Login

Dictionary of Terms & Phrases

There are a lot of terms with investing, here are some of the more common ones.

 

Collar
A collar is a combination of derivatives which allow an investor to minimize risk.  The owner of a stock sells a CALL option, selling a right to buy his/her shares at a given price for some period of time.  Using that money, the owner then buys a PUT option, buying the right to sell his/her shares at a given price for some period of time.  This is a defensive strategy, designed to minimize losses in exchange for a reduced gain.

 

De-listed
When the price of a stock falls below a certain threshold (typically around $1), the stock exchange removes it from the list of stocks for which it handles transactions.

 

Derivatives
The two most common stock derivatives are CALL and PUT options.
A CALL option is a contract where investor A pays investor B for the right (but not obligation) to buy B's shares at a certain price during a certain time frame.  This is not the actual SALE of the stock - just the right to buy.
For example, stock ABC is current selling for $18.  investor B sells a CALL option for stock ABC at $20.

 

Dividend & DPS (Dividend Per Share)
A dividend is how a company shares its profits with its owners, the stockholder.  Some companies pay dividends when profitable, announces how much of a dividend it will pay for each share of stock owned.  Some companies like Coca Cola (NYSE: KO) have paid dividends very reliably, while others like Apple (NASDAQ: AAPL) do not.

 

IPO (Initial Public Offering)
An IPO is when a company first offers its stock for sale.  While this often is used for a newer, expanding company, some privately-help established companies may offer an IPO.  A recent example is Dunkin' Donuts (NASDAQ: DNKN), which despite being founded in 1950, didn't publicly sell stock until 2011.  Its IPO on May 4, 2011 raised over $400 million in capital.

 

Portfolio
A portfolio is a collection of stocks owned by an investor.

 

Short Selling
When an investor believes a stock will decrease in price, he may choose to "short sell" the stock.  This means he borrows the stock from another investor (for a lending fee) to sell immediately with the agreement to repurchase ("cover") the stock and return it to the lender at a later date (hopefully when the stock has decreased in price).