Glossary


Glossary List

American Stock Exchange (AMEX) – a private, not-for-profit corporation, located in New York City that handles approximately one-fifth of all securities trades within the United States.

American Style Option – an option contract that can be exercised at any time between the date of purchase and the expiration date. The other type of contract is the European Style, which may be exercised only during a specified period of time just prior to its expiration. Most exchange-traded options are American style.

Arbitrage – the simultaneous purchase and sale of identical financial instruments in order to make a profit where the selling price is higher than the buying price.

Arbitrageur – an individual that takes advantage of momentary disparities in prices between markets, which enables one to lock in profits because the selling price is higher than the buying price.

Ask Price – the current cost to buy a security or option. It is the lowest price the seller will accept at that time.

At-The-Money (ATM) – when an option’s strike price is the same as the price of the underlying stock.

Automatic Exercise – the automatic exercise of an option that is in the money on expiration date.

Bare Cash – a company’s cash plus marketable securities less long-term debt.

Bear – an investor whose sentiment or belief is that a security or the market is falling or is expected to fall.

Bear Call Spread – a strategy in which a trader sells a lower strike call and buys a higher strike call to create a trade with limited profit and limited risk. A fall in the price of the underlying stock increases the value of the spread. This is a net credit (cash inflow) transaction. The maximum loss is the difference between the strike prices less the credit. The maximum gain equals the credit.

Bear Market – the stock market cycle where prices for the overall market fall for an extended period of time, usually caused by a weak economy and subsequent decreased corporate profits. It is generally agreed that a bear market is when the stock market experiences a price decline of twenty percent or more, and lasts at least two months.

Bear Put Spread – a strategy in which a trader sells a lower strike put and buys a higher strike put to create a trade with limited profit and limited risk. A fall in the price of the underlying stock increases the value of the spread. This is a net debit (cash outflow) transaction. The maximum gain is the difference between the strike prices less the debit. The maximum loss is equal to the debit.

Bid Price – the current price you would receive if a stock (or option) were sold. It is the highest price the buyer will pay for that security at the present time.

Black Box – A computerized trading system that provides trading instructions based on secret algorithms and models.

Black Scholes Formula – a pricing model that is used by most options exchanges to price various options. It factors in the current stock price, strike price, time until expiration, current interest rates, and volatility of the underlying security.

Break-even – the price of an underlying security at which an option strategy neither gains nor loses money.

Bull – an investor whose sentiment or belief is that a security or the market is rising or is expected to rise.

Bull Market – the stock market cycle where prices for the overall market rise for an extended period of time usually caused by a strong economy and subsequent increased corporate profits.

Bull Call Spread – a strategy in which a trader buys a lower strike call and sells a higher strike call to create a trade with limited profit and limited risk. A rise in the price of the underlying stock increases the value of the spread. This is a net debit (cash outflow) transaction. The maximum loss is equal to the initial debit. The maximum gain is the difference between the strike prices less the debit.

Bull Put Spread – a strategy in which a trader sells a higher strike put and buys a lower strike put to create a trade with limited profit and limited risk. A rise in the price of the underlying stock increases the value of the spread. This is a net credit (cash inflow) transaction. The maximum loss is the difference between the strike prices less credit. The maximum gain is equal to the credit.

Buy Limit – the maximum price that should ever be paid for a stock, based on its 52 week low (L) and 52 week high (H).

Buy Rank – a formula to rank the relative appeal of stocks on the prospect list. In the formula BL is Buy Limit, CP is current price, H is the 52 week high and L is the 52 week low.

Call Option – a contract that gives the holder the right (but not the obligation) to buy a specific stock at a predetermined price on or before a certain date (called the expiration date).

Chicago Board Options Exchange (CBOE) – the largest options exchange in the United States.

Covered Call – a short call option position against a long position in the underlying stock or index.

Covered Put – a short put option position against a short position in the underlying stock or index.

Delta – change in the price (premium) of an option relative to the price change of the underlying security.

Double Up – a strategy where one executes both a covered call and naked put with the same expiration date.

Earnings – A company’s revenues minus cost of sales, operating expenses, and taxes, over a given period of time.

European Style Option – an option contract that may be exercised only during a specified period of time just prior to its expiration.

Exercise – implementing an option owner’s right to buy or sell the underlying security.

Exercise Price – see strike 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.

Fence – a strategy in which a trader has a long position in a stock or index and buys a put for downside protection which is financed with the selling of a call.

Fundamental Analysis – evaluating a company to determine if it is a good investment risk. Evaluation is based mainly on balance sheet and income statements, past records of earnings, sales, assets, management, products and services.

Gamma – change in the delta of an option with respect to the change in price of its underlying security.

Go Long – to buy securities or options.

Gold $ – chart calculation that indicates when to take action and invest in the stock being watched. It is 10 x number of up days, plus 2 x number of days in the VISIONS View V, plus 30 if currently trading in the V or within 5% of the 50 day moving average. A value of 100 is ideal.

Good ‘Till Canceled Order (GTC) – Sometimes simply called GTC it means an order to buy or sell stock that is good until you cancel it.

Go Short – to sell securities or options.

Holder – one who purchases an option.

Index – an index is a group of stocks, which 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 and put options on indexes of stocks that allow investors to trade in a specific industry group or market without having to buy all the stocks individually.

In-the-Money (ITM) – an option is In-the-Money to the extent it has intrinsic value. (See Intrinsic Value). A call option is said to be In-the-Money when the price of the underlying stock is higher than the strike price of the option. A put option is said to be In-the-Money when the price of the underlying stock is lower than the strike price of the option.

Intrinsic Value – a call option premium is said to have intrinsic value to the extent the stock price exceeds the strike price. A put option premium is said to have intrinsic value to the extent the strike price exceeds the stock price. The total value of the premium is intrinsic value (if any) plus the time value.

Investor – a person who commits money in order to earn a financial return.

LEAPS (Long-term Equity AnticiPation Securities) – long dated options with expiration dates up to three years in the future.

Limit Order – a condition on a transaction to buy at or below a specified price or to sell at or above a specified price.

Long – a long position indicates that a stock, index, or option is owned.

Margin – a loan by a broker to allow an investor to buy more stocks or options than available money (cash) in the account.

Margin Requirements (Options) – the amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes.

Market Cap – This is a company’s market capitalization, which equals the number of outstanding shares times the current market price.

Market Order – an order that is filled immediately upon reaching the trading floor at the next best available price.

Married Put – a strategy in which a trader has a long position in a stock or index and buys a put for downside protection.

Naked Call – a short call option in which the writer does not own the underlying security. It is the same as Uncovered Call.

Naked Put – a short put option in which the writer does not have a corresponding short position on the underlying security. It is the same as Uncovered Put.

NASDAQ (National Association of Securities Dealers Automated Quotations) – a computerized system providing brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities.

New York Stock Exchange (NYSE) – the largest stock exchange in the United States.

Open Fence – a position consisting of a short call and a short put, where both options have the same underlying security, the same expiration date, but different strike prices. This is also sometimes referred to as a short strangle.

Option – a security that represents the right, but not the obligation, to buy or sell a specified amount of an underlying security (stock, bond, futures contract, etc.) at a specified price within a specified time.

Option Class – a group of calls or a group of puts on the same stock.

Option Holder – the buyer of either a call or put option.

Option Premium – the price it paid to buy an option or the price received for selling an option.

Option Series – call or put options in the same class that have the same expiration date and strike price.

Option Writer – the seller of either a call or put option.

Out-of-the-Money – an option whose exercise price has no intrinsic value.

Out-of-the-Money Option (OTM) – a call option is out-of-the-money if its exercise or strike price is above the current market price of the underlying security. A put option is out-of-the-money if its exercise price is below the current market price of the underlying security.

Portfolio Income Explorer – software program that searches for the best call options for any list of stocks at any time.

Premium – see Option Premium.

Price to Earnings Ratio (PE) – It’s the current stock price divided by the earnings per share for the past year.

Probability – A mathematical basis for predication that for an exhaustive set of outcomes is the ratio of the outcomes that would produce a given event to the total number of possible outcomes.

P of A – See Probability of price Achievement

Probability of price Achievement – A mathematical basis for determining the probability a stock may achieve a specific price in a specific time frame.

Put Factor – A formula to guide the selection of a naked put strike price and strike month. A factor greater than one is desirable. In the formula, PR is the naked put premium, SP is the strike price, CP is the current stock price, and ME is months to expiration.

                                             6                 PR                   CP-SP

Put Factor     = 100 x —–       x   ———   x   ———

                                           ME               SP                       SP

Put Option – a contract that gives the right (but not the obligation) to sell a specific stock at a predetermined price on or before a certain date (called the expiration date).

Revenue – The amount of money a company brought in during the time period covered by the income statement. This is usually the first line on any income statement and is also sometimes referred to as total sales.

Ride the Wave – a strategy where one sells covered calls and naked puts on the same stock over and over as the stock trades in a wave like pattern.

Sales – The amount of money a company brought in during the time period covered by the income statement. This is usually the first line on any income statement and is also sometimes referred to as total revenue.

Security – a trading instrument such as stocks, bonds, and short-term investments.

Short – a short position indicates that a stock, index, or option is not owned.

Spread – the price gap between the bid and ask price of a stock.

Stock – a share of a company’s stock translates into ownership of part of the company.

Stock Split – an increase in the number of stock shares with a corresponding decrease in the par value of a company’s stock.

Straddle – a position consisting of a long call and a long put, or a short call and a short put, where both options have the same underlying security, strike price and expiration date.

Strangle – a position consisting of a long call and a long put or a short call and a short put, where both options have the same underlying security, the same expiration date, but different strike prices.

Strike Price – also called the exercise price, is the price at which a call option holder can purchase the underlying stock by exercising the option, and is the price at which a put option holder can sell the underlying stock by exercising the option.

Technical Analysis – a method of evaluating securities and options by analyzing statistics generated by market activity, such as past high/low, up/down volume, momentum and moving averages.

Theta – The change in the price of an option with respect to a change  in its time to expiration.

Time Value – an option’s premium consists of two parts: time value and intrinsic value. (See Intrinsic Value) The time value portion of the premium deteriorates with the passage of time and becomes zero with the expiration of the option.

Trade – To buy and sell regularly.

Trader – A person whose business is buying and selling.

Triple Witching Day – the third Friday in March, June, September and December when U.S. options, future options, and index options all expire on the same day.

Uncovered Call – a short call option in which the writer does not own the underlying security.

Uncovered Put – a short put option in which the writer does not have a corresponding short position on the underlying security.

Vega – Change in the price of an option with respect to its change in volatility.

VISIONS Portfolio Income Explorer – a Personal Internet Search Engine that can find the best call options for any list of stocks. It returns the best near term call option and calculates the potential monthly and yearly income.

VISIONS Stock Explorer – a Personal Internet Search Engine that gets the fundamental data on any stock and provides all the technical indicators on a VISIONS stock chart.

VISIONS Stock Market Explorer – a full featured Personal Internet Search Engine that can find the best stocks and call or put options that meet various search criteria. It provides tools for information filtering and sorting. It provides stock charts, which include the Buy Limit, 50-Day Average, Buy Rank, the VISIONS View V, and take action indicators.

VISIONS View V – an indicator on a VISIONS chart that shows when it is time to take action and invest in a particular stock.

Web Site – An information location on the Internet. Each web site has a unique address called a URL that one uses to access the site and obtain information or transact business. The URL to download the VISIONS software is www.RonGroenke.com. The URL for Keller Publishing is www.KellerPublishing.com.

Writer – the seller of an option.

Zeta – The percentage change in an option’s price per one percent change in implied volatility


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