the public that are not held by insiders or large investors.
Growth Stock
stock of a company in
which revenue and earning are growing at a above average rate (more than
about 15% a year)
Index Fund a fund that has a goal
of matching the performance of an index such as the S & P 500
by buying the exact stocks that are in the index.
Initial Public Offering (IPO) a
company's first offering of stock to the public in order to raise money.
Margin Call When the % of equity
verses the debt falls below the broker's min. standards, a call is
issued to either come up with the money to bring the equity back to 50%
or the shares of the portfolio will be sold to bring it up to 50%.
There is usually only a few days to come up with the money. (if you have
1000 dollars and buy 20 shares of CMGI at $100 a share. Thus
borrowing $1000. If your broker min. requirement is 30%, then
you will get a margin call if CMGI drops to 71 1/4. After your margin call
you are either expected to pay $575 or 8 shares of your CMGI will be sold
bringing your total value of your portfolio to 425. Using margin can double
your profits or double your losses. Be careful and is a good habit to
either not use it or borrow 20% or less of your stock's value)
Margin Buying (Buying Stocks on Margin)
Interest on borrowing on margin is far lower than any credit card and
about as cheap as a home mortgage interest rate. If used properly is can
be a great tool. You are allowed to borrow up to 50% of your
stock's current value. You can use that borrowing power to buy more
stock or use the cash for something else. So with $1000 worth of cash
you can buy $2000 worth of stock borrow $500 worth of cash.
Mutual Fund a company that is takes a
the investors money and invest it any number of investments from bonds
to stocks. A fund is required to buy your shares from you when u
sell some of the shares which could be higher or lower than what u pay
for them.
Overbought An equity (or market)
that has gone up in a hurry, making the price too high in which the
stock seems to be overvalued.
Oversold An equity (or market)
that has gone down to which its valuation seems to support buying of the
stock.
P/E Price/Earning Ratio current price of
the shares divided by the EPS (earnings per share)
Secondary Offering
Selling of a
large block of shares issued by companies to raise additional
money. Some of the shares that make up the offering could be from
insiders selling and some may be new shares issues thus increasing the
outstanding shares and possibly diluting the shares.
Shares Outstanding Total number of
shares issued by a corporation.
Short Sale Selling shares of a
stock that you don't own by borrowing the shares in which to sell.
The goal is to buy them buy at a cheaper price for a gain if you think
the stock is going to drop.
Split
To increase or decrease the
shares outstanding requiring stockholder approval. (A 2 for 1
split would double the outstanding shares)
Stop Order Is a
market order to buy or sell a stock at a specified price.
Strike Price The fixed price on a
call or put option in which the option holder can execute the option.
Support Level
is referred either
as index average like the DJIA or an individual stock in which the
buyers start to out number the sellers. Resistance level is the
opposite of support level.
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