The American Association of Individual Investors (AAII) is an organization headquartered in Chicago that is committed to the investment education of its more than 150,000 members, with annual membership dues of approximately $29.
An American Option is a type of options contract that can be exercised on any business day prior to its expiry date, providing flexibility to the option holder. This contrasts with a European Option, which can only be exercised at its expiration date.
Customer's order to a broker to buy or sell a security at the price that applies when an exchange opens. If the order is not executed at that time, it is automatically canceled.
Automatic reinvestment is a financial process by which dividends or capital gains distributions from investments are automatically used to purchase more of the same or additional types of securities.
A back-end load is a fee incurred by an investor when selling shares from a unit trust or investment trust, deterring short-term speculation and rewarding longer-term investment.
A bargain hunter can either be a consumer highly sensitive to prices or an investor seeking undervalued stocks with the hope for price appreciation.
The purchase of assets or other goods for substantially less than the fair market value. A bargain purchase can be made when the vendor is in liquidation or is otherwise financially distressed.
A call option is a financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price within a fixed timeframe.
Closed-End Mutual Funds are investment companies that operate with a limited number of shares outstanding. Unlike open-end mutual funds, which create new shares to meet investor demand, closed-end funds have a fixed number at inception.
Closet indexing involves structuring a mutual fund or other managed portfolio to nearly replicate an index while avoiding full disclosure and charging active management fees.
Contrarian investing is a strategy that involves going against prevailing market trends by buying assets that are performing poorly and selling those that are performing well. Contrarian investors believe that markets often overreact to news and developments, leading to opportunities for buying low and selling high.
A covered option is a type of option contract that is backed by the shares underlying the option. It involves the holder of the option also owning the equivalent amount of the underlying shares, reducing the risk compared to naked options.
A dip refers to a slight drop in securities prices after a sustained uptrend. It’s often seen as a buying opportunity for investors.
A method of buying and selling stocks around their ex-dividend dates to collect the dividend and potentially make a small profit on the trade.
An Efficient Portfolio of investments represents a combination that maximizes the expected return for a given level of risk or minimizes the level of risk for a given expected return.
Equity financing involves raising capital through the sale of shares in a company, providing stakeholders with ownership interests in contrast to accruing debt.
A bear market where investors who sell incur substantial losses, while potential investors prefer to remain liquid until market conditions improve. Like a graveyard, those who are in cannot get out, and those who are out have no desire to get in.
Indexing refers to the method of adjusting various economic interests—such as wages, taxes, and investment portfolios—based on the performance of a specific index, like the S&P 500 or the Consumer Price Index (CPI).
Inefficiencies in the market occur when investors fail to recognize the true value or risks associated with a particular stock or bond. These inefficiencies contradict the Efficient Market Hypothesis (EMH), which posits that current prices reflect all available information about securities. However, discrepancies between theory and practice provide opportunities for arbitrageurs to profit from market inefficiencies
Land banking refers to the process of purchasing land that is not currently needed for use but is expected to be utilized or gain value in five to ten years. This practice is often employed for real estate investment and urban development purposes.
A Margin Call is a demand, usually resulting from the price decline of a security bought on margin, that a customer deposit enough money or securities to bring a margin account up to the initial margin or minimum maintenance requirements. If a customer fails to respond, securities in the account may be liquidated.
In the context of the stock market, the term 'Nifty Fifty' refers to 50 stocks that were once highly favored by institutional investors, achieving immense popularity particularly during the bull markets of the 1960s and early 1970s. These stocks were considered premium holdings due to their strong growth potential and favorable market performance.
The term 'On Margin' refers to the act of purchasing securities by paying only a fraction of their price and borrowing the rest from a broker or a financial institution. This practice allows investors to buy more securities than they could with their available funds, using leverage to amplify potential gains or losses.
An optionee is an individual or entity that receives or purchases an option, which grants them the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time period.
Out of the Money (OTM) is a term used to describe an options contract that currently holds no intrinsic value. Specifically, a call option is OTM if the strike price is higher than the current market value of the underlying asset, whereas a put option is OTM if the strike price is lower than the current market value of the underlying asset.
A passive investor is an individual or entity that invests money but does not actively manage the business or property in which they invest. They typically seek long-term investment returns with minimal day-to-day involvement.
Premium income refers to the income received by an investor who sells a put option or a call option. This income serves as compensation for the risk taken by writing the options.
A profit-taking strategy is a method employed by investors and traders to sell an asset and secure profits after it has achieved a predefined target price.
The theory that financial market prices move without any memory of past movements, suggesting that their movements do not follow any predictable pattern.
Repackaged perpetual debt is a financial instrument originally issued as perpetual debt, which carries a high-interest rate for a set number of years before interest payments cease or diminish significantly. The residual value is negligible, and the issuer often transfers the debt to a friendly third party for redemption at a nominal amount.
Risk Arbitrage, also known as takeover arbitrage, is a strategy involving the simultaneous purchase of stock in a company being acquired and the sale of stock in its proposed acquirer.
Understanding risk-averse investors who prioritize security over potential higher returns.
Risk vs. Reward is a financial concept that attempts to compare the potential fluctuations, especially the downside, with potential benefits to determine whether the proposed investment or cost is worthwhile.
A Riskless Transaction refers to a trade that guarantees a profit to the trader who initiates it, eliminating any potential for a financial loss. These transactions are generally achieved through methods like arbitrage.
Selling short against the box is a strategy wherein an investor sells a stock they already own but have kept in a brokerage firm's safekeeping, known as the 'box,' to defer capital gains to the following tax year.
Short selling is a trading strategy where an investor borrows shares and sells them on the open market, planning to buy them back later for less money.
A market participant who seeks to profit from buying and selling financial instruments, generally taking on substantial risk and adding liquidity and capital to the markets.
A stock buyback, also known as a share repurchase, is a process where a company purchases its own shares from the marketplace, reducing the number of outstanding shares.
A stock symbol, also known as a trading symbol, is an abbreviation (typically one to four letters) that uniquely identifies publicly-traded companies on stock exchanges.
A stop-loss order is a directive given by an investor to a broker to sell a financial instrument, such as a stock, when it reaches a specified price point in order to cap the investor's loss.
A straddle is an options strategy involving the purchase of both a put and a call option on the same asset, with the same strike price and expiration date. This strategy capitalizes on significant price movements in either direction.
A sweetener is a feature added to a securities offering to make it more attractive to purchasers, often enhancing its appeal and increasing the likelihood of the security being successfully issued.
An uncovered option, also known as a naked option, refers to an option contract where the writer of the option does not hold the underlying security or the sufficient cash to cover the position, making it a high-risk strategy.
