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Call option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. You profit on a call when the underlying asset increases in price.

Dividend
A share of the company's profit which is paid out to its shareholders. When a company makes profit it can decide to pay a part of this profit to its shareholders. It is however not obvious that this is the case. A company can for example choose to reserve money for future investments. High-growth companies rarely offer dividends because all their profits are reinvested to help sustain higher-than-average growth. The percentage of the profit that is paid as dividend is called pay-out ratio. Dividend can be paid in cash or in shares. When dividend is paid out in shares we speak of stock-dividend.

Dividend per share
Dividend devided by the number of shares outstanding.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
An indicator of a company's financial performance which is calculated as: Revenue - Expences (excluding interest, taxes, depreciation and amortization).
EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

Earnings per share (EPS)
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. The ratio is calculated by deviding a company's net income minus dividend on preferred stocks by the average amount of outstanding shares.

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio.

For example, assume that a company has a net income of $20 million. If the company had 7 million shares for one half of the year and 13 million shares for the other half, the EPS would be $2 (20/10).
An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number.

Ex-dividend
The trading of shares when a declared dividend belongs to the seller rather than the buyer. A stock trades ex-dividend on or after the ex-dividend date (ex-date).

Fundamental analysis
Security analysis that seeks to detect misvalued securities through an analysis of the firm's business prospects. Research often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, GNP, inflation, unemployment, and inventories is used to predict the direction of the economy, and therefore the stock market. In microeconomic analysis, information such as balance sheet, income statement, products, management, and other market items is used to forecast a company's imminent success or failure, and hence the future price action of the stock.

Growth stock
A stock that experiences a continued period of growth exceeding that of the economy. These stocks have a strong increase of Earnings per share. Supernormal growth stocks will normally revert back to normal growth after a few years.

Intrinsic value

For companies: The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.

For options: For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero.

Investment fund
Stock portfolio that is managed by a professional (fund manager) and in which everyone can participate. Advantages of an investment fund are the involvement of a professional so that you don't need to worry about analysis. Be aware however that a fund manager uses the same ratios and have the same data available as private investors. And the biggest disadvantage is obvious: the costs of investment funds are high (most of the times it isn't exactly clear how high, but you can be sure that these costs cover at least the fund manager's salary and the investment company's overhead costs) and portfolio insight is generally low. Moreover a fund manager is restricted to certain (company) rules.

Liability
A company's legal debts or obligations that arise during the course of business operations. These are settled over time through the transfer of economic benefits including money, goods or services.

Recorded on the balance sheet (right side), liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. Liabilities are a vital aspect of a company's operations because they are used to finance operations and pay for large expansions.

Long (position)
Stocks: The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. For example, an owner of shares in McDonald's Corp. is said to be "long McDonald's" or "has a long position in McDonald's".

Options: The buying of an options contract. For example, buying a call (or put) options contract from an options writer entitles the you the right, not the obligation to buy (or sell) a specific commodity or asset for a specified amount at a specified date.

MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

The most common method used to interpret the MACD is Crossovers. When the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.

Market capitalization
Calculated by multiplying the number of shares outstanding by the current market price of one share. If a business has 50 shares, each with a market value of $10, the business's market capitalization is $500 (50 shares x $10/share). It is a measure of a company's total value. It is estimated by determining the cost of buying an entire business in its current state.

The market capitalization reflects in fact the scope of a stock. Large caps are stocks with a large market capitalisation (normally > $10 billion), mid caps are stocks with an average market capitalisation (between $1 and $10 billion) and small caps are stocks with a small market capitalisation (normally < $1 million).

Market order
An order to buy or sell a stock immediately at the best available current price. A market order is sometimes referred to as an "unrestricted order".

New issue
A reference to a security that has been registered, issued and is being sold on a market to the public for the first time. New issues are sometimes referred to as primary shares or new offerings. The term does not necessarily refer to newly issued stocks, although initial public offerings are the most commonly known new issues. Securities that can be newly issued include both debt and equity.

Obligation
An obligation is the legal responsibility to meet the terms of a contract. If the obligation is not met there is often recourse for the other party to the contract.

Option
A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.

Option price
Also called the option premium; the price the buyer of the options contract pays for the right to buy or sell a security at a specified price in the future.

Owner's equity
Paid-in capital plus donated capital plus retained earnings less liabilities.

Owner's equity per share
Owner's equity devided by the number of shares outstanding.

Payout ratio
The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings.

For example, a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends.

Premium
At options: The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity.

Price-earnings ratio (P/E ratio)
A valuation ratio of a company's current share price compared to its per-share earnings. For example, if a company is currently trading at $50 a share and earnings over the last 12 months were $2 per share, the P/E ratio for the stock would be 25 ($50/$2).

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

Price-sales ratio (P/S ratio)
A ratio for valuing a stock relative to its own past performance, other companies or the market itself. Price to sales is calculated by dividing a stock's current price by its revenue per share for the trailing 12 months.

Put option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price.

RSI
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. The RSI is best used as a valuable complement to other stock-picking tools.

Shares
Certificates or book entries representing ownership in a corporation or similar entity.

Short (position)
Derivates: The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. For example, an investor who borrows shares of stock from a broker and sells them on the open market is said to have a short position in the stock.

Options: The sale (also known as "writing") of an options contract. For example, selling a call (or put) options contract to a buyer entitles the buyer the right, not the obligation to buy from (or sell to) you a specific commodity or asset for a specified amount at a specified date.

Stock dividend
A dividend payment made in the form of additional shares, rather than a cash payout. Also known as a "scrip dividend."

Stock option / share option
Option which shares as underlying value. Also see option.

Stock price
Price you have to pay for a share as a result of supply and demand of a certain stock.

Stock split
A type of corporate action where a company's existing shares are divided into multiple shares. Although the amount of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because no real value has been added as a result of the split.

In the U.K., a stock split is referred to as a "scrip issue", "bonus issue", "capitalization issue" or "free issue".

Stop order (Stop-loss order)
An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.

Technical analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Technical analysts believe that the historical performance of stocks and markets are indications of future performance.

Time value
For options: The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and the idea that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.

Underlying
The security that must be delivered when a derivative contract, such as a put or call option, is exercised.

The price of the underlying is the main factor that determines prices of derivative securities, warrants and convertibles. Thus, a change in an underlying results in a simultaneous change in the price of the derivative asset that is linked to it.

Value stocks
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.

A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth.

Volatility
Statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values.

Yield
General: Yield is the annual rate of return for any investment and is expressed as a percentage. Investors can use yield to measure the performance of their investments and compare it to the yield on other investments or securities. Higher risk securities generally offer higher expected yields as compensation for the additional risk incurred through ownership of the security.

Stocks: Yield can refer to the rate of income generated from a stock in the form of regular dividends. This is often represented in percentage form, calculated as the annual dividend payments divided by the stock's current share price. Investors looking to generate income or cash flow streams from equity investments commonly look for stocks that pay high dividend yields, in other words, stocks that provide a relatively large amount of annual cash dividends for a relatively low share price.