Glossary

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10K An audited report of a corporation's year-end financial results and operations filed annually with the SEC. 12b-1 Fee A mutual fund expense such as advertising, public relations and distribution costs that are paid by shareholders.

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Abandon The act of an option holder in electing not to exercise or offset an option. ACAT For transfers of securities from a non-equity trading account to your equity trading account with your broker Account Value The marked-to-market liquidation value of your account which includes the credit from any cash or money market funds, less any liabilities including short positions and debit balances. Actuals The physical or cash commodity, as distinguished from commodity futures contracts. Add person to your account Due to the United States government's efforts to fight terrorism and fraud, U.S. brokerages have been required to obtain, verify and record information about persons who open accounts, who are account signatories (in the case of Entity Accounts) or are persons authorized to trade (LTAs) on behalf of accounts, among other persons related the brokerage account. For more information please see the following NASD document (PDF). Adjusted Strike Price The change in the strike price of an option contract that results from a corresponding change in the underlying. In the case of a stock option, when a stock does a 2-for-1 split, the option strike prices will change to reflect the revised stock price. The resulting strike prices, in this case, will not fall in the standard $5 increments. For example, if you own 100 shares of a $100 stock and it does a 2-for-1 split, you will then own 200 shares of the same stock now valued at $50 per share. Likewise, if you owned one 55 call before the stock split, you would own two 22 1/2 calls afterwards. In either case, the value of the position remains unchanged. Aggregation The policy under which all futures positions owned or controlled by one trader or a group of traders are combined to determine reportable positions and speculative limits. All Could The term used to refer to an order that has been only partially executed. Oftentimes, this term applies to a limit order which was unable to be totally filled due to a lack of other parties in the trading pit willing to buy or sell at that price. All-or-None Order (AON) An All-or-None order allows a trader to buy or sell a specified number of contracts or shares at a single price. The number of contracts or shares must meet or exceed a predetermined threshold level. All Or None orders are manually held and executed when eligible. Furthermore, these orders are not reflected in the bid / ask quotes. Generally, AON is not recommended since order execution may be affected. American Stock Exchange (or Amex or AMEX) Founded in 1842 in New York City, the American Stock Exchange is one of the three major stock exchanges in the U.S. along with the New York Stock Exchange and the Nasdaq. It also trades a wide variety of equity and index options. American Style Option A contract that can be exercised at any point before expiration. Most equity options fall into this category. Annual Percentage Rate (APR) Cost of a loan which includes interest, fees and other charges. Expressed as a yearly interest rate. Annual Percentage Yield (APY) Annual rate of return on an investment that takes into account compounding. Arbitrage A technique used almost exclusively by floor traders and other professionals to capitalize on small price discrepancies. Ask or Ask Price The current lowest displayed price at which a seller would be willing to sell a given stock or option contract. The ask price is also known as the offer.

Ask Size The number of futures or options contracts offered at a certain price. Assignment The process through which an option seller is notified by the Option Clearing Corporation (OCC) that the person who bought an option contract has decided to exercise the right to buy or sell shares at the strike price. Upon notification, the option seller is obligated to deliver or receive shares according to the terms of the contract. Since not all contracts are exercised, the OCC processes assignments on a random basis. Associated Person (AP) An individual who solicits orders, customers or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor or a Commodity Pool Operator and who is registered with the Commodity Futures Trading Commission. While many of optionsXpress customer service representatives are licensed AP's, they never solicit orders, give trade recommendations, comment on specific trading strategies, or give tax, legal, or accounting advice. At-the-market Any trade executed at the prevailing bid or offer. For example, if the bid-ask spread on an option is 5.30 - 5.50, a customer who places a market order to sell the option will receive the current bid of 5.30. Likewise, a customer looking to buy the option will pay 5.50. At-the-money An option is said to be at-the-money when the strike price is the same as the current market price of the stock or underlying instrument. For example, a 75 call and a 75 put would both be at-the-money with the stock trading at $75. Auto-Liquidation When an optionsXpress customer allows his accounts liquidating value to reach such a critically low level that optionsXpress is fearful the account will become an unsecured debit balance, some or all of the positions may be offset without notification. This process is referred to as an auto-liquidation, because the optionsXpress system automatically generates the offsetting orders when it discovers a dangerously undermargined account. Automated Clearing House (ACH) A collection of 32 regional electronic interbank networks used to process transactions electronically. Automatic exercise Also known as Exercise by Exception. The procedure implemented by the Options Clearing Corporation (OCC) to protect customers from losing the intrinsic value of options they forget to exercise. The OCC automatically exercises all stock option that have at least $0.01 of intrinsic value or an index option with any intrinsic value. Back to top

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Back-end Load A sales charge paid when mutual fund shares are sold. Also may be called deferred sales charge. Back Months Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month. Backspread A spread strategy in which the net position has more long options than short ones. To create a call backspread you might sell one lower strike call and buy two higher strike calls. This position offers limited risk and unlimited profit potential. It's also worth noting that backspreads are often initiated as delta neutral positions. Backwardation A futures market in which the relationship between two delivery months of the same commodity is abnormal. The opposite of Contango. See also Inverted Market. Base Currency In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX market, the U.S. Dollar is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair (ex., USD/JPY). The primary exceptions to this rule are the British Pound, the Euro, and the Australian Dollar (ex., EUR/USD). Basis Point difference over or under a designated future at which a cash commodity of a certain description is sold or quoted. Basis Point Refers to yield on bonds. It is one hundredth of a percentage point (0.01%). Example: If rates change by 25 basis points it means the rate has changed by .25%. Bear Spread A position consisting of multiple options that benefits from a decline in the stock price. The position may include stock as well as options. Bear Call Spread This strategy involves selling a call with a lower strike and buying a call with a higher strike. The maximum profit is achieved when

the stock trades at or below the lower strike. Bear Put Spread This strategy involves buying a put with a higher strike price and selling a put with a lower strike price. In this case, the maximum profit is achieved at or below the lower strike price. Bearish The term used to describe the market sentiment of people who expect a general market decline. Best Ask or Best Offer The lowest quoted offer of all competing market makers to sell a particular security at any given time. Best Bid The highest quoted bid of all competing market makers to buy a particular security at any given time. Bid The price point where a buyer is willing to purchase a given stock or option contract. Bid Size The number of futures or options contracts bid at a certain price. Black-Scholes Model A mathematical formula provides theoretical values for options given the various factors that impact an option's price (i.e., the strike price, the price of the underlying, the current interest rate, the amount of time remaining until expiration, dividends, and volatility). Bond A security that represents the debt of a corporation, municipality or any other entity. Book Value per Share The book value of a company divided by the number of shares outstanding. BOX The Boston Options Exchange. Break A rapid and sharp price decline. Break-even The stock price (or prices) at which an option position will neither make nor lose money. Breakpoints Reduced sales loads on mutual funds for larger investments. The larger the investment, the lower the fees will be. Breakpoints are established by the mutual fund company. Broker Call Rate The broker call rate is the interest rate that banks charge brokerages to cover the security positions of the brokerage's customers. Most brokerages will charge you slightly above this amount when you borrow on margin. Usually the rate is about a percentage point higher than the Federal Funds Rate. Buffered limit Desired limit price will be applied as an offset to the triggered quote, at the time the order is sent to the exchange. Bull Spread A position consisting of multiple options that benefits from an increase in the stock price. The position may include stock as well as options. Bull Call Spread This strategy involves buying a call with a lower strike and selling a call with a higher strike. The maximum profit is achieved when the stock trades at or above the higher strike. Bull Put Spread This strategy involves selling a put with a higher strike and buying a put with a lower strike. Again, the maximum profit is achieved at or above the higher strike price. Bullish The term used to describe the market sentiment of people who expect the general market to rise. Butterfly Spread A limited risk, limited reward strategy that involves 4 options (all calls or all puts) at 3 different strike prices. For example, to buy a butterfly, you might buy one call at a lower strike, sell two calls at the middle strike, and buy one call at the higher strike. In this case, the highest and lowest strikes are "wings" while the middle strike makes up the "body" of the butterfly. Buy To Close An order entered to close a short position. Generally used in futures/options investing to distinguish between establishing vs. closing a position.

Buy To Open An order entered to establish a new long position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Buy-write see Covered Call. Buying Hedge A hedge initiated by taking a long position in the futures market equal to the amount of the cash commodity which eventually needed. Back to top

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CBOE Chicago Board Options Exchange. Calendar Spread Also known as a time or horizontal spread. This spread consists of buying and selling options with different expirations but the same strike price. Call Option In the case of an equity option, a contract that gives the buyer the right, but not the obligation, to purchase a set amount of stock (usually 100 shares) at a predetermined price anytime before the contract expires (American Style option) or at expiration only (European Style Option). The predetermined price is known as the strike price. Carrying Broker A member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades. RJ OBrien serves as optionsXpress carrying broker. Carrying Charge The cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. Also referred to as Cost of Carry. Carrying Cost The interest expense incurred when borrowed money is used to finance a stock or option position. The carrying cost can also be viewed as the opportunity cost of an investment relative to what the same cash would have earned at current interest rates. Cash Commodity The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as Actuals. Cash Market A place where people buy and sell the instrument underlying a futures contract, such as a securities exchange. The terms "spot" and "spot price" usually refer to the cash market price for the underlying instrument that is available for immediate delivery. Cash Price The price of the actual underlying commodity that a futures contracts is based upon Cash Settlement typically associated with index options, this is the process through which option holders receive the intrinsic value of the options in cash at expiration. In this case, option sellers are responsible for cash payment. This contrasts with equity options in which stock is exchanged at expiration rather than cash. Certificate Of Deposit (CD) A time deposit held in a bank which pays a certain amount of interest to the depositor. CFTC The Commodity Futures Trading Commission. Chain See option chain. Chicago Board Of Trade (CBOT) The world's largest futures exchange, it was founded in 1848. Chicago Mercantile Exchange (CME) The world's largest livestock exchange, it traces its origins to a group of agricultural dealers who formed the Chicago Produce Exchange in 1874. It was given its present name in 1919. Circuit Breaker A system of coordinated trading halts on equities and equity derivative markets designed to provide a cooling off period during large intraday price movements. The halts are triggered by a specified decline in a broad-based stock index such as the Dow

Jones Industrial Average or the S&P 500. Clear The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing members. Class of Options Calls or puts relating to the same underlying instrument. Close A period of time at the end of the trading session when all orders are filled within the closing range. Closed-end Funds A fund that does not issue new shares or accept new money after the initial public offering. Closed-end securities can be purchased in the open market, just like a stock. Close-out Last Trade Checking this box lets Xecute know that you wish to participate in closing trades when these alerts are received from your advisory service. Unchecking this box lets Xecute know that you wish to closeout your Xecute position on your own. Closing Price The price of the last transaction for a particular option contract at the end of the trading day. This may or may not be the same as the settlement price used by the OCC to determine end of the day account values. Closing Range A range of closely related prices in which transactions take place at the closing of the market; buying and selling orders at the closing might have been filled at any point within such a range. Closing Transaction The purchase or sale of an option that offsets an existing open position. For example, if your first trade is to buy an option, that contract is considered open and is factored into the open interest until you sell it. Likewise, if you sold the contract as your opening trade, you would have an open, short position until you bought the contract in a closing transaction. Collar This strategy involves the purchase of stock and the sale of a call against that stock (covered call), while purchasing a put option on the same stock (protective put). Also known as a "fence" or "cylinder". Use primarily to protect an existing stock position. Collateral Any marginable securities (e.g., stock, cash) used a basis for borrowing money. If the value of the securities (against which the loan was made) dips significantly, the investor may be forced to provide additional collateral or liquidate part of the position to repay the loan. Combination Spread A broad term used to describe positions consisting of an equal number of long calls and short puts or long puts and short calls. Combinations often have different strike prices and/or expirations. Commercial Paper Is an unsecured debt issued by corporations to finance its short-term needs. Maturity ranges from 2 to 270 days. Commodity A general futures market, without reference to any particular delivery month. For example, Corn, the Canadian Dollar, and the S&P 500 are referred to as commodities. A delivery month used in conjunction with a commodity indicates a specific contract, such as December Gold or March Sugar. Commodity Pool An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. The concept is similar to a mutual fund in the securities industry. Also referred to as a Pool. Commodity Pool Operator (CPO) An individual or organization which operates or solicits funds for a commodity pool. A CPO is generally required to be registered with the CFTC. Commodity Trading Advisor (CTA) A person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling futures or commodity options. Providing advice includes exercising trading authority over a customers account. A CTA is generally required to be registered with the CFTC. Compound Interest Interest earned on both an original investment and interest already accrued. Condor A limited risk, limited reward strategy with profit/loss characteristics similar to a butterfly. In this case, 4 options at 4 strike prices are used. Like the butterfly, the outer strike prices make the "wings." Unlike the butterfly "body" which consists of two options at the middle strike, the condor "body" consists of one option at each of two middle strikes. Confirmation Statement A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been initiated. The

statement shows the price and the number of contracts bought or sold. Sometimes combined with a Purchase and Sale Statement. Contango A condition characterized by the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date. Contingent Orders Orders that are working based on a preset condition. Contingent Time The hours that a contingent order will be in effect. To use this feature by itself, set the contingent price to greater than $1. Contingent Trailing Stop A "trailing stop" order will be placed only if/when the market price for the security (stock) specified meets the criteria (greater than or less than a price entered). This means that you can trigger a "trailing stop" order, a stop order that moves along with a favorable movement in a security, when a stock or index reaches a desired price level based on the security's last trade price. Contract In futures markets, a standardized traded instrument that specifies the quantity and quality of a commodity (or financial asset) for delivery (or cash settlement) at a specified future date. Convergence The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month. Also called a narrowing of the basis. Convertible Bond A debt security feature that allows the holder to convert to another issue. Corporate Bonds Debt obligations that are issued by corporations. Cost of Carry See Carrying Charge. Coupon Rate The percentage rate of interest in fixed income securities. Coupon Yield Is a bond's coupon payment divided by the par value. Cover A term used to describe the act of purchasing options to close an existing short position. In this case, the purchase is also a closing transaction. Coverdell Education Savings Account An account designed to help fund a child's education. Contributions are taxed, but earnings used toward qualifying education expenses are tax exempt. The entire account must be disbursed prior to the beneficiary's 30th birthday. Any withdrawals after this date will be subject to income taxes and a penalty. The account may be transferred to another family member. Covered Call A short call option position against a long position in an underlying stock or futures. Covered Combination See covered strangle. Covered Option An option against which the seller has enough collateral (either in cash or stock) to fulfill the contract in the event of assignment. Covered Call - a call option is considered covered when the writer (seller) of the option already owns the shares and doesn't have to make an open market purchase should an assignment occur Covered Put - a put option is considered covered when the seller has enough cash in the account to purchase the shares at the strike price if the holder of the option exercises the right to sell the stock at that price. Covered Strangle A short call and a short put with the same expiration but different strike prices combined with a long stock position. Technically, to describe this as "covered" is a bit of a misnomer because only the short call is covered by the long stock. For the short put to be covered as well, there would have to be enough cash in the account to cover the purchase of the stock at the put strike price in the event of an assignment. Credit an increase in the cash balance of an account resulting from a sale or deposit. Credit Spread (also Limit/Credit) The difference in value between two options, where the value of the short position exceeds the value of the long position. Bear call spreads and bull put spreads are examples of credit spreads. Cross-Hedging

Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures market follow similar price trends (e.g., using soybean meal futures to hedge fish meal). Cross-Margining A procedure for margining related securities, options, and futures contracts jointly when different clearing houses clear each side of the position. Cross Rate The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the United States, a GBP/JPY quote would be considered a cross rate, whereas in both the United Kingdom or Japan, it would be one of the primary currency pairs traded. Current Position Value the sum of the current market value of marginable stocks, bonds and mutual funds using real-time data. A short position is subtracted from this sum, thus a negative amount equals more short value than long value. Current Yield Coupon rate divided by the market price of the bond. CUSIP A CUSIP is a unique identifier assigned to a bond at the time it is issued. Custodial Account An account created for the benefit of a minor which is managed by an adult as the custodian. Custodial IRA Account An account created for the benefit of a minor that is managed by an adult as the custodian and restricted by the rules associated with corresponding IRA account. See also Traditional IRA and Roth IRA. Customer Segregated Funds See Segregated Account. Cycle The expiration months associated with a particular series of options. Back to top

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Dated Date It is the first day that interest begins accruing on newly issued bonds Day Order An order to execute a trade that will automatically be cancelled at the end of the trading day if it has not been filled. Day Trade Any position initiated and closed on the same day. Debenture Bond A debt issue by a corporation and backed by the good name of the company. Debit A decrease in the cash balance of an account resulting from a purchase or withdrawal. Debit Spread (also Limit/Debit) A trade that decreases the cash balance of an account because the cost of the options purchased (long position) exceeds the proceeds from the sale of short options. Bull call spreads and bear put spreads are examples of debit spreads Debt/Equity Ratio A measure of a company's leverage, calculated by dividing long-term debt by common shareholders' equity, commonly using the data from the previous fiscal year. Decay Also known as time decay. The way in which the theoretical value of an option decreases as time passes. The specific measurement of the option's change in value over time is represented by the Greek letter theta. The rate at which an option loses its value increases more rapidly during the final 30 days of an option's life. Deferred Delivery Month The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month. Delivery (futures) The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled. Delivery (options)

The act of meeting the obligations of a contract upon assignment. For a call writer, delivery occurs when the stock is transferred to the call holder at the strike price specified in the contract. For a put writer, delivery occurs when the option writer pays the agreed upon price for the stock and then receives the shares. Delivery Month See Contract Month. Delivery Notice A notice stating a clearing member's intentions to deliver a stated quantity of a commodity with regard to the settlement of a futures contract. Delta The sensitivity of an option's theoretical value to a change in the price of the underlying (futures contract or 100 shares of stock). Specifically, the expected change in an option's price given a one-unit change in the price of the underlying. A call option's delta varies from 0 to 1.00, while a put option's delta varies from -1.00 to 0. A futures contract or 100 shares of stock has a delta of 1.00. Delta Neutral The process by which professional traders offset option positions with stock to create a position that has 0 deltas. A zero delta position, by definition, is neither long nor short. Therefore, the position theoretically has limited risk Derivative A financial contract whose value is "derived" from another security, such as stocks, bonds, commodities, or a market index such as the S&P 500 or the Wilshire 5000. The most common types of derivatives are options, futures, and mortgage-backed securities. Diagonal Spread A position in which the trader buys and sells options with different strike prices and expirations. For example, a diagonal spread could be created by buying one July 75 call and selling one June 70 call. DIAMONDs Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust. Discount (1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase July is trading at a discount to May, indicating that the price of the July future is lower than that of May; (3) applied to cash grain prices that are below the futures price. Dividend Rate The fixed or adjustable rate paid on common stock or preferred stock Dow Jones Industrial Average (DJIA) The oldest and most widely known index of the U.S. stock market, the Dow represents the price movements of the 30 companies that, in the opinion of the editors of The Wall Street Journal, most represent the American economy. Downtick When the most recent trade for a particular instrument occurs at a lower price than the trade immediately preceding it. Back to top

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Early exercise The right provided by American options that allows the holder to buy or sell shares at the strike price before the expiration date. Earnings per Share A company's total earnings divided by the number of shares outstanding. Equity option A contract that allows the holder to buy or sell shares of a publicly traded stock at a predetermined price. European Option A contract that can be exercised only on the date of expiration, not before. Exchange-traded fund (ETF) A fund comprised of a basket of securities that is designed to track an index and trades like a regular stock. Exchange for Physical A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "against actuals" or "versus cash." Ex-dividend date The date before which investors must own shares to be eligible to receive whatever dividend has been declared. On the day a stock goes ex-dividend, the stock price drops by the amount of the dividend since people buying after that point will not receive the dividend. This is very important when you are in a spread position. It is not uncommon for the short call to be assigned the day before Ex-Dividend day ( with notification coming on Ex-Dividend day ). This means that the spread holder will be responsible for

the dividend. Execution The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation. Also known as a "Fill". Exercise To invoke the right associated with a particular option contract. When exercising a call option, the holder buys stock at a predetermined price (strike) from the option seller. In the case of a put, the holder of the option sells the stock to the option seller at the strike price. Exercise by Exception Also known as Automatic Exercise. The procedure implemented by the Options Clearing Corporation (OCC) to protect customers from losing the intrinsic value of options they forget to exercise. The OCC automatically exercises all stock option that have at least $0.05 of intrinsic value or an index option worth $0.01 or more. Exercise Price Also known as Strike Price. The price specified by the option contract at which the holder can buy or sell the underlying stock. Expense Ratio The percentage of total assets used to pay for fund expenses. Expiration Date Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts. Extrinsic Value Also known as time value. The amount by which the current price of an option exceeds its intrinsic value. The price of out-of-themoney and at-the-money options is made up exclusively extrinsic value. Back to top

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401(k), 403(b), and 457 Employer-sponsored retirement plans named after the respective Internal Revenue Code sections in which they appear. Face Value The dollar value of a U.S. Treasury Bill at maturity. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date. Fair Value When the market price of an option is in line with its theoretical value as predicted by a formula such as Black-Scholes. Fast Market A market in which the bids and offers change so quickly that the difference between what is quoted and where a trade actually takes place may be significant. In a fast market, it often happens that customers don't get filled on orders where they might expect. When this occurs during a fast market, brokers generally can't be held responsible. Federal funds rate The interest rate that is charged by banks on overnight loans to other banks. Fill See Execution. Fill Or Kill An order that must be filled immediately or canceled. FINRA The Financial Industry Regulatory Authority (Formerly referred to as NASD), is the largest non-governmental regulator for all securities firms doing business in the United States. First Notice Day (FND) The first day on which notice of intent to deliver a commodity in fulfillment of an expiring futures contract can be given to the clearinghouse by a seller and assigned by the clearinghouse to a buyer. Varies from contract to contract. Floor Broker A trader on the exchange floor who executes customer orders. Floor Trader A person on the exchange floor who buys and sells contracts for his or her own account. In this capacity, the person acts as a market maker. Foreign Exchange The foreign exchange market. This is the cash market for foreign currencies. Trade does not occur on centralized contract

markets but rather, over-the-counter in an international network of dealers. Forex See Foreign Exchange. Forward (Cash) Contract A contract which requires a seller to agree to deliver a specified cash commodity to a buyer sometime in the future. All terms of the contract are customized, in contrast to futures contracts whose terms are standardized. Forward contracts are not traded on exchanges. Free Riding The practice of buying shares or other securities without actually having the funds to cover the trade. This typically occurs when one closes out a position prior to funds being settled. Free Riding Violation An account that engages in free riding is considered to be in violation, and the account runs the risk of being put on trade restriction. This trade restriction does not prevent an account from trading, but does prevent an account from utilizing unsettled funds to initiate a trade. A free-riding violation restriction lasts 90 days. Full Trading Authorization (FTA) The authorization that provides an agent or broker the power to place trades, make inquires and move of funds on behalf of the account holder. This authorization requires a signed Full Third Party Authorization and Certification form to be submitted by both parties. Fund Assets Amount of assets currently in the fund. Funds Available to Withdraw Estimated based on cash available and for margin accounts, it is based on the leverage from your current marginable securities. Requests to withdraw funds may be effected by the pricing of positions and the settlement of transactions. Withdrawal is subject to approval and may be delayed or refused due to the processing of trades, other withdrawals or position risk. Fund Name The official name of the fund, i.e. AIM Balanced Fund. Fundamental Analysis The practice of evaluating the attractiveness of a particular stock using financial information (e.g., revenue, profit, and management performance) as it relates to the current stock price. See Technical Analysis. Fungibility The ability to trade the same instrument interchangeably across exchanges or other marketplaces. Futures Contract A firm commitment to make or accept delivery of a specified quantity and quality of a commodity during a specific month in the future at a price agreed upon at the time the commitment was made. Futures Cash Total required segregated funds after a futures position is initiated. Funds must remain segregated until the position is closed. FX See Foreign Exchange. Back to top

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Gamma The Greek letter used to represent the rate of change of an option delta as the underlying price changes. This information is primarily only helpful to professional traders who manage large positions. Globex The Chicago Mercantile Exchanges electronic trading platform. Some futures contracts are available for trading on Globex only during the U.S. evening hours, while others -- such as the very popular E-mini contracts -- trade electronically nearly around-theclock. Good-Until-Cancelled (GTC) An order to execute a trade that remains open until the trade is completed or the customer cancels the order. Unlike a day order, which expires at the end of a trading day, a GTC order will remain in effect until it is filled or cancelled. "The Greeks" A term that refers to the analytical tools used by traders to manage risk. These include: Delta, Gamma, Theta, Vega and Rho Back to top

Hedge A trade initiated for the primary purpose of protecting an established position (e.g., the purchase of puts to protect a long stock position). Hedge Ratio See Delta (2) and Delta Neutral. High-Yield Bond A bond with a credit rating Ba (Moody's) or BB (S&P) or lower. Historical Volatility a measurement of the actual movement of stock price over a specific period of time. This number can be plugged into an option pricing formula like Black-Scholes to determine if current option prices are high or low relative to the stock's past performance. See Implied Volatility. Holder The person who currently owns calls, puts or stock. Horizontal Spread Also known as a time or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price. For example, if you bought the July 45 call and sold the June 45 call, you'd be long the calendar. Back to top

I
ISE (International Stock Exchange). The ISE is a completely electronic exchange Implied Volatility The amount of movement expected in the stock given the current price of the options Index As it relates to stocks, an index is created by combining multiple stocks and monitoring their performance as a group. A change in the index, therefore, represents the cumulative change of all individual components. The S&P 100 is an index that tracks the performance of 100 top companies. Index Option An option based on an index, such as the S&P 100, rather than an individual stock. These options are typically cash-settled because it would be too cumbersome to buy or sell all of the stocks that make up the index in the event of an assignment. Indicated Annual Dividend Represents the amount paid to a shareholder during the course of a year, based upon the current indicated periodic dividend (usually quarterly). Individual Account Account ownership by a single individual in their legal name only which, upon death of the owner, the account typically passes to the control of his or her estate. Individual Retirement Account (IRA) A tax-deferred retirement account set up with a financial institution such as a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market funds, CDs, etc. Also known as a "Traditional" IRA. For other types of IRAs, see Keogh plan, Simplified Employee Pension (SEP) plan, 401(k), Roth, or Rollover IRA. In-the-Money An option with intrinsic value because its strike price is below (in the case of a call) or above (in the case of a put) the current market price of the underlying stock. Initial Margin The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as original margin. See also maintenance margin. Intermarket Spread A spread between commodities that are traded on more than one market. For example, a typical intermarket spread might be made between Chicago wheat and Kansas City wheat. Intermediary Bank The intermediary bank is the bank that your financial institution uses to accept wires. Intrinsic Value The portion of an option's price that can be account for by the amount the option is in-the-money. For example, with the stock at $74, a 70 call trading at 5.25 has $4 of intrinsic value (74-70) and 1.25 of extrinsic or time value (5.25 - 4). Inverted Market See Backwardation.

Iron Butterfly A limited risk, limited reward strategy with the same general profit graph as a butterfly, but created using a combination of puts AND calls (unlike the butterfly which is ALL puts or ALL calls). In this case, the body of the iron butterfly is created by a long (or short) straddle. The wings are created using a short (or long) strangle. To create an iron butterfly, if you sell the straddle, you buy the strangle and vice versa. Back to top

J
Joint Tenants with Rights of Survivorship Account ownership by two or more people in which, upon death of an owner, the surviving account owners automatically retain ownership of the account. Joint Tenants in Common Account ownership by two or more people in which, upon death of an owner, a proportional percentage of the account typically passes to his or her estate. Back to top

K
Keogh A U.S. tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses also known as a selfemployed pension. Back to top

L
Last Trading Day (LTD) The final day in which trading may occur for a particular delivery month. After the last trading day, any remaining commitment must be settled for delivery. LEAPS Long-term Equity Anticipation Securities, or LEAPS, are long-term stock or index options that expire more than 9 months in advance, and can last as long as 2 years. LEAPS trade like normal options but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stock. Leg Part of a larger position consisting of multiple options. By legging into a spread, a trader does part of the spread at one price and hopes the market will move so the rest of the spread can be completed at a better price. Leverage A characteristic of options that makes it possible for option holders to realize a greater percentage of profit and loss than they would with a long or short position in the same underlying stock. For example, a 5% move in the stock might increase (or decrease) the value of the option position by 50%. Level-Load Funds Mutual funds that charge a high 12b-1 fee over the life of the fund. These funds do not charge any other sales fee. Limit Order To buy or sell a predetermined number of shares at a specified price (or better than specified price, if available). Limit orders guarantee a price (or better price than specified), but do not guarantee an execution. Limited Trading Authorization (LTA) The authorization that provides an agent or broker the power to place trades on behalf of an account holder, but does not allow for the withdrawal or movement of funds. This authorization requires a signed Third Party Authorization and Certification form to be submitted by both parties. Liquid Market A high volume trading environment in which buyers and sellers benefit from narrow bid-ask spreads. Under these conditions, large orders can be executed without significantly impacting the market price. Liquidity A measure of how quickly a security can be sold at a fair price and converted to cash. Illiquid securities are ones that don't trade in high volume. For example, having too many shares of a stock that doesn't trade frequently would make for a position that cannot necessarily be sold. Listed Option An exchange traded put or call contract issued by the OCC with standardized strike prices and expiration dates. Load A sales commission paid when purchasing shares of a mutual fund (called a front-end load) or when redeeming shares of a mutual fund (called a back-end load). For example, if the fund has a front-end load of 5%, for every $100 you place into the fund,

only $95 is invested, with $5 going to the salesperson and/or mutual fund company. Long Position 1) A position that results from an initial purchase of stock or optionsi.e., long calls, long puts, long stock 2) a position in which the holder expects to benefit from an increase in the price of the underlyinge.g., long stock, long call, short put. Lot A unit of trading. In the futures market, one lot refers to one futures or options contract. In the forex market, one lot is equivalent to 100,000 units of a particular foreign currency. Back to top

M
Management fee The money paid to the manager(s) of a mutual fund, annuity subaccount, or other type of professionally managed investment. Also called an advisory fee. Maintenance Margin A sum, usually smaller than the initial margin, which must remain on deposit in the customer's account for any position. A drop in funds below this level requires a deposit back to initial margin levels. Margin The amount of collateral or equity required to borrow money for investing purposes. Traders who buy on margin borrow a percentage of the purchase price from their brokerage firm. Margin Balance For cash accounts including IRAs the "margin location" is used by our system in order to custodize spread transactions and positions eligible for spread transactions. Use of the margin location in cash accounts results in custody of balances in "margin" but does not indicate an extension of credit. Margin Call A brokerage firm's demand that a customer deposit enough money or securities to bring a margin account back up to the minimum maintenance amount. Margin Equity Percentage Calculates the value of your securities in relation to the money you have borrowed. Keep in mind, a negative margin balance does not necessarily indicate borrowed funds. Market-If-Touched (MIT) Order An order placed much like a Limit order (buy orders should be placed below the current market price; sell orders above the current market price), but when the market touches the specified price, the order immediately converts to a Market order. MIT order are used by traders who definitely want to be filled if the market touches the specified order price. Market Maker A floor trader who provides two-sided markets (bid-ask) and takes the opposite side of a customer trade. In this capacity, market makers provide liquidity in the market. Market makers may trade for their own accounts or they may represent a proprietary trading firm. Market Maker System A competitive trading environment where floor traders create efficiency and liquidity by competing with each other to provide the best bids and offers. Mark-to-Market The process of valuing an account at the end of the day based on the settlement prices of the securities. Market-Not-Held-Order An order issued by a customer allowing the floor broker to use his or her best judgment regarding the price and timing of the trade. Market-on-Close (MOC) Order An order to buy or sell a futures or options contract at the prevailing market price during the closing range (usually, the last 30-60 seconds of trading). Similar to a market order in that no price is specified during order entry. This order is ideal for a trader who wishes to offset an existing position by the close but doesnt wish to wait to the last minute to enter a market order. Market Order A customer order that is to be executed as quickly as possible at the prevailing market price. Married Put Strategy The practice of simultaneously buying stock and buying puts to limit downside risk. MIT See Market-if-Touched Order. MOC

See Market-on-Close Order. Money Market Funds A type of mutual fund contains securities such as T-bills and commercial paper. Most of these funds invest in short-term debt instruments with no longer than a 90 day duration. Money Purchase Plan A Trust in which a defined portion or percentage of the account is distributed to the trustee(s) on a defined basis whether the account is profitable or not. Mortgage-Backed Securities A number of mortgages bundled together into a single security to be sold. Municipal Bond A bond that is issued by a state or local government. Historically, the interest paid on these bonds has been exempt from federal, state and local taxes in the state of issuance. Municipal Securities Rulemaking Board (MSRB) An independent self-regulatory organization in charge of establishing rules and regulations in trading of municipal securities. Mutual Fund An open-end investment company that invests the money of thousands of people in a number of securities to achieve a specific objective over time. Mutual Fund Category A number of mutual funds specialized to a certain type of investment objective, carrying similar levels of risks and returns. Mutual Fund Exchange Switching on mutual fund investment from one fund to a different fund within the same mutual fund family. Mutual Fund Family A group of mutual funds managed by a single company. Back to top

N
Naked Option Options that are sold on securities when the seller does not actually own shares of the underlying securities or options. Nasdaq (National Association of Securities Dealers Automated Quotations) A computerized system that stores and displays up-to-the-second price quotations for securities traded over the counter. National Best Bid or Offer (NBBO) A term applying to the SEC requirement that brokers make their best effort to offer customers the best available ask price when they buy securities and the best available bid price when they sell securities. NBBO See National Best Bid or Offer. NBBO Spread Quote An NBBO Spread Quote reflects the best quotes printed from participating exchanges on each leg of the spread or other combination combined. For a long leg, the NBBO single leg "ask" quote will be used, while short leg quotes will use the NBBO "bid" quote to combine for a synthetic NBBO combination trade quote. Nearby Delivery Month The futures contract month closest to expiration. Also referred to as the Spot Month. Net asset value (NAV) The price of each share of a mutual fund. It is calculated by subtracting the fund's liabilities from its total assets, and dividing that figure by the number of shares outstanding. The NAV is the amount of money that an investor would receive for each share if the mutual fund sold all of its assets, paid off all of its outstanding debts, and distributed the proceeds to shareholders. Net income Gross income minus total expenses gives you net income. You'll find this information on the income statement. Net investment Gross, or total, investment minus depreciation. Net profit The bottom line. This is how much money the company made in profits. It can also refer to net profit margin, which is a percentage telling you how many cents on each dollar is pure profit. Net profit margin Net income as a percentage of sales. You get this by dividing net income by sales. Since it's a percentage, it tells you how many

cents on each dollar of sales is pure profit. New Next Trade Checking this box lets Xecute know that you wish to participate in the next new trade recommended by your advisory service. Unchecking this box lets Xecute know that you do not wish to participate in the next new trade recommended by your advisory service. New York Mercantile Exchange (NYMEX) Founded in 1872 as a market for cheese, butter, eggs, its principle commodities today include heating oil and petroleum products. New York Stock Exchange (NYSE) The oldest and largest stock exchange in the United States. No-load fund A mutual fund that does not charge a sales commission. Non-Acat An account transfer that is done manually because the delivering firm is not a member of the ACAT system, or you are requesting a partial transfer, which requires a manual process. When the transfer is done manually the request is physically forwarded to the delivering firm and upon their receipt they have up to 30 business days to act on it. Non-callable A security, such as a note or bond, that cannot be called prior to its maturity. Non-equity Option An option that has an underlying security other than stocke.g., futures, commodities. Not Held An order submitted to a brokerage firm with the understanding that it will use its best efforts to execute the order according to the customers instructions, but the broker may not be held responsible or liable for any lost profits, trading losses, or damages resulting from the manner in which the order is handled. optionsXpress accepts contingent orders strictly on a Not Held basis. Back to top

O
One Cancels Other (OCO) A qualifier used when multiple orders are entered and the execution of one order cancels a second or alternate order. For example, with OCO you can place two orders linked to each other, allowing you to place a stop loss order on the same option. One Triggers Other (OTO) An optionsXpress qualifier used when multiple stock or option orders are entered and the execution of one order submits a second or alternate order. Open-End Fund A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell. Opening Range Range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range. Opening Transaction A trade that creates a new position or adds to an existing one. The new position can consist of either short or long options or stock. Open Interest The number of contracts, either long or short, traded on a particular option that have not been offset by a closing transaction. A closing transaction lowers open interest while an opening transaction increases open interest. Open Outcry The term used to describe the pit-trading environment in which market makers compete for trades. Option A contract that grants the holder the right, but not the obligation, to buy or sell a particular security at a predetermined price for a set period of time. Conversely, the seller of the option has an obligation to fulfill the terms of the contract in the event of exercise by the option buyer. Option Buying Power Calculated based upon account equity less any requirements and pending purchases. Option Chain A way of quoting options prices through a list of all of the options for a given security, including the various strike prices, expiration dates, and whether they are calls or puts. Option Period

The time from the creation of an option to its expiration. Option Clearing Corporation (OCC) The firm responsible for issuing and standardizing all exchange traded options. The OCC, which serves as an intermediary between buyers and sellers, guarantees that all option contracts are honored and executed according to their terms. Option Requirements The balance you must maintain based upon the risk of the options positions in your account. Please review our margin guidelines for more information. Option Writer The person who sells an option in an opening transaction thereby creating the obligation to meet the terms of the contract in the event of assignment. Original Issue Discount (OID) An original issue discount bond is a bond issued at a price below par value. A zero-coupon bond is an example of an OID. Out-of-the-Money An option that has no intrinsic value because its strike price is above (in the case of a call) or below (in the case of a put) the current market price of the underlying. Extrinsic or time value is the only component of an out-of-the-money option's price. Over-the-Counter Market (OTC) A market where products such as foreign currencies are bought and sold by telephone and other electronic means of communication rather than on a designated futures exchange. Back to top

P
Pacific Exchange PCX Located in San Francisco, an exchange that trades equities and options. Pair Trading Commonly refers to buying one stock and selling another related stock against it. Parity The term used to describe an in-the-money option with a price that is the same as its intrinsic value. For example, with a stock at $50, a 40 call trading at $10 would be trading at parity because its price does not include any extrinsic or time value. In contrast, a 40 call trading at 10.25 would not be considered at parity because it includes a .25 of time value. Partial Fill A partial fill is when part of a limit order has been filled. A partial fill may be completed in the same day and then subsequently cancelled or the remainder may be filled. A day limit order that is partially filled will have the remainder cancelled at the end of the day if it has not been entirely filled. A partial fill on a GTC order may be carried over to the next market day until it is cancelled or filled in its entirety. Note: If a Good-Until-Cancelled (GTC) order is partially filled one day and the balance of the order is filled on another day, you will be charged two separate commissions. If you do not want to accept a partial fill for an order, you may indicate it is an "All-orNone" order, however All-or-none orders have unique risks. See also All-or-None, GTC, split fill. Also, an order that is partially filled during the day but then modified (cancelled and replaced) will create a separate commission charge since this is a new order in the marketplace. Price-to-earnings ratio (P/E) The share price of a stock, divided by its per-share earnings over the past year. P/E (Forward) Price/earnings ratio, using earnings estimates for the next four quarters. PEG Ratio A stock's price/earnings ratio divided by its year-over-year earnings growth rate. Pending Purchases The current market costs and any potential margin requirements, based on real-time data, for the orders you have open. This sum includes OCO ("one cancels other") orders; it does not include open contingent orders. Philadelphia Stock Exchange (PHLX) The Philadelphia Stock Exchange (PHLX) was founded in 1790. The PHLX trades stocks, equity options, index options and currencies. Physical Settlement The process of settling a futures contract at the expiration date by delivering the underlying instrument. Pin Risk When an underlying security settles at the option's strike price. The risk results from short option holders not knowing if they will be assigned.

Pips Slang forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001. See also Points. Pit The area at an exchange where traders meet to buy and sell specific contracts (e.g., 30-year bond options, IBM options, DELL options). Points Predominately a forex term used to describe digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001. Pool See Commodity Pool. Portfolio All the securities held by an individual, institution, or mutual fund. Position The net of all open long and short contracts in a specific trading account. Position Limits Set by an exchange, this is the number of option contracts (or deltas) that an individual trader cannot exceed. The specifics of this limit differ by exchange and option type. Premium The extent to which an option price exceeds its intrinsic value. 2) the total price of an option including both intrinsic and extrinsic or time value. Price to Book Ratio A stock's capitalization divided by its book value. Price to Cash Flow Ratio A stock's capitalization divided by its cash flow for the latest fiscal year. Price to Sales Ratio A stock's capitalization divided by its sales over the trailing 12 months. Primary Market In cases where the same contract is traded on multiple exchanges, the exchange that handles the most volume is considered the primary market. This can change day to day. Profit Sharing Plan Trust A Trust in which a defined portion or percentage of the account profits are shared with the trustee(s) on a defined basis. Purchase and Sale Statement (P&S) A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been liquidated or offset. The statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction. Sometimes combined with a Confirmation Statement. Put/Call ratio A ratio of the trading volume of put options to call options. It is used to gauge investor sentiment. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market. Put Option In the case of an equity option, a contract that gives the holder the right, but not the obligation, to sell a stock at a set price for limited period of time. The seller or writer of the option is obligated to buy the stock at the strike price in the event that the option is assigned. Pyramiding The practice of using accrued paper profits to margin additional trades. Back to top

Q
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R
Range The difference between the highest and lowest prices recorded during a given trading session, week, month, or year. Ratio Calendar Spread

A strategy in which more options are bought or sold at one expiration than another. Ratio Spread 1) Any option strategy in which the number of contracts purchased is greater or less than the number sold. 2) a strategy in which the number of options traded against a stock are not in a 1:1 proportion with the stock. Ratio Write A partially covered position in which the options sold represent more shares than are covered by the corresponding stock position (e.g., long 100 shares of stock, short 2 out-of-the-money calls). If the stock price rises and the options are assigned, this person will have to turn over 200 shares at the strike price. However, since the person only has 100 shares, the potential loss on the position is unlimited because one of the calls is uncovered. Realized Profit & Losses The profit or loss that results from closing a position. Redemption Fee Fee levied for selling shares of your index fund. Usually a fixed percentage of the total value of your fund. Refunding The retiring of a bond by issuing a new bond Repair Strategy A stock/option strategy designed to compensate for a losing long stock position. In this case, an in-the-money call is purchased and two out-of-the-money calls are sold. The credit received effectively lowers the break-even point of the stock thereby covering some of the unrealized losses. Resistance A price level at the top of a trading range that a stock has reached on several occasions but has not penetrated due to increased selling pressure at that price. This is a key concept of technical analysis. Retender In specific circumstances, some contract markets permit holders of futures contracts who have received a delivery notice through the clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the delivery notice. Retracement A reversal within a major price trend. Revenue Bond A municipal bond issued to finance a specific public works project and is supported by the revenues of that project. Reversal A change of direction in market price. rho The Greek letter representing the expected change in an option's price given a 1% move in interest rates. Rolling A strategy in which the trader closes one position and immediately opens another position at a different strike or expiration. Rollover Moving all or a portion of tax-deferred retirement plan savings into another plan (e.g., moving 401(k) assets into an IRA). Rollover IRA A traditional individual retirement account holding money from a qualified plan, such as a 401(k). Roth IRA A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005). Contributions are subject to taxes. However, withdrawals, subject to certain rules, are tax exempt. Round Turn A round turn counts both the buy and the sell of a trade as one event. In a typical exchange volume measurement, a one-contract trade between a buyer and seller would be counted as one round turn. From the customer's perspective, a round turn represents two filled orders from his or her brokerage firm - one to take a position and one to offset that position (i.e., same customer, different trades). See also side. Back to top

S
Scalper a floor trader who profits from the spread between the bid and the offer as well as from short-term price fluctuations. SEC (Securities and Exchange Commission) The federal agency charged with protecting investors and maintaining the integrity of the securities markets.

Secondary market A market that provides liquidity for previously listed securities. Securities Assets such as shares of stock, bonds, or any kind of financial asset that can be traded. Securities Investor Protection Corporation (SIPC) The SIPC maintains a special reserve fund authorized by Congress to help investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. SIPC either acts as trustee or works with an independent court-appointed trustee in a fraud case to recover funds. The statute that created SIPC rules provides that customers of a failed brokerage firm receive all non-negotiable securities that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash. Security Futures See Single Stock Futures. Sell To Close An order entered to close a long position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a "buy to open" order is always used to open a long position. Sell To Open An order entered to establish a new short position. Generally used in futures/options investing to distinguish between establishing vs. closing a position. Consequently, a "buy to close" order is always used to close a short position. SEP IRA Simplified Employee Pension Plan IRA. A retirement plan for self-employed people or owners of small companies which allows them to defer taxes on investments intended for retirement. Selling Hedge Selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future. Series of Options Calls and puts based on the same underlying stock with the same strike and expiration. Settled Funds After a trade has cleared, proceeds are considered settled funds. Stock trades settle in T +3 business days. All option trades settle in T+1 business days. Mutual Fund trades settle at various times - with some being same day, others T+1, and others still T+3. Bonds can also vary in terms of a settlement date. Settlement Price The price established by the Options Clearing Corporation at the end of the trading day as a standard to value the securities in individual trading accounts or in the morning in the case of some European Options. The settlement price is based on the opening prices of all the stocks in a particular Index. These figures are then used to find the settlement price. Short Position An option or stock position that will profit from a decrease in the price of the underlying (e.g., short stock, short call, long put). Short Stock Position A position initiated by selling stock in an opening transaction with the goal of buying it later at a lower price (i.e., sell high, buy low). To accomplish this, the stock must be borrowed from a broker-dealer before it can be sold. Side A side considers the buy and sell actions of a trade as separate events. Each matched trade, and each contract, has two sides the buyer side and the seller side. Taken together, these two sides equal one round turn. Measuring matched trade volume "per side" counts volume on each side of the trade. Simplified Employee Pension (SEP) plan A SEP is an easy method for a small employer to establish a retirement plan for employees without the complex administration and expense found in qualified retirement plans. In fact, an employer may establish a SEP only if that employer has no qualified retirement plan in effect. Under a SEP, the employer may make a contribution of up to the lesser of 15% or $30,000 of compensation to IRAs established in each employee's name. Single-Stock Futures An agreement between two parties that commits one party to buy a stock and one party to sell a stock at a given price and on a specified date. SIPC See Securities Investor Protection Corporation Speculator A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets. Spot Delivery Month The nearest delivery month among all those traded at any point in time. The actual contract month represented by the spot delivery month is constantly changing throughout the calendar year as each contract month reaches its last trading day. See Also

Nearby Delivery Month. Spot Price The price quoted for the actual commodity same; same as cash commodity price. Spread 1) the difference between the bid and the offer (e.g., if the bid-ask is 5- 5.30, the spread is $0.30). 2) a limited risk, limited reward strategy established by combining options that would, if separate, profit from opposite moves in the price of the underlying. Spread Stop Order A contingency order to buy or sell an option spread when the market reaches a particular level. When the price reaches that level specified in the stop order, the stop order triggers a sell/buy to close/open the spread at the customer's predetermined price (Limit or Market). Standard & Poor's 500 Index An index of 500 of the biggest publicly traded companies in the United States. The S&P 500 is generally thought of as the best measurement of the overall U.S. stock market. Static Return The return that an investor would make on a particular position if the underlying were unchanged in price at the expiration of the options in the position. Stock Buying Power Your purchasing power for stock; margin accounts show twice the stock purchasing power of cash accounts for stocks that trade over 5 dollars. Stop-Limit Order Like a stop order, this order will be triggered by a move up or down to a particular price level. Once that level is reached, the order becomes a limit order, which must be executed at a specific price. In contrast, a regular stop order will be executed at the market price rather than at a specified price. Stop Order A contingency order to buy or sell a stock when the market reaches a particular level. When the price reaches that level specified in the stop order, the stop order becomes a market order and is executed at the best possible price. Stop-with-Limit Order Used by the trader who wishes to give the floor broker a limit as to how far through the specified stop the order may be filled. Two prices must be stipulated when the order is placed -- the stop price and the limit price. When the stop is elected, the order will be filled if it is possible to do so without exceeding the limit price. If this isnt possible, the order becomes a working limit order. Also, a stop with limit order will be placed as a straight limit order if, when received by the exchange, the stop price already ha s been violated. Straddle An option position in which a call and a put with the same strike price and expiration are both bought (long straddle) or sold (short straddle). A long straddle has unlimited profit potential given a large move up or down. A short straddle has limited profit (if the stock remains stable) and unlimited risk (if the stock moves significantly in either direction. Strangle An option spread strategy involving a long put and a long call or a short put and a short call with different strikes but the same expiration. The most common strangles involve out-of-the-money options. Strike Price Also known as Exercise Price. The price, specified by the option contract, at which the holder can buy or sell the underlying stock. Strike Price Interval The standard price difference between consecutive options. For stocks over $25, the strikes generally occur at $5 intervals (e.g., 30,35,40). Stocks below $25 have options that trade at $2.50 intervals. Subordinated Debenture A debenture whose claim to interest and principal of the corporation comes after those of the regular debt securities. Support In a period of falling prices, the support level is a price below which the stock tends not to trade because of the reemergence of buyers. For example, a stock that has fallen near $27 on several occasions only to reverse the trend and increase in price is said to have support at $27. Symbol Ticker symbol. Synthetic Positions Also known as an equivalent position. By using a combination of options or options and stock, traders can create positions that have the same risk/reward characteristics of option only or stock only positions. The following summarizes the most common synthetic positions. Synthetic long stock A short put option and a long call option with the same strike and expiration

Synthetic short stock A long put option and a short call option with the same strike and expiration Synthetic long call A long put and a long position in the underlying stock Synthetic short call A short put and a short position in the underlying stock Synthetic long put A long call and a short position in the underlying stock Synthetic short put A short call and a long position in the underlying stock Back to top

T
Technical Analysis An approach to analysis of futures markets which examines patterns of price change, rates of change, and changes in volume of trading, open interest and other statistical indicators. See also Charting. Theoretical Value The fair value of an option as predicted by a mathematical formula such as Black-Scholes. This takes into account the following factors: strike price, the current price of the underlying, interest rates, time remaining until expiration, dividends (if any), and volatility. Theta The Greek letter representing the change in an option's value given a one-unit (day) change in time Tick The smallest increment an option, stock, or commodity price can change Time Decay The way in which an option naturally loses value as time passes. Time Spread Also known as a horizontal or calendar spread. This spread is established by buying and selling options with different expirations but the same strike price. For example, if you bought the July 45 call and sold the June 45 call, you'd be long the calendar. Time Value Also known as extrinsic value. The amount by which the current price of an option exceeds its intrinsic value. The price of out-ofthe-money and at-the-money options is made up exclusively of extrinsic value Total Money Markets & Cash Defined as the net sum of your balances held in cash, margin, and money market funds. This does not include your mutual funds balances. Cash/Margin/Money Market sweep movements update daily before the market opens. Trader 1) An exchange member who buys and sells contracts in the trading pit of an exchange. 2) an investor who holds positions for a short period of time in an effort to capitalize on market momentum. Trading Level Your trading level has been determined based on your trading experience, income level, age and overall knowledge of options. The list below outlines the various trades permitted at each trading level. -1 0 1 2 3 4 Trading Disabled Buy Stocks/Bonds/ Mutual Funds Covered Calls / Sell Stock Short Buy Calls and Puts / Cash Secured Put Writing Debit Spreads (purchase a spread) Credit Spreads / Equity Put Writing (sell a spread)

5 Naked Equity Call Writing / Naked Index Put & Call Option Writing Traditional IRA A tax-deferred retirement account that permits a contribution up to $4,000 per year or $4,500 per year if over age 50 (2005). Earnings are tax-deferred until withdrawals begin. Eligible withdrawals may begin at age 59 1/2 or later, a 10% penalty will apply for non-qualified withdrawals made prior to age 59 1/2. Eligible withdrawals will be taxed at the current tax rate. Trailing Stop A "trailing stop" order is a stop order that moves along with a favorable movement in a security. Trailing sell stop orders will move upward a defined distance as long as the security moves upward. Trailing buy stop orders will move downward a defined distance as long as the security moves downward.

Trailing (Stop) Trigger The price at which a trailing stop will activate. Contingent Trigger On entry of the order the customer can choose bid, ask or last. If last is chosen, it will only be used if it is in between the consolidated bid and ask. Transaction Costs The fees related to initiating and maintaining a position. These include commissions, margin fees, and exchange fees. Treasury Auction Where new issues of Treasury bills, notes and bonds can be sold to the investing public. Treasury Bills (T-Bills) Obligations issued by the department of the Treasury maturing in 13, 26 or 52 weeks. Treasury Bond (T-Bond) A long term government debt security with maturity of 10 to 30 years. Treasury Note (T-Note) A medium term government debt security with maturity of 1 to 10 years. Trend The general direction, either upward or downward, in which prices have been moving. Trendline In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish. Triple witching It occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. This happens four times a year: The 3rd Friday of March, June, September and December. Trust A legal arrangement in which an individual (Trustor) gives fiduciary control of the account to a person or institution (Trustee) for the benefit of their estate or beneficiaries. A trust can include a variety of entities. Type of Options There are two option types: puts and calls. Back to top

U
Unit Investment Trust (UIT) An SEC-registered investment company which purchases a fixed, unmanaged portfolio of income-producing securities and then sells shares in the trust to investors. The major difference between a Unit investment Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all. Uncovered Option Also known as a naked option. A short position, not protected by offsetting options, in which the writer of the options lacks the stock or collateral that would be required upon assignment. For example, a naked call writer doesn't own the stock that would have to be sold at the strike price if the calls were exercised. Similarly, a naked put writer doesn't have the full amount in the account to buy the underlying shares at the strike price in the event of an exercise. For obvious reasons, naked option writing is a risky strategy. Underlying Security The stock, commodity, or other financial instrument on which an option contract is based. Unsettled Funds Funds that are not available to withdraw until specified settlement. Cash accounts can purchase additional positions using unsettled funds but cannot close out the position until trades settle. UPC 11830 In 1993, the U.S. Securities and Exchange Commission approved a new section of the Uniform Practice Code (UPC) requiring FINRA members to close out short sales in NASDAQ securities that meet a certain clearing short position threshold. Both NASDAQ National Market and NASDAQ Small Cap Market securities can be restricted under UPC 11830. Under the rules, the short seller's broker/dealer must close out short sale of specific securities 10 days after normal settlement date if delivery of security has not accrued and the transaction is not exempt. Securities subject to close-out requirement are those with an aggregate "clearing" short position of 10,000 shares or more that equals or exceeds one half of one percent of the total shares outstanding. The FINRA will identify these securities daily based on data from National Securities and Clearing Corporation and compile a "restricted list." Any subsequent short-sale transaction in a security on the list that is not completed by delivery of shares within the prescribed time frames will be subject to mandatory close-out if a "fail-to-deliver" situation exists 10 days after normal settlement date. The rule applies to customer and proprietary short sales, but exempts "bona fide" market making activities and short sales that

results in a "bona fide" fully hedged or arbitraged position. For more information, please see FINRA Notice to Members 93-53. Uptick When the most recent trade for a particular instrument occurs at a higher price than the trade immediately preceding it. Back to top

V
Vega The Greek letter representing the change in an option's theoretical value given a 1% change in the volatility of the underlying. Versus Cash See Exchange for Physicals. Versus Purchase Notes This note is used to specify the original shares of stock or a fund sold for tax recording purposes. In order to designate shares, please enter a note in the free text field (e.g. "Vs. 200sh. XYZ BOT 8/3/04"). The note will appear under the "Remarks" area of your confirmation.. Vertical Spread A position in which the options bought and sold have the same expiration but different strike prices. Volatility The mathematical measure of stock price fluctuation over a period of time. See Implied Volatility. Back to top

W
Warehouse Receipt A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions. Write To sell an option in an opening transaction. Writer a person who has sold an option in an opening transaction and is now short a contract that may or may not be offset by stock or other options. Back to top

X
Xspread Direct Quotes These spread quotes are retrieved directly from exchange liquidity providers and represent quotes with a potential for discount beyond a combination of single leg quotes on spreads. Yield The percentage return on an investment. Yield to Call (YTC) The yield of a bond or note if you were to buy and hold the security until the call date. This yield is only valid if the security is called prior to maturity. Yield to Maturity (YTM) The yield of a bond or note if you were to buy and hold the security until maturity. YTM takes into account interest rate, length of time to maturity, price paid and assumes all interest received over the life of the security can be reinvested at the original purchase yield. Back to top

Z
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