Trading Terms Starting With B

  • B shares

    a class of mutual fund shares that carry a back-end load which generally diminishes over the holding period.
  • BOX

    the Boston Options Exchange.
  • Backdate

    with respect to employee stock options, to grant an option that is dated prior to the date the option was actually granted. When a company grants a stock option, the exercise price, or the price at which shares may be purchased if exercised, is generally the same or close to the company's stock price on that date. The practice of backdating then allows the grantee to effectively pick the exercise price, which is usually not welcomed by regulatory bodies.
  • Back-end load

    a commission charged to an investor by some mutual funds for selling fund shares rather than purchasing them. This commission usually decreases the longer the shares are held. Opposite of Front-end load.
  • Back month

    a month that is farther away in time relative to another month. Also termed Far month.
  • Back spread with calls

    an option strategy established by buying two calls with a given strike price and writing one call with a lower strike price. All calls have the same underlying and expiration month. Loss potential is limited and profit potential is unlimited. Also termed Call ratio back spread.
  • Back spread with puts

    an option strategy established by buying two puts with a given strike price and writing one put with a higher strike price. All puts have the same underlying and expiration month. Loss potential is limited and profit potential is substantial. Also termed Put ratio back spread.
  • Backwardation

    an inverted market condition in which a futures price is lower for a distant delivery month than for the nearest month. Futures trading is not currently available at TradeKing.
  • Bad debt

    debt that is considered uncollectible.
  • Balance

    the amount of cash in an account at any given time equal to the net of debits and credits.
  • Balance sheet

    a quantitative assessment of a company's financial condition at a given point in time, including assets, liabilities and shareholder equity.
  • Balanced fund

    a mutual fund that diversifies its investments among stocks and bonds to achieve moderate income and growth while avoiding excessive market risk.
  • Balanced portfolio

    a portfolio whose investment capital is proportionately distributed among equities, fixed income instruments, and cash or cash equivalents to achieve moderate income and growth while avoiding excessive market risk.
  • Bankruptcy

    involving an individual or entity's inability to pay debts. The assets are evaluated for the purpose of using them to repay part of the current debt. Bondholders, rather than stockholders, are seen as having a higher claim to the entity's assets if bankruptcy results.
  • Bear call spread

    a vertical option spread established by purchasing a call with one strike price and selling (writing) another call with a lower strike price. Both options have the same underlying and expiration month. This is always a credit spread. Profit and loss potential are both limited. Also termed Short call spread or Call credit spread.
  • Bear market

    a period of sustained downtrend in the market for a specific security, market sector or the broader market.
  • Bear put spread

    a vertical option spread established by purchasing a put with one strike price and selling (writing) another put with a lower strike price. Both options have the same underlying and expiration month. This is always a debit spread. Profit and loss potential are both limited. Also termed Long put spread or Put debit spread.
  • Bear spread / bearish spread

    an option spread that is expected to benefit from a decline in the underlying.
  • Bearer bond

    a negotiable bond that is unregistered by its issuer. Interest and principal payments are paid to whoever physically detaches a coupon and submits it to the bond issuer or a paying agent.
  • Before-hours trading

    buying and selling securities before the major markets are open, generally through an electronic, over-the-counter market. Also termed Pre-market, Morning session, or Early session trading. This is part of TradeKing's Extra Hours Trading service.
  • Before-tax income

    the amount of income earned before any taxes are deducted.
  • Beige Book

    prepared by the U.S. Federal Reserve Board, it is a compilation of the current economic climates in all Federal Reserve districts. The report is published eight times a year, just before each Federal Open Market Committee meeting, at which its members deliberate possible adjustments to the discount rate and/or money supply.
  • Bellwether stock

    a widely followed, single stock issue that is regarded to be an indicator of movements in the broader market.
  • Benchmark

    a standard, frequently a published index, against which the performance of a stock or portfolio is measured.
  • Bid / bid price

    the highest price in a particular market that a buyer is willing to pay for a stock or option.
  • Bid-ask spread

    in a given marketplace it is the difference between the highest price buyers are willing to pay for a particular security (bid) and the lowest price at which that security is offered for sale (ask).
  • Binomial pricing model

    a pricing model, or a mathematical formula, commonly used for pricing American-style option contracts because it takes into account the possibility of exercise at any time before expiration. The first such model was the Cox-Ross-Rubinstein introduced in 1979.
  • Black Friday

    1. a market crash on Friday, September 24, 1869, triggered by a collapse in the gold market that led to a depression.
    2. the Friday after Thanksgiving on which retailers hope to make enough sales to "put them in the black," or in a profitable condition.
  • Black-Scholes model

    introduced in 1973, this was the first model, or mathematical formula, widely used for pricing option contracts. It assumes no dividends paid by an underlying stock, and does not account for exercise before expiration. It is commonly used for pricing European-style index options.
  • Block trade

    a single stock transaction involving a large number of shares, generally at least 10,000.
  • Blue chip stock

    shares in a widely held, well established company with a large market capitalization. A blue chip is characterized by being financially sound and creditworthy, with a solid record of stable earnings and a consistent record for dividend payment.
  • Board of Directors

    individuals elected by a company's shareholders to govern corporate management on their behalf. This body traditionally sets broad corporate policy and approves major new initiatives rather than getting involved with managerial decisions on a daily basis. Board members are generally paid and assume certain legal responsibilities.
  • Bond

    a debt security issued by the U.S. Government, state and local governments, corporations or other institutions for the purpose of raising capital. The bond issuer promises to repay the loan at the bond's maturity, and generally pays interest to the bondholder over the loan term.
  • Bond Buyer

    a newspaper covering the municipal bond industry.
  • Bondholder

    an investor who has purchased a bond, in effect becoming a creditor of the bond issuer. In return the bondholder receives interest as well as repayment of principal at the bond's maturity. In case of asset liquidation or bankruptcy, bondholders generally have priority over stockholders to receive distributed assets (including cash).
  • Bond rating

    a qualitative measure of the likelihood a bond issuer will default on the loan and/or interest payments, it is based on the issuer's creditworthiness. Ratings typically range from AAA (least likely to default) to D (most likely to default). Independent agencies that rate bonds include Moody's Investors Service, Standard & Poor's (S&P), and Fitch.
  • Book-entry security

    a security issued without a physical, paper certificate. Ownership, or transfer of ownership, is recorded electronically in a bank or brokerage account. Most securities are issued in this manner.
  • Book value

    in terms of accounting, a company's book value equals its assets less its liabilities, including debt, preferred stock, and any intangible assets such as good will or future earnings potential. The book value of a share of common stock equals the company's book value divided by the number of shares outstanding.
  • Borrowed stock

    shares that are borrowed from a broker/dealer in order to make a short sale of stock in the marketplace. At a later date, shares must then be purchased and returned to the lending broker/dealer to close the short position. If the shares can be purchased at a price lower than their initial sale a profit will result. If the shares are purchased at a higher price a loss will be incurred. Unlimited losses are possible with short stock positions.
  • Borrower

    an investor who borrows shares of stock from a broker/dealer in order to make a short sale of those shares in the marketplace. See also Short sale.
  • Bottom line

    a company's net income after taxes, interest, depreciation and other expenses are deducted. Also termed Net earnings or Net profit.
  • Bottom-up analysis

    an approach to investing that focuses on the fundamental analysis of a specific company rather than on its industry group or the overall market. The assumption is that a top quality company can perform well even when other stocks in its sector or in the broader market are not, and stock selections are made accordingly.
  • Box spread

    a form of option arbitrage in which an investor attempts to lock in a small profit with minimal risk until expiration. A long box spread is established buy buying both a long call spread and a long put spread on the same underlying, with the same strikes, and the same expiration month. A short box involves a short call spread and a short put spread with the same parameters. The trader is attempting to capture the difference in carry costs between the two strike prices.
  • Breadth-of-market theory

    a form of technical analysis that gauges broad market strength based on the number of advancing issues vs. declining issues.
  • Break-even point

    an underlying stock price (equity option) or index value (index option) at which an option strategy will realize neither a profit nor a loss, generally at option expiration.
  • Breakpoint

    with respect to buying mutual funds, it is the investment level in terms of dollars that qualifies an investor for a discounted sales fee.
  • Broad-based index

    a security index that is designed to reflect movement in the broader market, e.g., the S&P 500.
  • Brokerage

    1. synonymous with brokerage firm.
    2. commission paid to a brokerage firm for acting as agent on a transaction.
  • Broker-dealer

    an entity registered with the SEC, engaged in the business of buying and selling securities for others as well as for itself. Most brokerage firms are broker-dealers.
  • Budget deficit

    for either a government, corporation or an individual, it is the amount by which spending exceeds income.
  • Budget surplus

    for either a government, corporation or an individual, it is the amount by which income exceeds spending.
  • Bull call spread

    a vertical option spread established by purchasing a call with one strike price and selling (writing) another call with a higher strike price. Both options have the same underlying and expiration month. This is always a debit spread. Profit and loss potential are both limited. Also termed Long call spread or Call debit spread.
  • Bull market

    a period of sustained uptrend in the market for a specific security, market sector or the broader market.
  • Bull put spread

    a vertical option spread established by purchasing a put with one strike price and selling (writing) another put with a higher strike price. Both options have the same underlying and expiration month. This is always a credit spread. Profit and loss potential are both limited. Also termed Short put spread or Put credit spread.
  • Bull spread / bullish spread

    an option spread that is expected to benefit from an increase in the underlying.
  • Bulletin board (OTC)

    the OTC Bulletin Board (OTCBB) is an electronic quotation system for over-the-counter securities not listed on The NASDAQ Stock Market®(NSM). In general, companies listed here are usually penny stocks, meet lesser financial requirements than NSM or listed companies, lack liquidity, lack stability, trade infrequently, have wide bid-ask spreads, and may be the target of price manipulation.
  • Bullion

    precious metals, such as high quality gold or silver, in the form of bars or ingots rather than coins.
  • Business cycle

    a predictable, recurring pattern of alternating economic growth and contraction. Also termed Economic cycle.
  • Butterfly spread

    an option strategy established by purchasing one option with a given strike price, selling(writing) two options with higher strike price, and buying one option with an even higher strike price. The options must be either all calls or all puts, have the same expiration month and same intervals (difference) between the strike prices. Profit and loss potential are both limited. See also Iron Butterfly spread, Skip-strike butterfly spread.
  • Buy in

    usually initiated by an individual's brokerage firm with or without prior notice, the act of closing, or offsetting, an existing short stock position by making a closing purchase transaction in the marketplace. Often times this follows a run-up in the stock's price because many long investors are looking to liquidate their positions and stock borrowed by short sellers must be returned. Action may also be taken to close a short option position. Also termed Covering.
  • Buy signal

    with respect to technical analysis, an indication that a particular security should be purchased.
  • Buy to close

    to exit, liquidate, offset, or reduce an existing short call or put option position by making a closing purchase transaction in the marketplace. Also termed Covering.
  • Buy to open

    to create, initiate, or increase a long call or put option position by making an opening purchase transaction in the marketplace.
  • Buyback

    when a corporation purchases its own shares of stock in the open market.
  • Buying on margin

    buying stock in the marketplace and borrowing part of the total purchase price from a brokerage firm, with the purchased shares themselves serving as collateral.
  • Buying power

    the amount of money available in a brokerage account for the purchase of securities.
  • Buy-side

    participants in the marketplace who buy and sell securities as money or asset managers such as mutual funds or pension funds. In a manner of speaking, individual investors may be considered as buy-side participants.
  • Buy-write

    an equity option strategy establishing the simultaneous "covered" writing of an equity call and purchasing an equivalent number of underlying shares (one call for each 100 shares of stock). Premium received from the call's sale provides limited stock price protection on the downside, and provides income in addition to any dividends paid. To the upside, profit on the stock is capped by possible assignment on the short call and sale of the long shares at the strike price. On the downside the loss potential from the long stock is substantial. See also Covered call.