Ch. 12.3- Investing in Equities, Futures, and Options

Efficient Market Hypothesis (EMH)

argument that stocks are always priced about right and that bargains are hard to find because they are followed closely by so many investors

options market

market in which options are taded

spot market

market in which transactions are made immediately at the prevailing price

futures market

marketplaces in which futures contracts, or futures, are bought and sold

seats

memberships in the New York Stock Exchange that allow access to the trading floor

stockbroker

person who buys or sells equities

securities exchanges

places where buyers and sellers meet to trade securities

Standard's & Poor's 500 (S&P 500)

popular measure of stock market performance based on price changes of 500 representative stocks

equities

stocks that represent ownership shares in a corporation

Dow-Jones Industrial Average

the most popular and widely publicized measure of stock market performance on the New York Stock Exchange

portfolio diversification

the practice of holding a large number of stocks so that increases in some can offset unexpected declines in others

call option

the right to buy a share of stock at a specified price some time in the future

put option

the right to sell a share of stock at a specified price in the future

bear market

a "mean" market with the prices of equities moving sharply down for several months or years in a row

bull market

a "strong" market with the prices of equities moving up for several months or years in a row

futures contract

an agreement to buy or sell at a specific date in the future at a predetermined price

options

contracts that provide the right to purchase or sell commodities and/or financial assets at some point in the future at a price agreed upon today

over-the-counter market (OTC)

electronic marketplace for securities not traded on an organized exchange