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Some Common Stock Market Investing Terms Bookmark

Options: Options are the right but not the obligation to buy a stock at a certain price for a specified amount of time. When you buy an option,

Options: Options are the right but not the obligation to buy a stock at a certain price for a specified amount of time. When you buy an option, you really don't want to exercise that option; you want it to increase in price and then sell it. Call Options increase in value if the stock increases in value. Put options increase in value when the stock falls in value. (YES it is true that you can make money in the market even when the stock is falling like a stone!)

Charts: Although no one can really say what tomorrow will bring, charts are like road maps showing where a stock has been and how it handled certain situations. By learning to read a chart really well you have a much better idea of what a stock may do in the future. We think good chart skills are very important, and you should learn all you can about reading them.

Splits: a good company declares a split when it thinks that it's stock price has gotten to a level that puts it out of the grasp of most buyers. The most common type is a 2-for-1 split, and that simply means that if you own 100 shares of XYZ for 50 dollars and XYZ announces a split, you will then own 200 shares at 25. The value stays the same, but what interests us as traders is that when a company announces one, it usually boosts the price a lot. These are some of our most profitable plays, and learning how to play them is an absolute necessity.

Buy Backs: This is when a company is so high on it'self it announces that they think their own stock is a great investment and are going to buy back a block of their own stock. That usually tends to make the stock rise and can be very profitable.

FDA Approvals: When a drug company announces it got FDA approval for a new drug, the stock generally flies on the news. That is because the market for it could be huge, or in the case of Pfizer's drug Viagra, it could become the biggest drug in the world. FDAs are big news.

Earnings Reports: If a company beats what the analysts thought they would make for a fiscal quarter, that is big news and the stock usually flies. If they miss estimates LOOK OUT BELOW as the stock can be severely punished!

Slams: This happens when a company loses a gazillion points in one day, usually over bad earnings, or a product recall. They are usually overreactions and can bounce up quite nicely the next day!

Peaks: Just the opposite of a slam, peaks occur when a stock has risen too fast and can't hold the price. People who trade put options love peaks as they make money as the stock falls back down.

Upgrades: An upgrade is when an analyst from a financial institution thinks a stock should be considered a buy or an outperform. This is his way of saying "this company is cheap at this price, buy it." Usually a strong upgrade from a big institution is worth some points.

Sectors: All stocks fit into some type of category. For example, Kmart would be in retail and American Express in financial. It is wise to recognize who is in what "sector" so that you know what is being talked about when you hear "the transports are hot today" (Delta, American Air, United, Trucking, etc.)

Bottom Fishing: This is a term used to describe looking at very, very cheap stocks with the hope that maybe someday...

Rolling Stocks: These are stocks that seem to roll up to a certain price level, then roll back down again only to roll back up again!

Breakout: This refers to stocks that just broke through that upper price level they have been rolling to and are now in blue-sky territory. These can be very powerful movers!

Penny Stocks: This is a term of the trade for stocks that cost less than 5 dollars. (Also notice that no options are available for stocks under 5)

IPOs: This is an Initial Public Offering, and what that means is a company that wasn't publicly traded is now available to trade.

Fundamentals: This is what we can use to determine if a stock is over or under value. It is a collection of data about the company such as price to earnings ratio, market capitalization, sales, debt, etc.

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