Hybrid Fund

Hybrid Fund

A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed. Morningstar separates hybrid funds into domestic hybrid and international hybrid categories. In the hybrid category, balanced funds tend to stick to a relatively fixed allocation of stocks and bonds. Actively managed asset allocation funds tend to have portfolios with a mix of stocks and bonds that responds to market conditions as perceived by the fund manager. Passively managed asset allocation, life-cycle and target-date funds generally have a stock-bond mix that changes over a lifetime, moving progressively from aggressive to more conservative structures.

At-the-Money

At-the-Money

The term relates to trading in listed OPTIONS. An option is said to be trading "at-the-money" when the STRIKING PRICE and the market price of the underlying share are equal.

Torpedo Stock

Torpedo Stock

A stock that has fallen substantially in value and that looks like it will continue to fall in value in the foreseeable future. This name refers to this type of stock's similarity to a battleship after it has been struck by a torpedo: it goes down fast and continues to sink until hits the bottom. A change in a business's underlying fundamentals can turn a company's stock into a torpedo stock. For example, investors see earnings as a good indicator of a business' success, as even a gradual rate of earnings growth indicates that a business is doing well. However, quarter after quarter of declining earnings with no end in sight can be enough to cause investors to "jump ship" as a stock's price starts to plummet.

Capitulation

Capitulation

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling. After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

Selling Away

Selling Away

When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations. Typically, when a broker is "selling away," the investments are in the form of private placements or other non-public investments.

Stub Stock

Stub

Stock in a company that is over-leveraged as a result of recapitalization. Stub stock is very speculative and risky. Stub stock's advantage over junk bonds is that it has unlimited potential if the company turns things around.

Employee Stock Option - ESO

Employee Stock Option - ESO

A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option. EThe idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals. Critics point out, however, that there is a big difference between an option and the ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't feel the same pain as the owner of the stock. This is especially true with employee stock options because they are often granted without any cash outlay from the employee. Another problem with employee stock options is the debate over how to value them and the extent to which they are an expense on the income statement. This is an ongoing issue in the U.S. and most countries in the developed world.

Gypsy Swap

Gypsy Swap

An exchange of restricted shares for freely exchangeable shares between two separate parties. This generally occurs when companies exchange restricted treasury shares with stockholders in order to liquidate a position.