GENERAL STOCKMARKET TERMS

AGM

An acronym for Annual General Meeting. An AGM is an annual meeting of shareholders which is required by law for company directors to updated shareholders about the companies performance and future projections.

All Ordinaries Index (All Ords)

A market capitalisation weighted index of the performance of approximately 500 of the largest listed companies on the ASX.

ASX

An acronym for the Australian Securities Exchange. The ASX operates a stock market in Australia.

ASX 200 / S&P ASX 200 (XJO)

A market capitalisation weighted index of the performance of the top 200 largest listed companies on the ASX. The benchmark index for the Australian Securities Exchange

Bearish

A view that stock prices or the market in general will fall.

Bid

The price at which someone is prepared to buy share or derivatives.

Broker

An agent firm / ‘broking firm’ who executes an investor’s orders to buy or sell securities or derivatives.

Brokerage

The fee charged by the broker or financial adviser to buy or sell securities or derivatives on behalf of the client. Brokerage is sometimes referred to as a commission.

Bullish

A view that stock prices or the market in general will rise

CHESS

An acronym for the ASX’s Clearing House Electronic Sub-register System (CHESS) which is the settlement system and central register for electronic share ownership.

Contract Note

Written documentation confirming a transaction. The contract note, also known as a confirmation, details the cost, type and quantity of the shares or derivatives traded.

Cum Dividend

Cum means ‘with’. Shares that are quotes as ‘cum dividend’ mean that the buyer of the shares are entitled to a dividend recently declared by the company. Cum dividend means that the shares have not yet gone Ex-Dividend.

Delisted

When a company is removed from official quotation. The shares are no longer quoted or able to be traded.

Diversification

The process of spreading investments over a variety of investments or asset classes with different characteristics, with the intention to reduce risk.

Dividend

The distribution of company profits to shareholders. Many companies pay a dividend twice a year in the form of an ‘interim’ and then ‘final’ dividend.

Dividend Yield

The dividend amount expressed as a percentage of the last sale price of the company.

DRP

An acronym for Dividend Reinvestment Plan (DRP) Some companies allow shareholders to elect to receive new shares instead of cash dividends. These shares are often issued at a discount to the current market price of the shares.

Ex-Dividend / Ex-Dividend Date

To be entitled to receive a dividend, you must hold or have purchased shares in a company before the ex-divided date. If you purchase shares after the Ex-Dividend date, you will no longer be entitled to receive the current dividend.

Float

A float or Initial Public Offering (IPO) is the initial raising of capital by a company by offering shares to investors for the first time.

GST

An acronym for Goods and Services Tax (GST)

HIN

An acronym for Holder Identification Number (HIN) This number identifies client’s CHESS or broker sponsored holdings.

IPO

An acronym for Initial Public Offering (IPO). See Float.

Limit Order

An instruction to buy or sell shares or derivatives at a specified price or better.

Liquidity

A measure of the ability to convert assets into cash quickly and easily. A liquid market is one with enough participants to buy and sell assets with ease.

Market Capitalisation

The total number of shares on issue for a company multiplied by their current market price.

Market Order

An instruction to buy or sell shares or derivatives at the current market price.

Offer

The price at which someone is prepared to sell share or derivatives.

Off Market Transfer (OMT)

The transfer of shares between parties without going through the share market. Off market transfer are performed using an Australian Standard Transfer or Off Maker Transfer form.

PDS

An acronym for Product Disclosure Statement (PDS). A PDS is a document that contains information about a financial product, including potential benefits and risks, as well as outlining fees, charges and commissions that may apply.

Rights Issue

A privilege offered to existing shareholders to buy new shares in the same company, often at a discount to the current market price.

Share Registry

Organisation which records changes in share ownership on behalf of a company. Share registries issue holding statements and handle dividend payments, bonus and rights issues.

SRN

An acronym for Shareholder Reference Number (SRN) This number identifies client’s issuer sponsored holdings with the shares registry.

VWAP

An acronym for Value Weighted Average Price.

Yield

The return or income received from an investment expressed as a percentage.

EXCHANGE TRADED OPTIONS TERMS

ACH

An acronym for the Australian Clearing House (ACH), sometimes also referred to as the Options Clearing House (OCH). The ACH is the area of the ASX which clears and settles options and futures trades.

Adjustment

Adjustments to an options contract are made when certain events occur that affect the value of the underlying securities. Adjustments may be made to change the strike price and/or the number of shares per contract. An adjustment may be made if a company issues new shares or undertakes a capital restructure.

American Style / American Exercise

Holder of such options contracts can exercise at anytime during the life of the option.

Assignment

The random allocation of an options exercise obligation to the seller of an options contract.

At-the-Money

When the market price of the security is equal to the strike price of the option.

Buy & Write

An options strategy which involves the simultaneous purchase of securities and the writing of a call option over those securities. The number of call options sold will be the same number to cover the securities that were purchased.

Call Option

An options contract which gives the buyer the right, but not the obligation to buy the underlying security at the strike price at or before expiry.

Closing Position

An investor undertakes the opposite trade to its original position. It can be a trade to buy to close or sell to close.

Delta

The measure of the sensitivity of an options position to the movement in the price of the underlying securities.

Derivative

A financial instrument that derives its value from that of an underlying asset. Exchange Traded Options (ETO’s) derive their value from the shares or index which they are traded over.

ETO’s

An acronym for Exchange Traded Options (ETO’s)

European Style / European Exercise

Holder of such option contracts can only exercise on Expiry Day. Index options are European style.

Exercise

The election by the buyer of an options contact to exercise their right to buy or sell the underlying securities.

Exercise Price

See Strike Price.

Expiry Date

Dates where all open/unexercised options positions expire. Not all stocks have monthly expiry dates, some are quarterly. Equity Options normally expire on the last Thursday of the month. Index Options normally expire on the third Thursday of the month.

In-the-Money

When the market price of the security is inside the strike price. For a call option, it will be in the money if the market price is more than the strike price of the call and conversely, a put option is in the money if the market price is less than the strike price of the put.

Intrinsic Value

The difference between the current market price of the underlying securities and the exercise or strike price of the options contract. Only options contracts that are In-the-Money have intrinsic value.

Index Options

Index options are options traded over a share price index. E.g. The XJO are options contracts traded over the S&P ASX 200. Index options are European style and are cash settled on exercise.

LEPO

An acronym for Low Exercise Price Option (LEPO) LEPO’s are European style options with a strike price of 1 cent.

Long

A person who holds a position that will benefit from the price of the underlying securities rising.

Margin

The amount calculated by the clearing house that is required to cover the risk of financial loss on an open options contract.

Margin Call

A communication to a client asking them to provide additional margin cover due to an adverse price movement on an options position.

Naked

Selling an options contract over securities that you do not own may be referred to as a ‘naked’ position. Naked may also refer to entering a position without protection.

Open Interest

The number of options contracts that are ‘open’ in a particular series of options.

Opening Position

An investor can initiate a new position by first buying or selling an option.

Out-of-Money

Where the market price is away from the strike price. For a call option, it will be out of the money if the market price is under the strike price of the call (less valuable). Conversely, a put option is less valuable if the market price is tracking above the strike price of the put.

Premium

The amount/price payable by the buyer/taker of an options position to the seller/writer of the option position on buying the option contract.

Put Option

An options contract which gives the buyer the right, but not the obligation to sell the underlying security at the strike price at or before expiry.

Roll

The closing out of one option position while at the same time opening another options position over the same underlying securities, usually with a later expiry date.

Short

A person who holds a position that will benefit from the price of the underlying securities falling.

Strike Price

The price at which the buyer or seller of the option has to sell/buy the underlying stock at, upon exercise of the option, regardless of where the market price is.

Taker

The buyer of an options contract.

Time Value

The amount by which the premium for an options contract exceeds it’s intrinsic value. This is also an amount traders are willing to pay or sell for the possibility they could profit from their options positions.

Writer

The seller of an options contract.