December 15, 2014
The stock market and trading utilize a language that may be foreign to new traders. Attached is a listing of common stock and option lingo, scanners, and tips for gaining consistent gains to get a new trader started.
Stock Lingo
+ Share structure = SS; all shares from a company
+ Authorized shares = A/S; total shares authorized to be issued
+ Treasury shares = T/S; company re-acquired shares; a part of O/S and A/S
+ Outstanding shares = O/S; shares issued by the company by initial public offering (IPO) or to investors privately, vendors to settle liabilities, or toxic financiers to settle debt; a part of A/S
+ Float is the shares that ar being traded; a part of O/S and A/S
+ Transfer Agent = TA; handles share issuance and info for company
+ Secretary of State = SOS; each state has a SOS where the company must file share info
+ PPS = price per share of a stock
+ Volume = number of shares traded in a period
+ Chart Analysis = TA; also called technical analysis, involves the analysis of pps and trading volume on a stock chart where pps is on the y-axis and trading period is on the x-axis.
+ Chart overlay = Also called upper studies, analysis done over the ticker’s pps plots shown as a picture, markings, or annotations to indicate pps trend, pps trend strength, overbought/oversold, and other estimations.
+ Chart indicators = Also called lower studies for being added below a chart, indicates analysis in a specific way below pps plotting to for similar uses as overlays
+ Chart patterns = Common patterns used to predict pps trends
+ Tiers on OTC (from less transparent and reporting to more): gray market; pink caveat emperor, pink no info, pink limited info, and pink current; QB and QX
+ Splits can be forward, increase all share structure, or reverse, decrease SS
+ Dilution is the increase in float due to the issuance of shares and subsequent entry into the market
+ A/S increase are common with OTC Pink Sheets and generally means dilution is to occur
+ Check otcmarkets.com by ticker search to see on OTC ticker’s info; remember many data points could be outdated
+ Corporate insider: Officers and Directors, and any beneficial owners over 10% holding within a company’s security class
Important Filings to Read On the OTC:
+ 10-Q: Quarterly report filed by a company giving basic financial and other relevant company data. Format of filing depends on filing status with OTC Markets.
+ 10-K: Yearly summary financial report, much like a 10-Q, but shows the last quarter and yearly summaries (not all filings depending on filing format and status) by a company.
+ SC 13/G: Changes in shares issued over a certain % required to be reported.
+ 8-K: Company important events disclosed in a filing
+ Form 3: Insiders reporting holdings for the first time
+ Form 4: Changes to insider holdings
+ Form 5: Amending form 4
Stock Option Lingo
+ Definition: Contract between two parties where the buyer (holder) purchases the right, not obligation, to buy/sell 100 shares (10 shares for mini contract) of an underlying stock at a predetermined price from/to the option seller (writer) within a fixed period
+ Option quote: Name of underlying stock- ie. $AAPL, expiration date- ie. 12/20/14, strike price- $120, and class- ie. Call
+ Option Class: Calls confer the right to buy an underlying stock while Puts give right to sell
+ Strike Price: Price at which an underlying stock can be purchased or sold when an option is exercised
+ Expiration Date: All options expire at a specific date and become worthless at that date if not exercised
+ Underlying Asset: Is the stock of a company for stock options which the seller has the obligation to deliver or purchase from the option holder in the event of option exercise
+ Contract Multiplyer: Quantity of underlying asset that needs to be delivered should an option be exceed used stated in a contract
+ Option Style: American can be exercised at anytime and is most common or European which is exercised at option expiration
+ Premium: Amount paid by the buyer to the seller for the risk carried of obligation by the seller; depends on strike price, volatility of underlying asset price, and the time left until expiration of the option
+ Moneyness: In-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM) are the three classifications of stock option; description of the intrinsic value of an option
ITM Example: $AAPL has a premium of $15 of $120 strike 12/20/14 Calls and AAPL is trading at $130; intrinsic value is $10 ($130 market price less $120 strike); time value is $5 ($15 premium less $10 intrinsic value)
+ Intrinsic Value: Market price of an option less the strike price
+ Time Value: Intrinsic value less option premium
+ Black Scholes Pricing Model: Time value of an option via the price of an underlying asset, strike price, standard deviation of the underlying asset, time to expiration, and the risk-free rate
Scanners
FinViz
Barcharts
Stock Scores
American Bulls
OTC Markets
Optionistics
Tips For Getting Consistent Gains
+ Develop and test your trading strategy/plan: What kind of trader are you? What will you trade? Are you mainly long, short, swing, or hybrid? After knowing these answers pick a specialty strategy and test it at updown.com, HowtheMarketWorks.com, or these mobile apps: Stock Wars or TradeHero.
+ Before entering a trade have a greed line and stop loss in mind. A greed line is a certain % or amount of gain you desire and expect before entering a trade. A stop loss is a certain % or amount of loss that will trigger you to sell to limit your loss. A stop loss is recommended to be manually done for OTC trading.
+ DON’T GO ALL-IN on one trade. No matter how confident a trade may seem there are just too many unknowns to cause an opposite trend than expected to occur. Diversify in more than one type of trading vehicle and risk type to protect your initial investment and subsequent gains.
+ Any gain is better than a loss. Learn how compounding gains can effect your portfolio and how losses % hurt more than the same % of gain (see loss/gain table). Getting 1% gain trading a blue chip stock adds up to over 200% if you can consistently get 1% daily.
+ It’s a market of stocks and opportunities, not a stock market. This means gains be had if the Stock Market is gong up or down. Change strategies when overall Market direction is known.
+ Learn stock charting analysis. Which ever overlay, indicator, pattern, or combination a trader chooses knowing technical analysis can help take some emotion out of trading. Trading on a tip can be a path to losses if you don’t understand the tipper’s strategy.
+ Learn and ask questions daily. No trader can know everything but a trader can become experienced to make consistent gains.
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