Investing Glossary: Market Terms in Plain English

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Ask: The lowest price a seller is currently willing to accept for a stock or option. Learn more
Assignment: When an option seller is required to fulfill the contract: deliver shares for a call, or buy shares for a put. Learn more

Bear market: A broad decline in prices. Commonly described as a fall of 20% or more from a recent high. Learn more
Bid: The highest price a buyer is currently willing to pay for a stock or option.
Bond yield: The return a bond pays relative to its price. When bond yields rise, stocks must compete with safer income. Learn more
Book value: A company's assets minus its liabilities, as recorded on the balance sheet. Learn more
Bull market: A sustained rise in prices, often described as a 20% gain from a recent low. Learn more

Call option: A contract giving the buyer the right, but not the obligation, to buy 100 shares at the strike price before or at expiration. Learn more
Candlestick: A chart symbol showing a period's open, high, low and close. The body spans open to close; the wicks show the high and low. Learn more
Capital gain: The profit from selling an investment for more than you paid. Held over one year, it is a long-term gain. Learn more
Correction: A decline of roughly 10% or more from a recent high. Learn more
Covered call: Owning 100 shares and selling a call option against them to collect premium, in exchange for capping upside above the strike. Learn more

Dilution: A reduction in each shareholder's ownership percentage when a company issues new shares. Learn more
Discount rate: The annual return used to convert future cash flows into today's dollars in a valuation model. Learn more
Discounted cash flow (DCF): A valuation method that estimates a company's worth as the present value of the cash it is expected to generate. Learn more
Dividend: A cash (or stock) payment a company makes to its shareholders, usually from profits. Learn more
Dividend reinvestment plan (DRIP): A program that automatically uses dividends to buy more shares of the same stock. Learn more

Earnings per share (EPS): Net income available to common shareholders divided by shares outstanding. Learn more
Earnings yield: Earnings per share divided by share price; the inverse of the P/E ratio. Learn more
Ex-dividend date: The first day a stock trades without the right to the next dividend. Under T+1 settlement it usually falls on the record date. Learn more
Expiration date: The last day an option contract can be exercised. Learn more

Federal funds rate: The interest rate banks charge each other overnight, which the Federal Reserve targets to steer the economy. Learn more
Form 10-K: A company's annual report filed with the SEC, including audited financial statements and risk factors. Learn more
Form 10-Q: A company's quarterly report filed with the SEC, with unaudited financial statements. Learn more
Form 8-K: A filing companies use to report major events, including quarterly earnings releases. Learn more
Free cash flow: Cash from operations minus capital expenditures; the cash a business generates after investing in itself. Learn more

Guidance: A company's own forecast of future revenue or earnings, often moving the stock more than the results themselves. Learn more

Implied volatility: The level of future price swings that an option's price suggests the market expects. Learn more
In the money: A call whose strike is below the stock price, or a put whose strike is above it. Learn more
Index: A basket of stocks used to measure a market, such as the S&P 500. Learn more
Inflation: A general rise in prices that reduces the purchasing power of money. Learn more
Intrinsic value: An estimate of what a business is truly worth, independent of its current market price. Learn more

Liquidity: How easily an asset can be bought or sold without moving its price.

Margin of safety: The gap between an estimate of value and the price paid, as a cushion against being wrong. Learn more
Market capitalization: Share price multiplied by shares outstanding; the market's price tag on the whole company. Learn more
Moving average: The average closing price over a set number of days, plotted to smooth out a chart. Learn more

Option premium: The price paid by the option buyer and received by the seller. Learn more
Out of the money: A call whose strike is above the stock price, or a put whose strike is below it. Learn more

Payout ratio: The share of earnings (or free cash flow) a company pays out as dividends. Learn more
PEG ratio: The P/E ratio divided by the expected earnings growth rate. Learn more
Price-to-earnings ratio (P/E): Share price divided by earnings per share; how many dollars investors pay for one dollar of annual earnings. Learn more
Put option: A contract giving the buyer the right, but not the obligation, to sell 100 shares at the strike price before or at expiration. Learn more

Qualified dividend: A dividend that meets IRS rules, including a holding period, to be taxed at long-term capital gains rates. Learn more

Record date: The date a company checks its books to see which shareholders receive a dividend. Learn more
Revenue: The total money a company brings in from sales before any expenses. Learn more

Share buyback: When a company repurchases its own shares, reducing the share count. Learn more
Shares outstanding: The total number of a company's shares held by all shareholders. Learn more
Strike price: The price at which an option holder can buy (call) or sell (put) the underlying shares. Learn more
Support and resistance: Price levels where a stock has repeatedly stopped falling (support) or rising (resistance). Learn more

T+1 settlement: The U.S. standard since May 28, 2024: most stock trades settle one business day after the trade date. Learn more
Terminal value: In a DCF, the value of all cash flows beyond the forecast period, often the largest part of the estimate. Learn more
Time decay: The loss in an option's value as expiration approaches, all else equal. Learn more

Yield curve: A chart of interest rates across bond maturities. An inverted curve has short rates above long rates. Learn more