Definitions

While these may not be every definition in the financial world, they certainly cover most of the terms you will be looking for in using Best Choice Software. Click on the letter that begins the word you are looking for.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

50/50 Stock - a Best Choice term referring to a stock whose price and earnings growth rate over its history has increased an averaged over 50% a year.

A

Across The Board: A trend in the stock market that affects almost all stocks in a sector

Advance: An increase in the market price of stocks, bonds, commodities, or other assets.

After Hours Trading: Securities trading on organized exchanges that occur after regular trading hours of 9:30 am to 4:00 pm.. Not recommend by Best Choice. Reason: The spread between the Bid and the Ask becomes extreme. The only one available to take your trade is the Market Maker and he is out to get you! Alert Lines: There are 2 lines. One line above the center average growth rate and one line below the average growth rate line on a Best Choice long-term chart. The lines are parallel to the average growth rate line and they are normally colored yellow. The upper alert line is set at 90. When a stock price is above the upper alert line it is becoming too high in relation to its average growth rate. The line is to 'alert' the user of this condition called 'overbought'. The price is at an Extreme % high. When a stock is below the lower line, set at 10, it is becoming too low in relation to its average price. The line is to 'alert' the user of this condition called 'over sold'. The price is at an Extreme % low. American Association Of Individual Investors (AAII): A not-for-profit organization established to educate individual investors about stocks, bonds, mutual funds, and other financial instruments. American Depository Receipts (ADR): Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. American-style Option: An option that may be exercised on or before the expiration date. This is as opposed to a European-style option that may be exercised only on its expiration date.

Across The Board: When almost all stocks in a sector or index are affected by a trend or news in the stock market.

Actual Earning: The earning amount reported for a particular stock for a single quarter. This is different than an annualized earning, which is the accumulation of four actual quarterly earnings.

Advance: An increase in the price of a stock, option, bond, commodity, or other asset.

After Hours Trading: Securities trading on organized exchanges that occur after regular trading hours of 9:30 am to 4:00 pm. Not recommend by Best Choice because the spread between the Bid and the Ask can become extreme, and the volume becomes next to nothing.

Alert Lines: On our long term charts, you will see three yellow lines. The center line is the average growth rate for the time currently showing on the chart. We consider the two outer parallel lines our Alert Lines. They are to alert you when the price is at an extreme.

The upper alert line is set at 90, which means that 90 percent of all the stocks prices fall below that line. That also means 10 percent of the stocks prices fall above that line. When a stock price is above the upper alert line it is becoming extremely high in relation to its average growth rate. The line is to 'alert' the user of this condition called 'overbought'. The price is at an Extreme % high. Please note that just because the stock has risen above these lines, that is not an automatic sell signal. The stock could continue to go higher. Wait for a confirmation that the uptrend has reversed first.

The lower alert line is set at 10, which means that 10 percent of all the stocks prices fall below that line. That also means that 90 percent of all the stock prices are above that line. When a stock is below the lower line, it is becoming extremely low in relation to its average price. The line is to 'alert' the user of this condition called 'over sold'. The price is at an Extreme % low. Please also note that just because the stock has fallen below these lines, that is not an automatic buy signal. The stock could still keep going lower. Enron is a good example. Wait for a confirmation of a reversal of the down trend.

American Association Of Individual Investors (AAII): A not-for-profit organization established to educate individual investors about stocks, bonds, mutual funds, and other financial instruments.

American Depository Receipts (ADR): Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue.

American-style Option: An option that may be exercised on or before the expiration date. This is as opposed to a European-style option that may be exercised only on its expiration date.

AMEX (American Stock Exchange LLC): The third largest floor-based securities exchange in the United States. Most stocks traded are small to mid sized companies. It has a significant presence in both listed equities and derivative securities. It was founded in 1842 and acquired by NASDAQ in 1998. For more information, go to their website www.amex.com

Annualized Earning: When you look at our long term charts, the little green squares are the annualized earnings for each quarter for that company. Each annualized earning is calculated by taking the actual earning for that quarter, and adding the actual earnings for the previous three quarters. Each successive annualized earning is basically losing the previous actual quarterly earning and adding a new actual quarterly earning, which has a smoothing effect. If this seems strange, this is actually an industry standard for looking at earnings. The reason for this is because many companies make more money at certain times of the year because of different types of business cycles, and this allows a better comparison of their earnings. For example, many companies that help individuals prepare their tax returns make the majority of their income in the first few months of the year before April 15th. So if we only looked at their actual earnings, then you would see a really high earning for their first quarter, and the rest of their actual quarterly earnings may even be negative. By annualizing the earnings, we get a better picture of how well they are doing from one year to the next.

Arithmetic Chart: A chart where the scaling is in an arithmetic progression. For example, both vertical and horizontal scales progress evenly as in 1,2,3,4? Etc. The short term charts in Best Choice use an arithmetic chart. See also Log Chart.

Asset Allocation: The percentage of distribution of assets, including stocks, bonds, and cash in an investment portfolio. Analysis of risk levels of each asset is normally the deciding factors as to percentages of weighting (i.e., high-quality bonds are less risky than technology stocks).

Ask (or Ask Price): The high price of the bid - ask spread where a buyer seeks to purchase a stock, option, or other security. Typically a person buys at the ask, and sells at the bid of the spread, but sometimes it is possible to buy and sell slightly inside the spread. This also called the offer. See also the Bid.

Assign: To designate an option writer for fulfillment of his or her obligation to sell a stock (call option writer's) or buy stock (put option writer). The writer receives an assignment notice from their brokerage firm.

At the Money (ATM): A term that describes an option when its strike price is equal, or approximately equal to the current market price of the underlying stock, option, etc.. It is always the stike that is closest to the current market price. See also In the Money, Out of the Money

Average Annual Growth Rate: The rate of growth of price or earnings on an annualized basis. On a Best Choice chart, this is shown as a line on a logarithmic scale. If the growth rate is positive the line will slope upwards and if the growth is negative the line will slope downwards. The line is created such that of all prices are above the line and of all prices are below the line.

Average Closing Price: The sum of closing prices divided by the number of closing prices over a specified length of time.

Average Down: To buy more of a security at a lower price, thereby reducing the holder's average cost. Generally not a smart thing to do, because you were wrong initially and now you are adding more money to a losing position.

B

Bear Call Spread: The purchase of a high strike price call and the sale of a low strike price call in the expectation of declining prices. This is a credit spread because you are selling the higher priced, low strike call and you are buying the cheaper priced, high strike call. For example, the stock is at $46. A 40 call is $6.75 and a 45 call is $2.75. You sell a 40 call and you buy a 45 call. Thus you receive $4. If the stock closes below 40 at expiration, the spread is worthless and you keep the $4. If it closes at $44, it cost you $4 and you lose the $4 received for a breakeven. On a close above $45, you lose $5 - the $4 received for a maximum loss of $1. This is a type of vertical spread.

Bear Market: A long-term downward moving market lasting months to years. See also Bull Market.

Bear Put Spread: The purchase of a high strike price put and the sale of a low strike price put in the expectation of declining prices. This is a debit spread and it will cost you because you are selling the lower priced, low strike put and you are buying the higher priced, high strike put. For example, the stock is at $46. A 40 put is $3.50 and a 45 put is $4.50. You sell a 40 put buy a 45 put. You pay $1 for the spread. If the stock goes below $40 you make $5 - the $1 cost for a profit of $4. If the stock goes to $44, you make $1 - the $1 cost and you break even. If the stock closes above $45 the spread is worthless and you lose your $1 cost. This is a type of vertical spread.

Bear Spread: An option strategy that makes its maximum profit when the underlying stock declines below a certain point and has its maximum risk if the stock rises far enough in price. The strategy can be implemented in either puts or calls. In either case, an option with a higher strike price is bought and one with a lower strike price is sold.

Bearish: Describes the opinion or outlook that expects a decline in price, either in the general market or in an underlying stock, or both.

Best Ask: The lowest quoted selling price from all competing Market Makers, Stock Exchanges or ECNs,

Best Choice Trading Execution Platform: This is a trading window created by NT Securites for Best Choice users to enter orders generated by the short-term trading screen. A user must have an account opened with NT Securities in order to use it.

Best Price: The lowest ask if you are buying or the highest bid if you are selling.

Beta: A measure of volatility that tells how much a stock moves in relation to an index or average. A beta of 1.5, for example, means that the stock may move 50%, either up or down, more than the Dow Jones Industrials, or other indicator on which it is based.

Beta Testing: The process of testing a computer program. Computer programs, such as Best Choice, contain sophisticated logic on how something is done or calculated. This logic has to be scrutinized under normal operating conditions to insure that it is working correctly. Thus, beta testing refers to a small limited number of individuals who are willing to test, but who fully understand that the procedures may not work correctly.

Bid (or Bid Price): The low price of the bid - ask spread where a buyer seeks to sell a stock, option, or other security. Typically a person buys at the ask, and sells at the bid of the spread, but sometimes it is possible to buy and sell slightly inside the spread. See also the ask.

Block Trade: Buying or selling 10,000 shares of stock

Bollinger Bands: An envelope created by using a default of the moving average of 20 days closing prices and calculating 2 standard deviations above and below this moving average. This creates bands that widen during increased volatility and contract during decreased volatility. When broken, they are an indication that the trend is powerful and may continue in that direction. John Bollinger developed this concept.

Bond: An "IOU" or a debt instrument that pays a fixed amount of interest (5% for example) on a regular basis. The issuer, whether corporate or government, promises to repay the debt on time and in full. The repayment date could be 30 years, 10 years, 5 years, or other duration and they are issued normally in $1,000 increments. They are bought and sold on a secondary market and the price will fluctuate based upon current interest rates. Corporate bondholders are paid their interest before stockholders are paid a dividend. Bonds are rated or assessed by a credit rating firms to tell investors the quality or probability that the principal and interest payments will be in full and on time. The interest on a bond is normally paid at a fixed date on a semi-annual basis. For example, $10,000 of a 5% bond would pay $250 maybe on Jan 1 and July 1, or Feb 1 and Aug 1. If interest rates fall, say from 5% to 4%, let's consider what happens to a bond prices and yields. You have $10,000 of a 5% bond and you are receiving $500 a year. New bonds are now issued only paying 4%. Your bond is worth more, because you are receiving a higher fixed rate. The price of your bonds will rise. Considering that a new issue of $12,500 at 4% will generate the same $500, your bonds can potentially rise 25% in value. The yield of your bond will fall towards the new 4% rate. This is because a new higher priced debt instrument at a fixed interest rate gives a lower yield. When interest rates fall, some bonds are callable which means the issuer may want to replace older high interest bonds with newer low interest rate bonds. In this case, the bondholder is paid a premium over the "par" or issue rate. Conversely, if interest rates rise, bond prices will fall. Considering the same example as above and you have a fixed 5% rate. Now rates have jumped to 6%. You have to discount your bond to effectively match the newer 6% bond. Why would someone want yours at 5%, when they can get a new one at 6%. Considering that 6% of $8,333 gives the same $500 your receive annually, your bond could drop up to $1666 in value. You would still be receiving the $500 in interest, but that is small consolation for the loss in value, especially if you are taxed on the interest. As you can see, bonds are very sensitive to interest rate changes. They can be considered as a competitive market to the stock market for investor's dollars. When bond yields drop, stocks become more attractive. Remember our bank analogy. If you had money in a bank at 5% and a bank open down the street at 10%, wouldn't you move your money. This same competition concept applies for stocks and bonds. Normally, we ignore bonds for the much higher returns of the stock market. It is, however, important to understand the dynamics of the bond market, because it does affect the stock market

Breakdown: When the price of a stock moves below the bottom of its resistance and falls lower.

Break-Even Point: The stock price (or prices) at which a particular strategy neither makes nor loses money.

Breakout: When a stock breaks out of its recent past trading range. It could be either breaking a support or a resistance.

Broker: An individual or firm who acts as an intermediary between a buyer and seller usually charging a commission per executed trade.

Bull Call Spread: The purchase of a low strike price call and the sale of a high strike price call in the expectation of rising prices. This is a debit spread and it will cost you because you are you are buying the higher priced, low strike call and selling the lower priced, high strike call. For example, the stock is at $48. The 50 call is $2 and the 55 call is $1. You buy the 50 call paying $2 and sell the 55 call receiving $1. Thus it cost you $1. If it closes above 55, you receive $5 - $1 cost for a profit of $4. If it closes at 51, you receive $1 - $1 cost and you breakeven. If it closes below 50, you receive $0 and you lost your original $1. This is a type of vertical spread Bull Market: A long-term market up trend lasting months to years.

Bull Put Spread: The purchase of a low strike price put and the sale of a high strike price put in expectation of rising prices. This is a credit spread because you are selling the higher priced, high strike put and your are buying the lower priced, low strike put. For example, the stock is trading at $49. The 55 put costs $7.25 and the 50 put costs $3. You buy the 50 put and sell the 55 put. Thus, you receive $4.25. If the stock closes above 55, the spread is worthless and you keep the $4.25. If the stock closes at 50.75, it cost you $4.25 and you lose the $4.25 received for a breakeven. If the stock closes below 50, then it cost you $5 and you lose the $4.25 received plus 75 cents additional.

Bull Spread: An option strategy that makes its maximum profit when the underlying security rises above a certain point, and has its maximum risk if the security falls far enough in price. The strategy can be implemented with either puts or calls. In either case, an option with a lower striking price is bought and one with a higher striking price is sold.

Bullish: The opinion or outlook in which one expects a rise in price, either by the general market, by an individual security, or both.

Butterfly Spread: A type of spread for a non-directional market. A butterfly uses either 4 calls or 4 puts of the same expiration. You buy an Out-of-the-Money and an In-the-money option and sell 2 At-the-money options. You are buying cheap time value and selling expensive and the hope is that the stock stays at the same price.

Buy And Hold: A traditional, long-term investment strategy that focuses on the fundamentals of a company and ignores short-term market fluctuations.

Buy Stop: an order placed with your broker at a certain stock price indicating where you would like to buy the stock to start a long transaction or buy the stock to exit a short position. See the definition of stop and "long" to get a better understanding of buying a stock first, or going long

Buyer: A person who purchase a stock, future, or option contract (call or put).

Bearish - believing or having the bias that a stock price will go down.

Bullish - believing or having the bias that a stock price will go up.

Buy Stop - a marker placed with your broker at a certain stock price indicating where you would like to buy the stock to start a transaction. See the definition of "long" to get a better understanding of buying a stock first, or going long.

C

Calendar Spread: The sale of a near term option and the purchase of a far out option to capitalize on the time decay. This is done using either 2 calls or 2 puts and both options have the same strike price. For example in March, you sell a June Call for $3 and buy a December call for $5, for a cost of $2. The time decay on the June is faster, so if by June the June call is worthless and the December is still $4, then there is $2 profit on a $2 investment.

Call: An option contract that gives the buyer (holder) the right to buy a specific stock at a certain price (strike price) before a certain date (expiration date). The buyer's risk is his purchase price (the premium). One call is normally for 100 shares of stock and strike prices are at fixed increments. Buyers have the right to either purchase the stock by paying the strike price (exercising the option) or sell their option prior to expiration. The buyer has the option of action. Buying a contract is not purchasing the stock. It is only purchasing the right to purchase a stock. Buyers have no obligation to take delivery of the stock and can sell their option at any time. Buyers expect the price of the stock to go up so the call will be worth more in the future. If the stock goes up, there is an unlimited profit potential. Most options expire worthless and the buyer's loss is limited to the premium paid. A call seller receives money (the premium) from the buyer. A seller is obligated to deliver the stock at any time, if the buyer pays the seller the strike price (exercising the option). If the seller does not have the stock, he still must deliver the stock to the buyer. In this case, the seller must purchase the stock regardless of what the price is. Consequently, sellers have unlimited risk if the price of the stock goes up. Sellers hope the price will fall so that the call will be worth less in the future. Most calls expire worthless at expiration and the most money a seller can make is the initial premium he received.

There are three types of calls: At-The-Money (ATM), In-The- Money (ITM) and Out-of-The-Money (OTM). This refers to the relationship between the current price of the stock and the strike price.

Cancel: The removal of a buy or sell order that has not been executed. A conditional order can be cancelled before it is executed. A market order is an immediate order and can normally only be cancelled while the market is closed.

Cancel Button: On the BC trading execution platform, clicking this button instantly cancels the trade.

Candlestick: A visual representation of trading activity that gives a trader a quicker and more complete view of the day's trading activity. Candlesticks can represent other time frames, such as minutes, hours, or week, but the day is the most common. A candlestick consists of two parts. The first part is a rectangle box called a "body" which is the open and close of the stock on that day. If the stock went up, then the price closes higher than the open and the body is hollow (like a balloon rises). If the stock went down, then the close is below the open and the body will be solid (like a stone falls). Hollow candlesticks have the close at the top and solid candlesticks have the close at the bottom. The second part consists of lines extending from the top and bottom of the body called "Shadows" or "Tails." The outer ends of the "Tails" represent the High and Low of the day. The range of the day is the total height of the candlestick. In Best Choice short-term charts, we use candlesticks to display the daily prices.

Capital Gains Tax: A tax on profits made from the sale of a capital asset such as a securities investment. Long term capital gains refers to profits made on stocks held for at least 1 year and short term capital gains refers to gains made on stocks held for less than 1 year.

Chicago Board of Trade (CBOT): The CBOT was established in 1848 and is the oldest futures exchange where agricultural and financial futures trade. The first financial futures contract was traded in October of 1975. Options on futures were established in 1982. The CBOT initiated electronic trading in 1994. As of Jan 1, 2004, the Chicago Mercantile Exchange (CME) is providing clearing for all CBOT products.

Chicago Board of Options Exchange (CBOE): An exchange set up by the CBOT to trade stock options. It trades options on stocks, stock indices, interest rates, and sector indexes.

Chicago Mercantile Exchange (CME): An exchange that trades commodity, interest rates, equity indexes, and foreign exchange. The e-mini S&P 500 is based on the S&P 500 contract and is traded on the CME.

Close: The previous trading day's last reported trade.

Closing Transaction: A trade that reduces an investor's position. Closing "buy" transactions reduce short positions and closing "sell" transactions reduce long positions.

Collateral: Collateral in general is stocks or other property that a borrower is obliged to turn over to lenders if they are unable to repay a loan. In respect to option writing, the loan value of marginable securities generally used to secure a loan to purchase securities.

Combination: Any strategy involving the purchase or sale of both put and call options on the same security that is not a straddle.

Commission: Fees paid to the broker for execution of an order.

Commodity: A tangible good such as corn, gold, or hogs with a standardize unit of trade.

Commodity Channel Index: An indicator designed for use in markets that follow definite cyclical patterns.

Compound Interest: Interest earned on prior interest as well as the principal.

Conditional Order: An order whose execution depends upon a condition such as a price. For example, a stop order depends upon a price being met. It then becomes a market order

Condor: A non-directional option strategy that uses either 4 calls or 4 puts of the same expiration month. It uses 4 different strike prices and the maximum profit occurs between the center 2 strike prices. It buys the outer 2 strikes and sells the inner 2. For example, if a stock is 52 and you don't expect it to move. A condor would be selling a 50 and 55 strike and buying a 45 and 60 strike.

Confirmation: Formal memorandum from a broker to a client giving details of securities transactions. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.

Consolidation: A time period when stock volatility declines. It appears as a pennant formation. It can be identified by an up trend line from the lowest low to the apex and a down trend line from the highest high to the apex. Ultimately, this formation will breakout as it approaches the apex. A Best Choice candlestick chart displays the consolidation and identifies the breakout day with 2 "hash marks" as a signal to place the trade the following day. The stock will break out the next day, unless the following day is an "inside day." In this case, you will be given a new 2 "hash mark" signal with an even smaller risk. This order replaces the previous order.

Consumer Price Index (CPI): A gauge of inflation that measures changes in the price of consumer goods. This list is based on goods and services purchased in urban areas and it is released monthly by the Labor Department.

Converge: The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge.

Convergence: The visual coming closer together. For example, a consolidation is a convergence

Cover: To buy back, as a closing transaction, an option that was initially written. For stocks, it means buying back a short position. For options, it means the seller of an option buying back his call or put to prevent being assigned.

Covered: A written option is "covered" if the writer also has an opposing market position in an underlying stock/security on a share-for-share basis. A short call is covered if the underlying security is owned (a buy-write), and a short put is covered (for margin purposes) if the underlying stock is also short in the account.

Covered Call (Writing): A strategy in which one sells call options, while simultaneously purchasing an equivalent number of shares of the underlying security.

Covered Put (Writing): A strategy where one sells put options and is short an equivalent number of shares of the underlying security.

Credit: Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.

Cycle: The expiration dates applicable to various classes of options. There are three cycles: 1) January, April, July, and October; 2) February, May, August, and November; and 3) March, June, September, and December.

Cyclical Pattern: A repeating chart pattern.

Cyclical Stocks: Stocks that are tied to economic cycles. For example, large manufacturing companies do well when the economy is good, but suffer during an economic downturn. Some oil companies boom and collapse in relation to the demand for oil and gas production.

D

Day Order: A trading order that lasts only for one day. If the order is not filled by the end of the day, it is canceled. Typically, useless otherwise specified, all orders are considered day orders.

Day Trading: Trading where you are entering and exiting a trade within one day's time, Debit: An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.

Decision Day - A term coined by Best Choice Software descibing a day that the program is showing as having a trade ready for the next day. It is identified by 2 yellow horizontal hash marks to the right of the last candlestick. Depending on the type of trading method you have selected, it signifies placing a simultaneous Buy Stop order and a Sell Short Order. The trader is looking for a breakout. It is your decision whether or not to place this trade.

Deep-in-the-Money: An option with a lot of intrinsic value.

Deleted: A security is no longer included in the major national markets.

Delta: The amount by which an option's price will change for a one-point change in the price of the underlying security. Call options have positive deltas, while put options have negative deltas. The delta is an instantaneous measure of the option's price change, so that the delta will be altered for even fractional changes by the underlying security.

Delta Spread: A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written (sold) option.

Discount: An option is traded at a discount when it is traded for less than its intrinsic value. A future is trading at a discount if it is trading at a price less than the cash price of its underlying index or commodity.

Discount Rate: The interest rate charged by the Federal Reserve on loans to banks.

Divergence: - A situation when 2 entities are getting further apart. An example is when Price and Earnings are not working together. Diverging lines identify it. If price growth is faster than earnings growth, this is a negative sign. The P/E ratio is increasing and either Earnings will have to increase, or Price at some point will collapse. If Earnings are growing faster than Price, this is a positive divergence. The P/E ratio is dropping and at some point investors will consider the stock undervalued.

Diversification: Dividing investment funds among a variety of securities. This means dividing your investment funds into different industry sectors. For example, if you own Ford, General Motors and Toyota stock, you own 3 different stocks but in the same sector. This is not diversification. Usually these three stocks will move in unison as the industry group moves. If you owned Ford, Microsoft and Outback Steakhouse, you would have one stock in different industry groups that do not move in unison.

Diversification reduces your risk as you don't have "all your eggs in one basket" in case you fall.

Dividend: A portion of a company's profit paid to shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dollar Cost Averaging: A strategy used by investors to reduce the average cost of shares, in which the investor purchases more shares with a fixed amount of capital as the price of the shares decrease. The investor receives more shares per dollar and decreases the average price per share. This is a bad strategy because you are investing more money in a stock that is proving to be a loser. We believe you should have used a Stop to cut your losses and wait for the stock to bottom out, and then buy. Generally, if you want to add to a position, it makes better sense to add to a winning position. You want to cut your losses and let your winners run until a stop tells you that the move is over.

Double Bottom: A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop.

Double Top: A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise.

Dow Jones Industrial Average (DJIA): The most widely used indicator of market activity, composed of a average of 30 large issues within the industrial sector of the economy.

Down Off Bid: The Market Maker or ECN adjusts his advertised selling price down to the current inside market ask price.

Down to Ask: The Market Maker or ECN adjusts his advertised selling price down to the current inside market ask price.

Down Trend: A series of lower highs and lower lows in a given stock on a chart. This also applies to the Futures and Indices.

Down Trend Line: A line that connects the highest high and a later high which will subsequently form a line in a downward direction.

Downside Protection: A put generally used in connection with covered call writing. It is used while long stock to prevent disaster. When used to buy-write, it is the call premium that gives you a limited cushion on the downside. The cushion is equal to the call premium.

E

Earnings - A quarterly report by a company reporting its profits. It is the income after the taxes and all other company expenses are paid. It can also refer to as profit, net income, or Earnings per Share, which is the total earnings divided by the number of outstanding shares. Earnings allow an investor to know how much money his company is making or losing. A P/E ratio uses Earnings calculated over a one year time period. This is known as an annualized earning and it is obtained by adding the most recent 4 quarters.

ECN: Electronic Communication Network

Equity: A shareholder's equity in a company is the assets minus liabilities. A stock is equity.

Equity Option: An option that has common stock as its underlying security.

Euro: The currency of 12 European countries in the new European Union.

Exchange: A place where securities are bought and sold.

Exchange Traded Funds (ETFs): Similar to mutual funds, these track major indexes. Unlike mutual funds, they can be bought or sold any time during the day, including being sold short or bought on margin. A reason to trade ETFs is that they simplify index and sector investing. The first ETF was the S&P 500 index on the Amex in January 1993, called SPDR or "spider". The SPDR or "spider" is an investment instrument that bundles the stocks of the S&P 500 and give you ownership in the index.

Today, they not only include spiders (symbol *SPX), but the QQQs (symbol *QQQ), Holdrs, iShares and diamonds (symbol *DIA). The "QQQ"s represents the Nasdaq 100, which consists of the 100 largest, and most actively trades non-financial stocks on the Nasdaq. Holdrs are a trust issued receipt that represents specific industry sectors or groups. The iShares is a brand of ETF put out by Barclay that follow Goldman Sach's technology indexes and trade on the Amex. The "Diamonds" are a fund that track the Dow Jones Industrial Average and also trade on the Amex

Ex-Dividend: The process whereby a stock's price is reduced when a dividend is paid. The ex-dividend date (ex-date) is the date on which the price reduction takes place. Investors who own stock at the close of business on the business day prior to the ex-date will receive the dividend. . A new investor on the ex-dividend date or thereafter will not receive that dividend. Those who are short stock must pay the dividend.

Exercise: To invoke the right granted under the terms of a listed option contract. Call holders exercise to buy the underlying securities, while put holders exercise to sell the underlying securities.

Exercise Price: see Strike Price.

Exit Stop - a marker placed with your broker to indicate where you would like to end your current position. Click here for the different types of exit stops available in the Best Choice program.

Expiration: The termination of an option. It is either worthless or automatically exercised for the amount by which it is In-The-Money.

Expiration Date: The final date when an option may be exercised. Many options expire on a specified date during the month prior to the delivery month for the underlying futures contract.

Exponent: The raising of a number to a specific power or the number of times one number has to be multiplied by itself to generate another number. For example, you know that 2 x 2 =4 and 2 x 2 x 2 = 8 and 2 x 2 x 2 x 2 = 16. Therefore, how many times does 2 have to be multiplied by itself to generate the number 64? The answer is 6. This is the exponent.

Exponential Growth: Growth that is based upon an exponent increase. For example, if something doubled every increment and you started with 1. The first increment is 1 doubled =2. The second increment is 2 doubled = 4. The third increment is 4 doubled =8. The fourth increment is 8 doubled = 16. This is growth occurring according to the exponent of 2. Plotting this on a regular scale would generate an upward hook. Plotting this on a logarithmic scale will give a line. This is how we view growth in Best Choice.

Exponential Decay: Decay that is based upon an exponent decrease. For example, option time values decay over time at an exponential rate. An analogy of a melting block of ice is often given to describe that eventually all the time value will be gone at expiration. This decay can be plotted on a logarithmic chart, just like exponential growth and it becomes linear (like a straight line). This is the foundation of Best Choice long-term option charts.

Exponential moving average: A moving average that places more emphasis on the current prices using an exponential weighting factor.

Extreme %: A current measurement of the movement of a stock based upon its average growth rate. On a Best Choice long-term chart, the average annual growth rate of a stock is calculated and displayed on a logarithmic chart. This is a line that has a slope. This line identifies where of the trades occurred above the line and of the trades occurred below the line. This can be considered a 50% line. Best Choice displays a parallel upper alert line to alert the user that prices are above 90 and are reaching a high extreme %. This is considered a time when the stock is overbought and provides a selling opportunity. You should tighten stops or get ready to take long-term profits. Best Choice also displays a parallel lower alert line to alert the user that prices are below 10 and are reaching a low extreme. This is considered a time when the stock is oversold and could provide a buying opportunity, assuming earnings are not falling with price. The extreme % is a relationship of current price to its average price. It is independent of the price to earnings relationship.

F

Failed High: When the last upward high fails to exceed the previous high. This is usually a sign that the stock will now turn lower.

Failed Low: When the last downward low fails to go lower than the previous low. This is usually a sign that the stock will now turn higher.

Family of Funds: Group of mutual funds managed by the same investment Management Company. Each fund typically has a different objective; one may be a growth-oriented stock fund, another may be a bond fund or money market fund. Shareholders in one of the funds can usually switch their money into any of the family's other funds, sometimes at no charge. Families of funds with no sales charges are called no load families. Those with sales charges are called load families.

Federal Reserve (Fed): The central bank of the U.S. that sets monetary policy. They regulate interest rates by establishing the rates that they will loan money to banks. They also oversee money supply and credit with the goal of keeping the U.S. economy and currency stable.

Fibonacci Numbers: The main Fibonacci numbers are 0.214, 0.382, 0.618 and 0.786. These numbers represent a retracement level from a previous high to low move, or a previous low to high move. The numbers are used to estimate support and resistance levels. The main number is 0.618. Some people feel that a 50% number is important. Usually these levels will represent a correction pullback from the previous move. Expanding these numbers by adding a 1 in front of the fraction can often be used as an expansion level beyond the previous high and low. The key number is generally recognized as 1.618.

Fibonacci Ratio: The ratio between any two successive numbers in the Fibonacci sequence.

Fill: Executed order.

Filled Order: It is filled when it is completed.

Float: The number of shares outstanding of a particular common stock.

Floor Broker: A broker on the exchange floor who executes the orders of public customers or other traders who do not have physical access to the trading floor.

Foreign Exchange Market (FOREX): A market in which foreign currencies are bought and sold and an exchange rate between currencies is established.

Fundamental Analysis: A method of analyzing the prospects of a security by observing accepted accounting measures, such as earnings, sales, assets, etc.

Funds Manager: The manager of a pool of money such as a mutual fund, pension fund, insurance fund, or bank-pooled fund. The fund manager's job is to maximize the fund's returns at the least risk possible.

Futures Contract (Futures): An agreement to purchase or sell a given quantity of a commodity (raw materials or metals), financial instrument, or currency at a specified date in the future.

G

Gap: A space left in a price pattern where no trading occurred. A "gap up" takes place when a market/stock opens and continues to trade at higher price levels than the previous day's high. In candlestick terminology, this is referred to as a "rising window" and is bullish. A "gap down" occurs when market/stock opens lower than the previous days low and continues to trade lower, which is bearish.

Going Long - See "Long"

Going Short - See "Short"

Golden Rule: Never let a profit turn into a loss! Use a stop to protect profits.

Good Until Cancel (GTC): An order to buy or sell will remain open until fulfilled. Most brokerage houses limit the GTC to 60 or 90 days.

Gross Domestic Product (GDP): The total value of goods and services produced by the nation. It is calculated by the Commerce Department and it is the main measure of the U.S. economic output. It is used by the Fed to help determine interest rates.

Growth Rate: The rate of growth over time. For example, if a stock went from $10 to $20 in one year, we would say the Annualized Growth Rate for that stock was 100%, because it doubled in one year. Historical growth rate refers to the growth rate over a stock's history. Best Choice Software tracks two different growth rates, one for price and one for earnings.

Growth Stocks: These are companies that are growing in both profit and revenue. Typically, as profit increases over time, so does the value of the stock of the company. This is the principal applied in the long-term portion of Best Choice. These stocks generally don't pay any dividend and use the money to reinvest and fuel their growth.

Growth Rate - The rate of growth over time. For example, if a stock went from $10 to $20 in one year, we would say the the Annualized Growth Rate for that stock was 100%, because it doubled in one year. Historical growth rate refers to the growth rate over a stocks history. Best Choice Software tracks two different growth rates, one for price and one for earnings.

H

Hash Marks: On a short term/candlestick chart, two small horizontal bars displayed to the right of the last candlestick. The hash mark indicates that this stock is expected to "break out" the next day. Hash marks are usually yellow. Occasionally, one hash mark may be half blue and half yellow. At times one of the hash marks may be half purple and half yellow. The color is a probability indicator. See Probability Indicators.

Head and Shoulders: A price pattern that has a center peak and a smaller peak on either side. Technical analysts generally consider a head and shoulders formation to be a very bearish indication. An inverted head and shoulders is a very bullish sign

Hedge: A strategy used to reduce risk or limit portfolio losses. For example, an investor own stock and he buys a put for protection against the possibility of a price collapse.

Hedge Fund: A private investment partnership of large investors.

High: The intraday highest trade High Bid: When a Market Maker or ECN outbids the other Market Maker. They advertise to buy stock at a higher price than any other Market Maker or ECN. Holder: The buyer of an option Holding an Option: The buyer of an option is considered holding the option

I

Implied Volatility: The expected volatility in a stock's return derived from its option price, maturity date, exercise price, and risk less rate of return, using an option pricing model such as Black-Scholes. It can be viewed on the Best Choice option charts

In The Money (ITM): An option that has intrinsic value is considered in the money. For a call, this is a strike price below the current price and for a put this is a strike price above the current price. See also At the Money, Out of the Money

Income Stocks: These are stocks valued for the dividend they pay. Generally, income stocks are well-established companies such as utilities, banks or real estate related stocks. Don't expect much price appreciation. If a stock pays a 5% dividend and falls 10% in value, then in the past, you were taxed on the 5% you received and your stock was worth 10% less. Essentially, you received your own money back and were taxed on it. In 2003, attempts were being made to change the tax status of dividends.

Incremental Return Concept: A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he has targeted to sell-possibly at substantially higher prices.

Index: A statistical composite that measures changes in the economy or in financial markets. It is often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies in the index. Indexes, like the Dow Jones Index, are designed to offer a snapshot of how the markets in general or certain types of stocks are performing.

Index Fund: A passively managed mutual fund that tries to match the performance of a specific index by purchasing the same securities that is held by that index.

Indicator: A method of analyzing past performance to measure the strength of an existing trend or anticipate a trend change. Most of the time they give a conflicting message, since they are based on the past movement of the stock but cannot be certain of the future direction of the stock.

Individual Retirement Account (IRA): A retirement account that may be established by any person receiving income. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.

Inflation: The steady erosion of value of your money. For instance, 3% inflation means that $1 effectively buys only 97 cents worth of stuff at the end of the year. This is the reason why it is important to focus on growth investments. You want your money appreciating faster than inflation is eating it up. Money in a bank returning 1% interest with a 3% inflation rate is a losing proposition. Even worse, in underdeveloped countries with high inflation rates, people spend their money quickly because they know tomorrow it will buy less. This leads to a lack of confidence in the currency, which is why inflation is a major concern of the U.S. Federal Reserve. In Best Choice, we just want to find outstanding growth potentials, so we will have more money in the future regardless of inflation.

Initial Public Offering (IPO): A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. An IPO starts when an investment banker agrees to underwrite the company wishing to go public. This means they agree to buy all the available stock and have the right to subsequently resell it. The bank then sets the price that they think fairly represents the value of the company. The investment bank just wants to sell the stock and is less interested in the price movement once trading starts. Large institutional buyers usually get the best prices and most attractive IPOs.

Inside Bar (Inside Day): A stock that has traded inside yesterday's range. It is identified by a charting pattern where today's high is less than yesterday's high and the today's low is above yesterday's low.

Inside Market: The highest advertised bid and the lowest advertised offer prices among all competing Market Makers and ECN's in a NASDAQ stock.

Insider (Insider Trading): An insider is a company executive or member of the board of a publicly traded company. Given their position, they are privy to a good deal of detailed information that can affect the fortunes of a company. When they buy or sell, its known as insider trading.

The Securities and Exchange Commission closely regulates insider trading. It requires that insiders make public any time they buy or sell the company's stock or options. Some investors follow insider trading thinking that an insider buying is bullish and an insider selling is bearish. It is perfectly legal for insiders to buy or sell, but it is illegal for them to use their inside knowledge to manipulate the market.

Insiders have knowledge of new products, upcoming price increases, new marketing campaigns, company restructuring, discontinuation of unprofitable products or services, company mergers or buy outs, expected influx of capital, elimination of debt, and all sorts of other news that can affect the price of the stock. This is why their activity can sometimes be considered a barometer of stock price.

In Best Choice, when you are looking at a stock, you can click on Internet Links to connect to other websites that provide information on insider trading. For example, Yahoo news provides information on insider trading

Instinet: An electronic securities broker that large institutional firms and broker-dealers can trade stocks.

Intangible: An abstract entity such as a stock index.

Interest Rates: The Federal Reserve controls interest rates in the U.S. The chairman of the Federal Reserve, Alan Greenspan, periodically announces changes after the Federal Reserve board meets. Interest rate changes are made to stimulate or slow the economy.

When interest rates fall, the government is trying to stimulate the economy. Lower interest rates means the government will loan money at a cheaper rate to banks. Thus, the banks can loan money at a cheaper rate and bond yields will fall to compete with the rates. Normally, falling bond yields make stocks more attractive on a comparative basis. Also, companies can float bonds to borrow money at a cheaper rate increasing their overall profitability. This then eventually is positive for stocks.

In 2001, multiple interest rate cuts attempted to unsuccessfully stop the economy from heading into a recession and the stock market from entering a bear market. The effect of the rate changes takes time to develop and it wasn't until 2003 when the bull rally finally resulted. In the mean time interest rate sensitive stocks, like mortgage companies and banks profited. Real estate prices inflated for the following reason. If a person can only afford to pay $1000 a month on a house payment, then with lower interest rates that $1000 can borrow more money. Thus he can afford a more expensive house. This essentially results in an upward auctioning of house prices.

When interest rates rise, the government is trying to slow the economy. In 1981, this was done to stop the effects of inflation (see definition). Higher interest rates slow the real estate market and normally the stock market because the cost of money has increased. It is important to understand the importance of interest rates in positioning yourself and as a clue as to what type of stock may appreciate or decline.

Intraday: Term meaning "within the day," often referring to the high and the low price of a stock.

Intraday Trader: A person who buys and sells the same stock within the same day.

Intrinsic Value: The dollar amount, which would be realized if the option were to be exercised immediately. For call options, this is the difference from the strike price to the stock price. For put options, it is the difference from the stock price and the strike price. In both the call and the put options, the absolute value of the difference is the intrinsic value. OTM options do not have intrinsic value.

Investment: The goal of creating more money through the use of capital.

Investment Software: Computer software that helps investors make investment decisions by identifying situations that meet programmed parameters. Best Choice is a good example

Investor: Someone who buys a stock and holds it for an indefinite period of time, usually over 1 year. This can lower the amount of tax obligation. In Best Choice, it also refers to someone who is looking at the Earnings patterns to identify attractive growth rates. An investor is looking for financial growth and he want the stock to treat him like a bank except at a higher rate of return.

J

K

Keogh Plan: A pension account where taxes are deferred and it is generally available to those who are self-employed.

L

Leading Economic Indicators: A composite of 10 economic indicators developed to forecast changes in the economy. The indicators are money supply, interest rate spreads, unemployment claims, average workweek, stock prices, building permits, consumer expectations, manufacturers' new orders for capital and consumer goods.

Leg: A risk-oriented method of establishing a two-sided option position. The risk materializes from the fact that a better price may never be available and a worse price may eventually be all that is available.

Leverage: The attainment of a greater percentage of profit and risk potential. A call holder has leverage with respect to a stockholder. A call holder will have a greater percentage of profits and losses than a stockholder, for the same movement in the underlying stock.

Limit Order: A conditional order where the buyer establishes a maximum (the limit) he will pay for a stock or a seller establishes a minimum price he will sell. A limit order is not a market order, nor does it become a market order. It is an order with restrictions on price as opposed to a market order, which is an order to fill at the best price. It is possible that a limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. A limit order can be used to enter or exit a position.

A buy limit order can only be executed at the limit price or lower. A buy limit order entering a trade is normally placed below the current price. If a buy limit order is placed above the market, the market price would already be below the limit and it would immediately be an order to fill at or better than the limit. If the buy limit order is part of a buy stop-limit order, the stop initiates the limit order. In this case, the limit order is triggered by the stop price, which is above the current price (see stop-limit order).

A sell limit order can only be executed at the limit price or higher. A sell limit order entering trade is normally placed above the current price. If a sell limit order is placed below the market, the market price would already be above the limit and it would immediately be an order to fill at or better than the limit. If the sell limit is part of a sell stop-limit order, the stop initiates the limit order, which is below the current price.

A major drawback to a limit order is that you may not get filled. For example, a stock trades at $50. You don't want to pay $50, but you want to buy it on a dip at $49. You put a limit order to buy at $49. You put on this buy order because you think it will go up, but you don't want to pay more than $49. If it goes up from $50 to $60, you missed the move and you were right about the direction.

Another drawback is that you may be on the wrong side of the move. Using the above example, the stock is at $50 and your limit order is at $49. Now, suppose instead of going up to $60, the stock falls to $40. When the price hits $49, you buy. You are on the wrong side of the move. When the stock hits $40, you are looking at a $9 loss. This is why in Best Choice, we don't use limit orders to enter a trade, and we use stop orders.

Limit orders to enter a trade are usually done to try to get a better price. For example, the bid on a stock is $49 and the ask is $50. A limit order between the bid and ask is an attempt to get a better price, but it may not be filled. Thus if you put on a limit order to buy at $49.10 or better, you might get filled as you have advanced the bid. You might also not get filled at all. You are just trying to get a better price.

Limit and stop limit orders should not be used to exit a trade. Since it is possible they may not be filled, you may be hanging on to a rapidly losing position waiting for a price that never occurs. It is best to use a stop (stop-market) order to just get out at the best possible price.

Limit orders may be used to exit a trade if you are monitoring the trade closely and it is currently not rapidly moving. For example, if a stock has a bid of $20 and an ask of $20.01, a limit order to buy at $20.03 would take precedence over a market order and you would be filled first. This could be important if the market moved quickly. For example, if the market quickly moved to $20.04, the limit order could not be filled, but the market order could. This is why a limit order takes the priority. The risk, however, is that if the limit order is not filled, it won't be filled on a break above the limit. This is why normally in Best Choice, we use stops on exits at well, which in this case would get us out of a trade moving against us at the best price using a market order.

Limited Risk: The risk inherent in options contracts. A buyer is limited to the premium he paid. A seller may have to perform and he has unlimited risk.

Linear Regression: A statistical technique for fitting a straight line to a set of data points.

Liquidate: Refers to closing an open position. For an open long, this would be selling the contract. For a short position, this would be buying the contract back (covering the short).

Liquidity: The ease of converting an asset to cash. Generally, as trading volume increases, the spread between bid and ask narrows. Thus, if you bought and turned right around and decided to sell, you would not lose too much due to the spread in a high volume market.

Logarithmic Chart (Log): A chart that displays data in its logarithmic form. Best Choice uses a semi-log chart where the time (on the bottom of the chart from left to right) is in an arithmetic (or non-logarithmic) progression and the price and earnings on the vertical scale are in a logarithmic progression. A logarithmic progression on a chart would be 1, 10, 100, 1000, etc, where the actual distance between 1 and 10 would be the same as the distance between 10 and 100, and 100 to 1000, etc. See also Arithmetic Chart.

Long (or Long Position)- the process of buying a stock first, with the intention of selling the stock at a later date at a higher price for a profit. You are said to be going long a stock if you are bullish and plan to buy the stock first and sell it later at a higher price.

Long Term: A perspective of a stock where you are considering the stock's earnings and evaluating the macro trends of the stock. Earnings only come out quarterly. One data point does not tell you much. With 2 earnings you can only calculate a growth rate. With 3 earnings you can calculate the growth rate and see a degree of earnings volatility. A series of three earnings is 9 months, so normally you are looking at a yearly chart at a minimum. Long term can also be considered as the time a stock takes to move from below the lower alert band to above the upper alert band.

Long-term Equity Anticipation Securities (LEAPS): A term used to describe options with expiration dates longer than nine months. It is a registered trademark of the CBOE..

Long Term Investor: Someone who is looking at macro trends and the long term prospective of a stock. The investor buys a stock at a price they consider low, expecting the price to rise, and is expecting to be in the trade for a longer time frame. The investor generally follows the trade with a looser stop than a trader to allow himself to stay in the trade longer.

Loss: Selling below the buying price, resulting in your account being debited

Low: The intraday lowest trade

Low Offer (Ask): A Market Maker or ECN is willing to sell their stock at a price lower than any other Market Maker or ECN.

"LT - Price Growth Rate By Percent" - a long term search condition listed in the wizard that allows a user to search for stocks based upon the percentage of their price growth rate. This search condition is ideal when used with "LT - Earnings Growth Rate By Percent" for finding 50/50 stocks.

LT - Earnings Growth Rate By Percent: A long term search condition listed in the wizard that allows a user to search for stocks based upon the percentage of their earnings growth rate over their complete data history. This search condition is ideal when used with "LT - Price Growth Rate By Percent" for finding 50/50 stocks.

LT - Previous Increased Earnings: A long term search condition listed in the wizard that allows a user to search for stocks that have a number of increasing quarterly earnings. For example, a number of 4 on the right side of the vertical scroller would mean 4 quarters of increasing earnings.

LT - Previous Decreased Earnings: A long term search condition listed in the wizard that allows a user to search for stocks that have a number of decreasing quarterly earnings. For example, a number of 4 on the right side of the vertical scroller would mean 4 quarters of increasing earnings.

LT - Earnings Growth Above Price Growth: A long term search condition listed in the wizard that allows a user to search for stocks that have their earnings growing faster than their price over their complete data history. This is a bullish sign. Caution: negative earnings cannot be calculated in the growth rate. If you see red bars on the bottom of the chart indicating negative earnings, the earnings growth rate may be distorted. This is because it is impossible to calculate the log of a negative number. If you can select a time frame, using more recent data, where losses are not present, it will give you a more realistic picture.

LT - Price Growth Above Earnings Growth: A long term search condition listed in the wizard that allows a user to search for stocks that have their earnings growing slower than their price over their complete data history. This is a bearish sign. Caution: negative earnings cannot be calculated in the growth rate. If you see red bars on the bottom of the chart indicating negative earnings, the earnings growth rate may be distorted. This is because it is impossible to calculate the log of a negative number. If you can select a time frame, using more recent data, where losses are not present, it will give you a more realistic picture.

LT - Overbought and Oversold Extremes: A long term search condition listed in the wizard that allows a user to search for stocks that have either low or high extremes. High extremes (>90) are stocks that are relatively high priced and could collapse. Low extreme (<10) are stocks that are relatively low priced and could run up. This is a current price to average price comparison over the complete data history.

LT - Price Growth Rate Consistency: A long term search condition listed in the wizard that allows a user to search for stocks that have a consistent pattern of price growth. Normally numbers above 95% should show consistent growth

LT - Earnings Growth Rate Consistency: A long term search condition listed in the wizard that allows a user to search for stocks that have a consistent pattern of earnings growth. Normally numbers above 95% should show consistent growth

M

Market Order

Methodology - The methods and or rules used to determine entries and or exits for trading stocks.

Margin: Buying a security from a brokerage house using borrowing funds. The margin is the difference between the market value of a stock and the loan a broker makes. The margin requirement, the maximum percentage of the investment that can be loaned by the brokerage firm, is set by the Federal Reserve Board.

Margin Call (Stocks): A margin stock account allows stocks to be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and you pay interest on the borrowed money. A broker can lend you up to 50% of the value of your stocks. This is the maximum 2 to 1 leverage. If you exceed your buying power, you will generate a margin call. You will have three days to meet this call. The call will be equal to one half of the amount that you exceeded your maximum value or buying power. If you cannot pay the margin call, the broker will sell a portion of the stock to reduce you exposure back within the 2 to 1 guidelines. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Normally, you would only consider using margin in a strong market and avoid getting close to the maximum. Margin and leverage is a double-edged sword. It works great when you are right but devastating when you are wrong.

Margin Requirement (Options): The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intraday price changes.

Market: This term refers to an individual stock or it could include the any grouping of stocks that comprise the complete stock market.

Market Analysis: An analysis of technical, corporate and market data used to predict movements in the market.

Market Cap: The overall market value of a company's stock. For example, if a stock has floated a million shares at $100 each, the company has a market cap (capitalization) of 100 million dollars. Small cap companies have a market cap of less than $1 billion. Mid caps are between 1 and 7 billion and large caps have over $7 billion. Generally small caps have a high growth potential, are low price and are more volatile. Large caps are well established, so called "blue chip" stocks, have slower growth, are relatively safe and have good dividend incomes. It is much more difficult for a large company, such as General Motors to double in size than a small young aggressive company.

Market Maker (Specialist): An exchange member whose function is to aid in the making of a market by making bids and offers for his account in the absence of public buy or sell orders. The Market Maker must hold the stock in his own account and participate on both the buy and sell side simultaneously. Several market makers are generally assigned to a particular security. The market maker system encompasses the market makers, floor brokers, and order book officials. There are more than 800 member firms that act as NASD Market Makers. Market makers aid in the liquidity of stocks, especially when Funds want to buy or sell large blocks of stocks. In the after hours, when no one else is buying, a market marker may offer a penny for a stock that closed at $20. If you put in a market order to sell in the after hours trading, you may get filled for a penny. A market maker has to make his profits in transactions between buyers and sellers. He is not necessarily a retail investor's friend.

Market Maker Spread: The difference between the price at which a Market Maker is willing to sell a stock and the price at which that firm is willing to buy, the difference between the Market Maker's bid and ask for a given security.

Market Order: An order to buy or sell a stock at the current market price. Unless you specify otherwise, a broker will enter your order as a market order. The advantage of a market order is you are almost always guaranteed your order will be executed, provided there are willing buyers and sellers. A stop order becomes a market order when the price is hit (see stop order).

A disadvantage is the price you pay or receive when your order is executed may not always be the price you obtained from a real-time quote service or were quoted by your broker. This may be especially true in fast-moving markets where stock prices are more volatile.

Market Research: A technical analysis of factors such as volume, price trends, and market breadth that are used to predict price movement.

Married Put And Stock: A put and stock are considered "married" if they are bought on the same day, and the position is designated at that time to be a hedge. This is one of the best positions to have if one is bullish.

Maturity: The period during which a futures contract can be settled by delivery of the actuals; i.e., the period between the first notice day and the last trading day. Also, the due date for financial instruments.

Methodology: The methods and or rules used to determine entries and or exits for trading stocks.

Momentum Indicator: An oscillator line that tells us the pace of the stock and whether prices are rising or falling.

Money Supply: The total amount of currency and money in checking and savings accounts.

Most Active: A term to describe the highest volume stock at any given time.

Moving Average: An indicator used in technical analysis. Most commonly used are the 50-day and the 200-day moving average of closes. A 50-day average of closes is calculated by taking the sum of the last 50 days worth of closes divided by the sum of the number of days, which in this case is 50. If this average is calculated daily and displayed on a chart as a daily series of averages, it is described as a 'moving' average. A moving average will always lag behind the actual market, since it is based on a past number of days. If the current price has been rising over 50 days, then the 50-day moving average will be displayed as a line below the price activity. If the price activity has been falling over the 50-days, the moving average will be above the price activity. For this reason it is considered an indicator. If prices had been rising and they cross below the moving average, it is considered bearish and a good time to exit a trade. Moving averages are used to spot changes in trends. They can be misleading because different lengths of moving averages give different results.

Multiple Moving Averages: Two or more moving average lines plotted on the same chart. Normally a different color is used for each time frame. Some people use a 10-day, 20-day, and 50-day moving average. Other traders will use a 10, 50, and a 200-day average for each line. Multiple moving averages has its greatest value as a long-term indicator, adding greater confidence as the different time averages cross each other. The shortest time average will always turn first.

Mutual Fund: A group of stocks that comprise a fund, which is jointly owned by its shareholders. Typically, an investment company raises money from investors and invests it in a specific type of stocks, bonds, options, commodities or money market securities. An example of a mutual fund, might be the Fidelity Low Priced Stock Fund or the Janus Technology Fund. The company name and the purpose of the fund are often described in its name. Mutual Fund values are calculated at the end of the day; after all stock prices have closed. The individual stocks closes are multiplied by the number of shares the fund owns, summed up, and divided by the number of fund shares outstanding.

N

NT Securities: A brokerage house that created a custom execution platform that will accept both a Buy Stop and a Sell Short Stop on the same security for Best Choice users. Once the Buy Stop is executed, the Sell Short Stop is automatically converted to a Sell Stop to prevent being both long and short at the same time.

Naked Option Strategy: Selling an option without an offsetting risk-reducing position. This is not a sensible strategy as it leaves you vulnerable for catastrophic results. The 2 main strategies are selling a call or selling a put. If you sell a call and you own the stock, then you have the stock should it be called away from you. If you do not own the stock, this is known as being 'naked' because you do not have an offsetting position. The objective of a naked position is for the option to expire worthless and you keep the premium. In both naked cases, however, you are subjecting yourself to the unknown risks of having to buy a stock at a price above the current value, resulting in a loss money.

National Association of Security Dealers, Inc. (NASD): The self-regulatory organization of the securities industry responsible for the regulation of the over-the-counter markets.

National Association of Securities Dealers Association Quotes (NASDAQ): A completely electronic stock exchange established in 1971. There is no physical trading floor as there is with the NYSE where individuals negotiate prices. Instead, all prices and trades are settled electronically by a nationwide network of member stock brokerages, known as market makers, linked together by a central computer. Once a company is approved and listed on the NASDAQ National Market, the market makers are able to quote and trade the company's securities through a Level 1 or Level 2 electronic trading system. For more information, go to their website www.nasdaq.com

NASDAQ National Market: The NASDAQ National Market is a group of more than 3,500 companies that have a national and/or international shareholder base. They must meet stringent financial requirements, agree to specific corporate governance standards and have applied for listing.

NASDAQ Stock Market: The NASDAQ Stock Market is a major national and international stock market that uses computers and telecommunications for the trading and surveillance of more than 3500 securities. The Nasdaq Stock Market is built on a unique system of competing Market Maker firms that list specific prices for the sale or purchase of securities. The Nasdaq Stock Market also is unique in its use of a flexible computer-screen trading system that enables people to trade by computer from wherever they are located.

Net Asset Value (NAV): The total value of a mutual fund's investments. The net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.

Net Change: The difference between the previous day's last trade and today's last trade.

New Issue: Securities that are publicly offered for the first time, whether in an IPO or as an additional issue of stocks or bonds by a company that is already public.

Non-Equity Option: An option whose underlying security is not common stock, e.g., index options.

Normal or Regular Chart: An arithmetic chart showing price movements as bars. The bars show the range from the "high to the low" of a stock for each day. As the prices rise each bar is higher, than the previous day. If the prices are falling, the bar is lower than the previous day. The current day is always shown on the right hand edge of the chart. The open can be shown as a small horizontal line on the left of the bar and the close is usually a small horizontal line on the right of the bar. A chart only shows data. It has no implications about the future.

NYSE (New York Stock Exchange): The oldest and one of the largest exchanges in the world. Securities are traded in an auction style approach where buyers and sellers (floor traders) haggle over prices. For further information see their website www.nyse.com

NYSE Composite Index: An index that covers the price movements of all stocks listed on the New York Stock Exchange

O

OCO (One Cancels Other): You place two orders to occur at some point in the future on the same stock. When one of the orders is executed, the remaining order is cancelled. This type of order is not used with Best Choice. When we place 2 orders, the second order acts as a protective stop for the first order and should not be cancelled.

Odd Lot: An order to buy/sell fewer than 100 shares of stock.

Offer: The price a seller wants for his stock. It can also mean the price at which a Market Maker is willing to sell.

Open: The price of the first transaction of the day

Open Interest: The number of options or futures that remain open (not liquidated) at the close of a trading day. An opening transaction increases the open interest, while a closing transaction reduces the open interest. As open interest rises and falls, it indicates money flowing into or out of options or futures contracts. This can be interpreted as showing sentiment and liquidity.

Open Order: An order placed into the system to buy or sell a security that remains in effect until it is either canceled by the customer (trader) or executed. A market order placed during the trading day would not be an open order, because it is an immediate order to execute.

Opening Transaction: A trade that adds to the net position of an investor. An opening buy trans action adds more long securities to the account. An opening sell transaction adds more short positions.

Options: A financial instrument that gives the owner the right to buy or sell shares of stock at a specified price (strike price) within a specified period of time (expiration date).

Options Clearing Corporation (OCC): The issuer of all listed options contracts that are trading on the national options exchanges.

Order Book Official: An exchange employee who handles public limit orders on exchanges, utilizing the market-maker system rather than the specialist system of executing orders.

Oscillator: Technical indicators that help determine when a market or stock has reached an important point, such as an extremely overbought or oversold condition.

Out of the Money (OTM): An option that has no intrinsic value. For a call, this is a strike price above the current price and for a put this is a strike price below the current price. See also At the Money, In the Money

Outside Bar (Outside Day): A stock that has traded both above and below yesterday's range. It is identified by today's price being higher than yesterday's high and today's low being lower than yesterday's low.

Overbought: A technical description for a market in which the price has risen relatively quickly and is not justified by the underlying fundamental factors and may encounter a sell off.

Oversold: A technical description for a market in which prices have dropped faster than the underlying fundamental factors would suggest and may be ready to rebound.

Over-The-Counter (OTC): Securities that are not listed and traded on an organized exchange.

Over- the-Counter Option (OTC): An option traded off the exchange, as opposed to a listed option. The OTC option has a direct link between the buyer and seller, (no secondary market and no standardization of striking prices or expiration dates).

P

Par value: The face value of a security.

Paper Trading: The simulated trading of securities used as a learning device for training investors or traders before committing real money in the market.

Parity: An in-the-money option trading for its intrinsic value, e.g., an option trading at parity with the underlying stock. Also used as a point of reference. An option is aid to be trading at a half point over parity or at a quarter point under parity. An option trading under parity is a discount option.

Pattern Recognition: Being able to recognize a chart pattern that indicates a possible buy or sell short opportunity based on the past success of this pattern.

Penny Stock: The cheapest of all OTC stocks that are often listed on the "pink sheets", pink paper. These are companies that are nearly bankruptcy and have very suspect futures. These stocks are high risk ventures.

Pennant Formation: A price pattern that resembles a pennant. It is a consolidation of price movement. It can be considered a price "resting period" before it breaks out either up or down.

Pink Sheets: Daily listing of OTC securities not listed on the Nasdaq. Now available on the OTC Bulletin Board

Pivot - a reversal of direction in price. For example, lets say for three days IBM has made new highs and new lows. Then, on the fourth day, it makes a lower high and a lower low. That is a one day high pivot. The third day has one day on each side of it with a lower high. It does not necessarily have to have lower lows. A one day low pivot would be a day that had one day on each side of it with higher lows. A two day low pivot is a day with two days on either side of it with higher lows. Some people name this last example a five day pivot, since there are five days total to make the pivot. They are not wrong, but the Best Choice program will use the previous definition.

A point where price reverses direction. It is identified by at least a 3-day series of prices. A high pivot is identified by the center day having a higher intraday high point than the day on either side. This highest point is called a pivot. The high pivot point is where the market stopped going up and started going down. It is considered a point of resistance to upward movement. It is called a 1-day high pivot because there is one lower high on either side. The third day must pass to define the second day as the high point. A low pivot is a series of at least 3 days and the center day has a lower intraday low than the day on either side. This is the point where the stock stopped going down and started going up. It is considered a point of support to the downward movement. A 2-day pivot would consist of a 5-day series where there are 2 days on either side of the pivot. A 1-day pivot is normally used as a stop because a 2-day pivot would require at least 2 days to pass before the point is identified.

Pivot Point: The point where a stock reverses direction. It is based on a series of at least 3 days.

Point: A term to indicate the smallest unit of price change quoted.

Portfolio: The group of investments held by an investor or mutual fund.

Position: Specific securities in an account. It can also mean to buy or sell securities, thereby establishing a position.

Premium: The price paid for an option. It is the sum of the intrinsic value and the time value. The premium always contains time value. If the option is an in-the-money option, the premium contains intrinsic value as well. Option premiums do not constitute a "down payment." The premium is simply and entirely a non-refundable payment from the option buyer to the option seller for the rights conveyed by the option. A premium does not include related brokerage commission fees. The premium is the maximum amount an option buyer may lose. An out-of-the-money option may have no premium because it is basically worthless and nobody wants it.

Price: It is the amount of money a buyer and a seller agree a stock is worth at a specific time. It is the level that the trade occurred. It can also be considered as how much a buyer is willing to pay for a stock or how much a seller wants for his stock.

Price - "what the greater fool is willing to pay"

Price/Earnings Ratio (P/E): The current price of a stock divided by annual earnings per share. It gives a measure of how expensive a stock price is in relation to what the company is actually earning. For example, a P/E ratio or 20 means you are paying $20 for $1 of annual earnings. If another stock in the same industry group has a P/E ratio of 10, this means you are only paying $10 for $1 of earnings. Normally, a stock has a higher P/E ratio if it is growing faster and has a high growth rate. In this case, investors are willing to pay more for the stock. There is also a higher risk that the stock may collapse.

A stock's P/E also indicates how many years of earnings at the present rate will be required to produce the current price. For example, a P/E ratio of 20 means that the stock will take 20 years of earning money at the current rate to equal the current price.

More important than the P/E ratio is that rate that it is changing. An increasing P/E ratio is bad because the risk is increasing. A decreasing ratio is good because the stock is looking more attractive. This is apparent in the Best Choice slopes between the yellow price and green earnings lines.

Always remember that a buyer of a stock is not only buying a fraction of the company, but he is buying an income producing entity. The P/E ratio identifies this. A growth stock typically has a higher P/E ratio than a value stock.

Prime Rate: The interest rate banks charge their most credit worthy commercial customers.

Probability Indicator: Best Choice displays two hash marks to the right of the current price bar on the short-term charts indicating that the stock should break out the following day. If we are able to determine with a 75% probability the direction the market should move the next day, we will color one-half of the hash mark light blue. If the indicator is on the top hash mark, the probability is the move will be up. If the indicator is on the bottom hash mark, the probability is the move will be down. A 90% probability will be displayed in purple. While these probabilities are correct most of the time, they are not guaranteed. A 75% up probability also means that there is a 25% down probability. The fact remains that the market determines which way it wants to go.

Profit: The net amount of money a trader makes on a transaction. At a company level it is the revenue minus cost.

Protected Strategy: A position with a limited risk. A protected short sale (short stock, long call) has limited risk; as does a protected straddle write (short straddle, long-out-of-the-money combination).

Proxy: As a stockholder, you have a voice in how the company is run. A proxy is a mail in vote on naming a board of directors or other proposal that mandates a shareholders approval.

Pullback: After a stock breaks out of its trading range and advances, there is usually at least one profit-taking correction that brings the price of the stock down closer to its breakout point.

Put Option: An option contract that gives the buyer of the contract the right to sell a specific stock at a certain price (strike price) before a certain date (expiration date). The buyer's risk is his purchase price (the premium). One put contract is normally for 100 shares of stock and strike prices are at fixed increments.

A put buyer has the right to either sell the stock at the strike price (exercising the option) or sell the option prior to expiration. The put buyer has the option of action. Buying a put contract is not selling the stock. It is only the right to sell the stock at a certain price. Put buyers have no obligation to sell the stock and can sell their option at any time. Put buyers expect the price of the stock to go down so the put will be worth more in the future. If the stock goes down, there is a potential profit of the entire value of the strike price. Most options expire worthless and the buyer's loss is limited to the premium paid.

A put seller receives money (the premium) from the buyer. A put seller is also called the writer of the option. A put seller is obligated to buy the stock at the strike price at any time, if the put buyer exercises the option. If the put seller is naked (does not have an risk off-setting position) he must have money in his account to pay for the stock. If the stock is "put" to the put option seller, the seller must purchase the stock at the strike price regardless of what the current price is. Consequently, sellers have an undefined risk if the price of the stock goes down. The most they could lose is if the stock becomes completely worthless and they have to buy it at the strike price. Sellers hope the price will rise so that the put will be worth less in the future. Most puts expire worthless at expiration and the most money a seller can make is the initial premium he received.

There are three types of puts: At-The-Money (ATM), In-The- Money (ITM) and Out-of-The-Money (OTM). This refers to the relationship between the current price of the stock and the strike price.

Put/Call Ratio: The ratio of the sum of open interest of Puts divided by the sum of open interest of Calls. This is used as a contrary indicator. When the Put/Call ratio is low, there are more calls than puts. With a higher level of calls, the market is regarded as optimistic or overbought which carries a bearish implication. When the ratio is high, this means that there are more outstanding puts than calls. With a higher level of puts, the market is regarded as pessimistic or oversold which is bullish. Thus, the put/call ratio is a sentiment indicator measuring investors expectations.

Q

Quarterly Earnings - see "Earnings"

R

Range: The difference between the high and low of a stock for a given day.

Rate of Return: The percentage rate of return on an investment = the return/ the investment.

Resistance: A prior high pivot point. A term in technical analysis indicating a price area higher than the current stock price, where an abundance of supply exists for the stock and therefore the stock may have trouble rising through the price. If it fails to break this resistance area, it will often move in the opposite direction.

Retracement: When a stock has had a strong price move to the upside or downside, the price will correct or retrace some part of that move before continuing the original trend. The 50% retracement is the most commonly used. Other levels called Fibonacci numbers are 38% and 62%. These are usually very reliable.

Return on Investment: A measurement of how much an investment makes based on the money invested.

Risk: The measurable possibility of loss. In Best Choice, the difference between the buy and sell stops is the risk.

Risk/Reward Ratio: The process of measuring potential risk or loss of capital, against potential rewards or gains. For example, if you play the lottery, your dollar is the risk and the potential reward is in the millions. The probability of winning is extremely low, but at least it is not zero. If you do not risk at least one dollar, then you have zero chance of winning.

In Best Choice, we calculate the $Win/$Loss ratio. If you have a game with a 50/50 chance of winning and when you win you make $5 and when you lose you lose $1, this is a great game to play. By evaluating stock performance on past trades, we calculate this $Win/$Loss ratio. This separates great trading stocks from losers. It also helps a trader focus on the characteristics that make a great trading stock to profit in the future.

Roll Down: to close out options at one strike price and simultaneously open other options at a lower strike price.

Roll Forward: To close out options at the near-term expiration date and open options at a longer-term expiration date. Also called 'roll out'. This is a good strategy and it can be done more than one time in an expiration cycle

Roll Up: To close out options at a lower striking price and open at a higher striking price.

Round Lot: A unit or lot size generally consisting of shares in round numbers of 100.

S

Securities and Exchange Commission (SEC): The government agency that regulates the US Stock and Bond Markets, registered investment advisors, brokers/dealers, and mutual fund companies. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC. For more information about their rules or definition go to their website: www.sec.gov

Secondary Market: Any market in which securities can be readily bought and sold after their initial issuance. The national listed options exchanges provide a secondary market in stock options.

Secondary Offering: A new issue of stock from a company that has already floated stock.

Securities: Stock, bonds and options.

Series: All option contracts on the same underlying stock having the same striking price, expiration date, and unit of trading.

Sell Short Stop - a marker placed with your broker at a certain stock price indicating where you would like to sell the stock to start a transaction. See the definition of "Short" to get a better understanding of selling short.

Selling Short - See "Short"

Sell Stop: A conditional order placed to protect a long position. Should the stock fall in price and trade at or below the sell stop price, this order triggers a market order to sell the stock and exit the trade.

Sell Short Stop: A conditional order that is placed below the current price to borrow stock from the broker and sell it. The sell short stop is triggered when the price falls to the stop level and it is subject to the SEC's uptick rule. Before you can place this order, you must first see that the broker has the stock available to short. This is the start of a transaction, which ultimately must be completed and returned the stock to the broker. See the definition of "Short" to get a better understanding of selling short.

Share: A unit of ownership issued to shareholders by a corporation.

Short - going short, the opposite of going long. The process of selling a stock first and buying it back at a later date. You are said to be going short if you are bearish and plan to sell the stock first, and buy it back later at a lower price, thereby making a profit. This sometimes confuses people as they don't understand how you can sell something you don't own. What actually happens is the broker buys the stock first and lends it to the person going short so they can sell it.

Short: The process of borrowing stock from a broker and selling it with the intent to buy it back cheaper. You are said to be going short if you are bearish and plan to sell the stock first, buy it back later at a lower price, thereby making a profit. This sometimes confuses people as they don't understand how you can sell something you don't own. What actually happens is the broker must have the stock for the investor to be able to borrow it. Some stocks are on a hard to borrow list and if the stock is on the list, your order will be rejected. The completion of this trade is buying the stock back and returning it to the broker (covering the short). If the stock rises instead of falls, and you cover above your short price, you will lose on the trade. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

Short Interest: The number of shares of a financial instrument that had been sold short and at some point in the future must be re-purchased.

Short Option Position: The position of an option writer that represents an obligation to meet the term of the option if exercised.

Short Position: For equities, a short position occurs when an individual sells securities. Example: A seller of 1,000 shares of stock is said to be "Short the stock." Related: Long position.

Short Selling: The selling of a security that the seller borrows from his broker, and does not necessarily own, with the expectation that the stock will fall to a lower price. The difference between the price at which you sell the shares and the price at which you buy them back, is your profit (minus commissions). When you buy the stock, this in effect returns the borrowed shares to your broker.

Short Term Capital Gains: The realized profit on the proceeds from the sale of a stock or mutual fund held for 6 months or less.

Short Term Trader: Someone who buys or sells short a stock and is in the trade for a very short time. The time frame could be 1 day to several days. Using Best Choice this will usually average about 4 days, but at times could be from 2 days to 20 days.

Simple Moving Average: A moving average giving equal weight to each day's data over a specified time period.

Single Stock Future (SSF): A contract between two parties to buy or sell 100 shares of a certain stock in the future at a fixed price.

Slippage (getting slipped): A term referring to a trader not getting the best fill. For example, a stock is at $50 and a market maker has 2 minutes to fill a trade. You have an order to buy at $51. The stock runs through $51, where the market maker buys the stock, to $52 within the two minutes. The market maker then notifies you that you were filled at $52, thereby making a $1 profit from you, the trader.

Small Orders Execution System (SOES): On NASDAQ used mainly by individual traders with direct-access accounts. It requires Market Makers to fulfill certain order requirements.

Specialist/Market Maker: A person on the floor of an exchange or on a trading desk if the stock is unlisted (NASDAQ) who is responsible for giving a price where they will buy or sell the stock or option. A person assigned to a certain stock or stocks on the floors of NYSE and Amex, who must insure a fair and orderly market and fill orders out of his or her own account when no matching order exists. They trade for their own account. Note: when a brokerage firm trades for their own account, in addition to having public customers, i.e., you, it is called proprietary trading.

Speculator: For equities, a person who buys a stock with losing earnings in hopes the stock price will rise. For options and futures, a market participant who buys and sells in hopes of making a profit-adding liquidity to the market.

Spread: The difference between the bid (buy) and ask (sell) price.

Spread Order: An order to simultaneously transact two or more option trades. Typically, one option would be bought while another would be sold.

Spread Strategy: Any option position having both long options and short options of the same type on the same underlying security.

Standard Deviation: a measure of the volatility of a stock. It is a statistical quantity measuring the magnitude of the daily price changes of a stock.

Standard & Poor's 500 (S&P500): A benchmark index of 500 large stocks maintained by Standard and Poor's, a division of Mcgraw-Hill.

Static Return: The return on a particular position if the underlying stock were unchanged in price at the expiration of the options in the position.

Stochastics: The location of a current stock price in relation to its range over a set period of time. Developed by Dr. George Lane.

Stocks: The ownership of a small piece of a company. If the company has 1 million shares out and you own 500 shares. You own 1/2000 of the company. (500 shares x 2000 = I million). It is a form of equity participation in the outcome of the company.

There are 2 types of stock, common and preferred. Common stock is a slice of the company. You may receive dividends, although there is no guarantee, and if the company goes under, you will receive a share of the assets after all the other creditors have been paid. Preferred stocks have guaranteed and usually larger dividends. If a stock goes under, they get paid after the bondholders and before the common stock holders.

Stock Index Futures: Futures contracts based on the underlying stock index.

Stock Option: The right to buy (a "call") or sell (a "put") a particular stock at a particular price ( the "strike price") on or before a particular date (the "expiration date"). Normally an option represents a 100-share lot (an "options Contract").

Stock Split: A stock split represents a division of stock of an existing stock. For example, if a company declares a 2 for 1 split, a stockholder will get 2 shares for every one share that they own. In term, the price will be cut in half so that the stockholder will have the same amount of money invested. Thus, 100 share of a $20 stock is the same value as 200 shares of a $10 stock after the split. In Best Choice, we adjust the prior price and earnings (see split adjusted price).

Companies declare a split to reduce the overall cost for a 100-share lot. For example, a $100 stock would require $10,000 to buy 100 shares. If the company declares a 2 to one split, then the price is cut in half to $50 and more potential buyers could enter the market at only $5,000 for 100 shares.

When a company has had a dramatic decline, it may issue a reverse split to stay in business. For example, a stock that has fallen to 50 cents may issue a 1 for 10 reverse split. In this case, the stockholder that has 100 shares is given one share to replace every 10 shares he owns. Thus, he is left with 10 shares of a $5 stock. Companies give reverse splits to increase the value of 1 share of stock. This many times is done to keep the stock listed. On some exchanges if the stock price falls below $1 a share, it can be removed and listed as a bulletin board or penny stock.

Stock Symbol: The symbol chosen by a company to represent their stock on the ticker.

A stop order is Buy Stop Order - Investors typically use a stop order when buying stock to limit a loss or protect a profit on short sales. The order is entered at a stop price that is always above the current market price.

Sell Stop Order - A sell stop order helps investors to avoid further losses or to protect a profit that exists if a stock price continues to drop. A stop order to sell is always placed below the current market price.

Stop (Stop order, stop market, stop loss, stop exit, stop price): An order to buy or sell a stock once the price of the stock reaches a specified price, called a "stop price". When the stop price is reached, the stop order becomes a market order. This is why a stop order is sometimes called a "stop market" order. Buy stop orders are always placed above the market, while sell stop orders are always placed below the market. A stop order can be used to enter or exit a trade.

Stop orders to enter a new trade are normally used to catch a breakout either up or down. For example, if a stock is to move from $50 to $60, it has to move through $51. A stop order to buy at $51 will put you in this move. On the other hand, if the stock fell instead, from $50 to $40, your buy stop would not have been executed. Instead, if you had a sell-short stop at $49, you could be profiting from this down move. This is the principle used in Best Choice to enter trades in the short-term methods. We place 2 stop orders to put you in the correct direction of the move.

If you are long, you are in a trade and a sell stop can be used to exit the trade. This can be called a sell "stop exit", a sell "stop loss", or just simply a sell stop. You can trail a sell stop below the price movement as a protective mechanism to exit the trade in case the market decides to fall. If the market collapses, the stop will "stop you out" of your trade before it becomes a larger loss. The ideal is that if the price rises and moves in your direction, you want to protect an ever-increasing profit. You want to "move your stop". You could also have a price objective above the current market where you hope to profit at some predetermined level with a sell limit order. Sometimes, this is referred to as a stop order because it is an exit condition, but you are establishing a level, which is the "limit" price you will sell (see limit order).

If you are short, you are in a trade and a buy stop can be used to exit the trade. This can be called a buy "stop exit", a buy "stop loss" or simply a buy stop. You can trail a buy stop above the price movement as a protective mechanism to exit the trade in case the market decides to rise. If the market runs up, the buy stop will "stop you out" before you lose too much and you will cover your short. The ideal is that if the price falls and moves in your direction, you want to protect an ever-increasing profit. You could also have a price objective below the current market where you hope to profit at some predetermined level with a buy limit order. Sometimes, this is also referred to as a stop order because it is a conditional exit, but you are establishing a level, which is the "limit" price you will buy to cover your short.

In Best Choice, we don't use targets, because as long as the stock is moving in your direction, you should stay with it. For example, if you bought a stock at $10 and had completed the trade at your price object of $20, you should be happy. If the stock eventually moves to $100, you might ask yourself why did you set the price objective and were not willing to let the move run. A sound investment principle is to have a limited risk and an unlimited reward. Setting a target will limit your reward.

Stop Limit Order: Similar to a stop order, the stop limit order becomes a limit order, rather than a market order, when the security trades at the price specified as the stop price. The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. But, as with all limit orders, a stop-limit order may never get filled if the stock's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.

A stop limit order can have 2 prices associated with it. The first price is the stop price, which initiates the limit order at a separate price. For example, a stock is at $50. You want to buy it on a breakout if it exceeds $51, but you don't want to pay more than $52. The stop is the $51 and the limit is $52. If the stock opens at $53 and runs up to $60, then just like a limit order (see limit order), you missed the move.

NT Securities has one price with the stop limit order. For example, with a buy stop limit at 51 and the price moves from 50 to 51, the stop triggers the limit of 51order. Thus, if the price exceeds 51, it must return at or below 51 to be filled. If the order is for 1000 shares, and only 500 are available at 51, then only 500 shares will be filled. The buyer must wait until the price drops to 51 or less.

A buy stop limit order is placed above the current price and a sell stop limit order is placed below the current price. If the buy order were to be placed below the current price, it would be a buy limit and the stop would not be necessary. For example, if the stock last was 50, and you limit your buy to 49, there would be no need to place a stop. The stop only activates the trade. This is why the buy stop limit above the price, must have the stop to trigger the trade. Otherwise, with the price at 50 and you saying you will pay no more than 51, you will be filled immediately.

Limit and stop limit orders should not be used to exit a trade. Since it is possible they may not be filled, you may be hanging on to a rapidly losing position waiting for a price that never occurs. It is best to use a stop (stop-market) order to just get out at the best possible price.

Stop Loss (Stop Exit): A conditional trade exiting order to minimize a potential loss. If you are long, this is an order that sets the SELL price of a stock below the current market price to protect profits that have already been made or to prevent further losses if the stock price drops. If you are in a trade on the short side, this is an order that sets the BUY price of a stock above the current market price to protect profits that have already been made or to prevent further losses if the stock price turns upward.

Straddle: The purchase or sale of an equal number of puts and calls having the same terms, (i.e., strike price and expiration date). The trader is looking for the price to break strongly up or down.

Strangle: The purchase or sale of an equal number of calls and puts with the calls being for a strike price above the stock price and the puts being for a strike price below the stock price, both with the same expiration date.

Strategy: A preconceived logical plan of position selection and follow-up action.

Strike Price: The price that the buyer of a call or put can exercise their option. It is also the price at which the option allows the holder to buy or the writer to sell the underlying stock.

Suitable: Describing a strategy or trading philosophy in which the trader operating in accorance with his/her financial means and trading objectives.

Support: A price area lower than the current price of the stock, where demand is thought to exist. In many cases, a stock stops declining when it reaches a support area. It is a price level where a stock has ceased falling in the past as identified by a low pivot. It is also a price level where a stock is likely to encounter a greater demand and a lessening of supply to reverse a downward move. It will be supposedly difficult for the market to fall below this level.

Synthetic Put: a strategy equivalent in risk to purchasing a put option where an investor sells stock short and buys a call.

Synthetic Stock: An option strategy that is equivalent to a position in the underlying stock. A long call and a short put are synthetic long stock. A long put and a short call are synthetic short stock.

Swing Trader: Someone who buys or sells short a stock and is in the trade for a short period of time. This may be 2 days to possibly weeks but usually average 4 - 5 days.

Symmetrical Triangle Formation: A consolidating price pattern displayed between two trend lines sloping toward each other indicating that volatility has been reducing. When the price "breaks out," it usually resumes the prior trend and can be quite volatile.

T

Trailing Stop - an exit stop that "trails" or follows behind the current days prices based upon certain criteria. If you are long a stock position, then you would want to put a stop exit some distance below the low of each day. A trailing stop helps lock in the current profit that you might have on a trade, and also protects your position should the stock price go against your position. Click here for the different types of exit stops available in the Best Choice program.

Technical Analysis: The study of a market/stock action that utilizes charts displaying price patterns and volume. These charts with various indicators offer what some believe are predictive price movement and trends. The prediction of future price movements is based on observation of historical stock price movements.

Probably the most important aspect of technical analysis is understanding of support and resistance. If a stock has once pulled back and established a level of support (the stocks lowest price) this establishes a benchmark. Once the price drops past this support, this is considered very bearish and further drops are likely. Conversely, if a stock fails to go higher (highest point) a resistance level is established. If the stock eventually pushes past the resistance level, this is bullish and the stock may be poised to take off even further.

Tick: The smallest allowable increment of price movement for a stock or contract. An "uptick" occurs when the stock trades higher than the previous trade. A "downtick" occurs when the stock trades lower than the previous trade.

Ticker Symbol: Capital letters that identify a security, a mutual fund, an option or a futures contract listed on the respective exchanges.

Time Value: The amount of an option's premium that exceeds the option's intrinsic value,

Trader: A speculative investor who frequently buys and sells Compared to a long term investor, a trader is more active in the market, moving stops more frequently, and is more focused on the micro trends of a stock.

Trading Range: The neutral zone in the ongoing battle between buyers and sellers. It is the middle area between the high and low of the day.

Trading Halt: A temporary suspension of trading in a NASDAQ security, usually for 30 minutes.

Trailing Stop: An exit stop that "trails" or follows behind the current days prices based upon certain criteria. If you are long, you move your Stop Exit up as a stock advances in price. If you are short, you move your Trailing Stop down as your stock price falls. A trailing stop helps lock in the current profit that you might have on a trade, and also protects your position should the stock price go against your position. Click here for the different types of exit stops available in the Best Choice program.

Trend: A price pattern, which displays a strong upside or downside move. An up trend forms from a series of higher lows and higher highs. A downtrend forms from lower highs and lower lows.

Trend Line: A straight line connecting at least two pivot lows in an up trend or two pivot highs in a downtrend. The more points connected, the stronger the trend line. When the price breaks a trend line, a change in direction may soon take place.

Triangle (Also see Pennant): A chart pattern that has a triangular appearance. There are three types of triangles: Ascending, Descending & Symmetrical. A pattern that exhibits a series of narrower price fluctuations over time; top and bottom boundaries need not be of equal length.

Triple Bottom: Price pattern featuring three lows in approximately the same price area. When the pattern is completed, the indication is bullish.

Triple Top: Price pattern featuring three highs in approximately the same price zone. When the pattern is completed, the indication is bearish.

Triple Witching Day: The day when stock options, stock-index options and stock-index futures expire. Normally, it is a day of high volatility

U

Uncovered Option: A written option is considered to be "uncovered" if the trader does not have an off setting option or stock position.

Underlying: In terms of options, the underlying of the option is the stock, index or future that the option is based upon. For example, if you are talking about an IBM February 2004 100 Call Option, IBM is the underlying of the Februray 2004 100 Call Option.

Undervalued: Describing a security that is trading at a lower price than it logically should (usually determined by the use of a mathematical model).

Up Tick Rule: This is a rule that applies to selling short. The SEC says that "an exchange-listed security may only be sold short: (1) at a price above the immediately preceding reported price ("plus tick"), or (2) at the last sale price if it is higher than the last different reported price". Thus, price movement must have an up tick, before a sell short order can be executed. This rule was initiated to maintain an orderly declining market. It allows the owners of the stock to sell before a short seller enters the market.

Up Trend: A series of higher highs and higher lows in a given stock on a chart which will continue until you no longer make new highs.

Up Trend Line: A line that connects the lowest low and a later low which will subsequently form a line in an upward direction.

V

Value Stocks: Stocks that own assets that should the company be broken up represent significant value. This represents a perceived value and does not guarantee the price will go up.

Variable-Ratio Write: An option strategy in which the investor owns 100 shares of the underlying security and writes two call options against it, each having a different striking price.

Vertical Spread: Any option spread strategy in which the options have different strike prices, but the same expiration dates.

Volatility: The term used to describe a stock's price fluctuation. A measure of the amount a security is expected to fluctuate in a given period of time. It is measured by the annual standard deviation of the daily price changes in the security. A high volatile stock has wide price fluctuations and appears unstable. This may be due to rumors or speculations and generally has a roller coaster appearance. Volatility is not equal to the beta of the stock. Volatility is also a variable that appears in option pricing formulas (see implied volatility), where it denotes the volatility of the underlying asset return from now to the expiration of the option.

In Best Choice, a stock volatility is represented by the width of the three yellow lines. A wide distance between the lines represents high volatility and narrow bands represents low volatility. Investors want low volatile stocks and traders want high volatile stocks. All stocks have some degree of volatility. Knowing you own risk tolerance can help establish how you want to participate in the markets. Normally, we prefer buying a stock at the lower yellow band because that is where price is at its low end of volatility. A stock at the high yellow band has a higher probability of dropping based upon its past performance.

Volume: The number of shares or options of a particular stock trading within a particular time frame. Normally, the national markets and exchanges operate between the hours of 9:30 am and 4:00 pm. This is the daily number of shares of a security that change hands between the buyers and the sellers.

W

Weighted Moving Average: Moving average utilizing a specific time period but giving greater weight to recent price data (closing prices).

Write: To sell an option. The trader who sells is called the writer

X

Y

Yield: The annual rate of return on a investment as paid by a dividend or interest.

Z

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