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Baby Bond:

One sold at face amount less than $1,000 to make it attractive to smaller investors. See also BOND.

Back-End Load:

A special charge assessed when certain mutual fund shares are redeemed. Back-end loads may range from 1% to 8% of the total value of the investment.

Back Office:

Brokerage firms' clerical operations that support the trading operations. Responsibilities include settlement of trades, preparation of all written confirmations and record keeping and regulatory compliance.

Backspread:

A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.

Balance Sheet:

A report stating the financial status of an individual or business at a given time.

Balanced Mutual Funds:

A mutual fund whose holdings are split between stocks and bonds.

Banker's Acceptance:

A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds.

Bankruptcy:

The financial state of being unable to pay debts. Federal bankruptcy laws provide for either the reorganization or liquidation of corporate business and assets to pay some creditors.

Basis Point:

The smallest measure used in quoting yields and interest rates. One basis point equals .01%; a 100 basis point move in a U.S. Treasury bond yield is 1%.

Bear:

An adjective describing the opinion that a stock, or a market in general, will decline in price -- a negative or pessimistic outlook.

Bear (or bearish) Spread:

A strategy involving two or more options (or options combined with a position in the underlying stock) that will profit from a fall in the price of the underlying stock. However, the short leg(s) must expire at the same time or prior to the long leg(s).

Bear Spread (call):

The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price. The short leg(s) must expire at the same time or prior to the long leg(s). E.g.: Writing 1 XYZ Jan 55 call and buying 1 XYZ Jan 60 call.

Bear Spread (put):

The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price. The short leg(s) must expire at the same time or prior to the long leg(s). E.g.: Buying 1 XYZ Jan 60 put and writing 1 XYZ Jan 55 put.

Bearer Bond:

A debt security whose owner is not registered on the books of the issuer and which is, therefore, payable to the person possessing the bond. A bearer bond has coupons attached, which the bondholder sends in or presents on the interest date for payment. Bearer stock certificates are negotiable without endorsement.

Beneficial Owner:

The owner of a security who is entitled to all the benefits associated with ownership. Customers' securities are often registered in the name of the brokerage firm or central depository rather than in the name of the customer. Even so, the customer remains the real or beneficial owner.

Beta:

A measure of risk commonly used to compare the volatility of mutual funds or stocks to the overall market. The S&P 500® Index is the base for calculating beta and carries a value of 1. Securities with betas below 1 are less risky than the market as a whole. Betas above 1 are more risky. A beta of 1.4 is 40% more volatile than the S&P 500®. Betas with negative values are inversely related to the S&P 500®.

Bid/Bid Price:

The highest price a dealer is willing to pay for a security at a particular time.

Black-Scholes Formula:

A widely used model for option pricing developed by Fischer Black and Myron Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the options' strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Block:

A large quantity of stock or large dollar amount of bonds held or traded. As a general guide, 10,000 shares or more of a stock and $200,000 or more worth of bonds would be described as a block.

Blue-Chip:

A term used to describe the common stocks of corporations with the strongest of reputations for generating earnings and paying dividends.

Bollinger Bands:

Well-known analyst John Bollinger developed Bollinger Bands, which traditionally are plotted above and below the 21-day moving average. These upper and lower boundaries factor in two standard deviations (about 95%) of the price movement over the last 21 days.

Bond:

A government or corporate debt security that obligates the issuer to pay bond investors a specified sum of money on a specified date. In addition, the issuer agrees to pay a percentage of the bond value (also called par value or face value, usually $1,000) as interest on the borrowed funds.

Bond Fund:

A type of mutual fund that invests in bonds and preferred stocks with the goal of providing a stable income with a minimum of risk.

Book Value Per Share:

Net asset worth of a company's common stock.

Box Spread:

A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. E.g.: Buying 1 XYZ Jan 50 call, and writing 1 XYZ Jan 55 call; simultaneously buying 1 XYZ Jan 55 put, and writing 1 Jan 50 put.

Break-even Point(s):

The stock price(s) at which an option strategy results in neither a profit nor a loss. Although option strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.

Breakout:

A rise in a security's price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Breakout can be used by technical analysts as a buy or sell indication.

Broker:

1) An individual who buys or sells securities for customers (a stockbroker).

2) On an exchange, one who executes public orders on an agency basis (a floor broker or commission house broker).

3) As a slang term, a firm that executes orders for others (a brokerage firm).

Broker Loan Rate:

Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. Call loan rate is sometimes used because the loans can be called on a 24-hour notice.

Broker-Dealer:

In the broadest sense, an agent who facilitates trades between a buyer and a seller and receives a commission for his services. Brokers acting in a dealer capacity may buy and sell for their own account and keep their own inventory of securities on which they can profit or incur losses. Some stock brokerage firms act as brokers and dealers. Brokers are also classed as Full Service or Discount, the former using a commission-based sales force and the latter using salaried brokers only.

Bull:

A person who believes that a stock, or the market in general, will rise in price -- a positive or optimistic outlook.

Bull Market:

A market in which prices of securities are generally rising.

Bull (or bullish) Spread:

A strategy involving two or more options (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. The bull spread is one of the most popular forms of spreading. Generally, both options have the same expiration date. However, the short leg(s) must expire at the same time or prior to the long leg(s).

Bull Spread (call):

The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. The short leg(s) must expire at the same time or prior to the long leg(s). E.g.: Buying 1 XYZ Jan 55 call, and writing 1 XYZ Jan 60 call.

Bull Spread (put):

The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. The short leg(s) must expire at the same time or prior to the long leg(s). E.g.: Writing 1 XYZ Jan 60 put, and buying 1 XYZ Jan 55 put.

Butterfly Spread:

A strategy involving four options and three strike prices that has both limited risk and limited profit potential. A long call butterfly is established by buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. A long put butterfly is established by buying one put at the highest strike price, writing two puts at the middle strike price, and buying one put at the lowest strike price. E.g.: A long call butterfly might be buying 1 XYZ Jan 50 call, writing 2 XYZ Jan 55 calls and buying 1 XYZ Jan 60 call.

Buying Power:

The amount of money available in an account to buy securities. This is determined by the sum of the cash held in the brokerage account and the loan value of marginable securities.

Buy-to-Cover:

A transaction type that is a closing transaction for a short sell position.

Buy-write:

A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a spread order, with both sides (buying stock and writing calls) being executed simultaneously. E.g.: Buying 200 shares XYZ stock, and writing 2XYZ Feb 55 calls. See also COVERED CALL WRITING.