[C]

Calendar Spread – an option strategy where a trader sells a shorter term option and buys a longer term option. Both options have the same strike price. For instance, a March 40 call might be sold and a May 40 call purchased.

Calendar Combination – an option strategy where a trader opens a call calendar spread and a put calendar spread at the same time. The strike price of the calls is higher than the strike price of the puts.

Call – an option contract that gives the holder of the option the right (but not the obligation) to purchase, and obligates the writer to sell, the underlying security at the given strike price, on or before the expiration date of the contract.

Capital Asset Pricing Model (CAPM) – an equilibrium based asset pricing model developed independently by Sharpe, Lintner and Mossin. The simplest version states that capital assets are priced according to their relationship to the Market Portfolio of all risky assets determined by the securities’ beta. The CAPM provides a very good first approximation to the working of security markets, but researchers are working on more advanced models that can handle the anomalies that are not explained by the CAPM.

Capital Expenditures – amount used during a particular period to acquire or improve long-term assets such as property, plant, or equipment.

Capital Gain – the profit resulting from the sale of a capital asset; the difference between the net sales price of securities and their net cost, or original basis.

Capital Loss – the difference between the net cost of a security and the net sale price, if that security is sold at a loss.

Capitalization Weighted Index – a stock index, which is computed by adding the capitalizations of each individual stock and dividing by a predetermined divisor. The stocks with the greatest market values have the greatest impact on the index.

Cash Dividend – a dividend paid in cash to a company’s shareholders. The amount is normally based on profitability and is taxable as income.

Cash and Equivalents – the value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers’ Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within ninety days.

Cash Flow – no widely accepted definition exists. Alternatives include: Net income plus depreciation, net income plus depreciation plus other non-cash charges, cash from operations shown on the cash flow statement, and EBITDA. Because of these differences, it is necessary to check which definition is being used whenever an investor comes across the term.

Cash Flow Statement – one of the four main financial statements. Reports inflows and outflows of cash. Usually includes at least three years for annual statements. For interim statements, usually presented for the year-to-date period in the current and previous year. Cash flows are categorized into the three main activities of Operations, Investing, and Financing. Operations section begins with Net income then adds back non-cash charges like depreciation, and deducts non-cash gains. Then changes in working capital are added or deducted to arrive at cash from operations. Investing activities include capital spending, acquisitions and divestitures. Financing activity includes dividends paid, debt repaid, new borrowings, stock repurchases, and stock issuances. The cash flow statement is the most important of the main financial statements for purposes of making forecasts because it is the only one that must be internally consistent from year-to-year. In other words, last year’s ending cash balance equals this year’s beginning cash balance.

Changes in Financial Position – sources of funds internally provided from operations which alter a company’s cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Churning – excessive trading of a client’s account in order to increase the broker’s commissions.

Closing Purchase – a transaction in which the purchaser’s intention is to reduce or eliminate a short position in a stock, or in a given series of options.

Closing Sale – a transaction in which the seller’s intention is to reduce or eliminate his long position in a stock, or a given series of options.

Commission – the fee paid to a broker to execute a trade, based on the number of ?page_id=29shares, bonds, options and/or their dollar value. Over the last years, commissions have experienced a dramatic overall decrease, which is mainly due to the successful introduction of on-line trading services.

Common Stock – securities representing ownership in a company and carrying voting privileges.

Compounding – one of the most powerful laws of math on the side of the investor. Compound interest causes fairly small amounts of money to grow substantially over time. For example, an investment of $5000 that earns 14% interest per year will grow to $132,310 in 25 years.

Confidence Indicator – a measure of investors’ faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.

Confirmation – the written statement that follows any trade in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Consumer Price Index (CPI) – A measurement of prices for goods and services in the US. This indicator is used to determine the speed of inflation.

Contingent Order – a client’s order to buy stock and sell a covered call option. It is given as one order.

Convergence – the movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of the time value. But as the contract nears expiration, the futures price and the cash price converge.

Conversion Arbitrage – the simultaneous purchase of a stock, the purchase of a put, and the sale of a call.

Convertible Bond – a bond that can be traded for shares of the same company’s stock.

Convertible Security – one security, which is convertible into another. It is generally used with convertible preferred stock and convertible bonds. There is a specific rate at which the security can be converted.

Corner a Market – to purchase enough of the available supply of a commodity or stock in order to manipulate its price.

Corporation – a business that has its own rights and obligations that are separate from the owners of the business.

Correction – a price reaction of generally 1/3 to 2/3 of the previous gain.

Coupon – the annual rate of interest paid on a debt security as calculated on the basis of the security’s face value.

Coupon Rate – in bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.

Covered Call – a short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered Put – a put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer’s risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer’s risk is more limited than it would be on an uncovered or naked put option.

Current Assets – assets that could be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within one year. These are included on the balance sheet under a separate category. The main types are cash, short-term investments, accounts receivable, inventories, and prepaid expenses.

Current Liabilities – amount owed for salaries, interest, accounts payable and other debts due within 1 year.

Current Ratio – an indicator of a company’s short-term debt paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

Current Yield – for bonds or notes, the coupon rate divided by the market price of the bond.

CUSIP – a number assigned to a security for the purposes of information processing. For example, a company might issue several types of equity securities (common and preferred stocks) and several different bond issues. Each would have a unique CUSIP number. Developed by the Committee for Uniform Security Information Processing.

Cyclical Stocks – companies whose earnings tend to fall more than average in a recession or other economic downturn, and to rebound more than average in an upturn. (The stock prices do not necessarily follow the same pattern as the earnings.)