52-week high/low: The highest (or lowest) price an investment has reached in the last 52 weeks.
401(k): A savings plan that is sponsored by an employer where you are able to set aside money out of your paycheck to go toward a retirement account.
4/20: April 20; a coveted holiday for marijuana enthusiasts. The origin of this celebration began in the 1970s by a group of teens in California (4:20 was their meet-up time to smoke marijuana).
Adult-use: Refers to the recreational use of marijuana (without the advisement of a doctor).
After-hours trading: Investment trading after the market closes.
Appreciation: The growth of an asset’s value over time.
Ask: The price at which a seller is willing to sell.
Basis: Represents the purchase price of an investment, adjusted for stock splits and dividends (also known as a cost basis or tax basis).
Bear market: A prolonged decrease in investment prices. An investor is “bearish” if they think an asset’s value will decrease.
Benchmark: A standard by which you can track the performance of a given sector. Market indexes (such as the Dow Jones Industrial Average, Russell 2000 and S&P 500) are regularly used as benchmarks.
Bid: The price at which a buyer is willing to buy.
Blue chip: The stock of a well-established company that has a strong history of being financially secure.
Bonds: A fixed-rate investment that governments and corporations issue to raise capital. The investor receives regular interest payments from the organization for a specified duration.
Boom-and-bust cycle: A cycle in which there are times of economic growth and stagnation. During the boom the economy expands, prompting job opportunities and high returns on investments. Whereas the bust brings a shrinking economy with fewer jobs and smaller returns for investors.
Breakout: A technical indicator that shows an investment’s price has moved past previous resistance levels.
Bull market: A prolonged increase in investment and market prices. An investor is “bullish” if they think an asset’s value will increase.
Call: An option (agreement) that gives the option buyer the right to buy an investment at a set price within a specific amount of time. Note: The call option buyer is not obligated to execute the option.
Cannabidiol (CBD): The part of the cannabis plant that contains little to no THC, so it doesn’t give off a high and is considered nonpsychoactive. CBD is often used for medicinal purposes (such as pain relief and seizure control) in topicals, lotions and other products.
Cannabinoids: The chemical components of the cannabis plant that provide medicinal benefits. Cannabinoids act as neurotransmitters throughout the nervous system and brain.
Capital: Money someone invests and the value of those investments as their market value rises or falls.
Capital gain/loss: Occurs when an asset is sold for a higher/lower amount than it was purchased for.
Close: To exit the options market. When you sell an option, you are selling back to the market, telling your broker to resell it “to close.”
Commissions: Fees that brokers charge investors when buying and selling options and other investments. Many brokers have special deals on volume trades – if you can arrange it.
Correction: When a security decreases 10% or more from its most recent peak.
Covered call: A call where the writer already owns the stocks that he may find himself obligated to sell.
Day trading: Buying and selling investments within the same day.
Decriminalization: Though marijuana is still illegal, the penalty for having small amounts is significantly lessened.
Diversification: An investment risk management tool that involves allocating portions of a portfolio among different assets or asset classes.
Dividend: A payment made by a company to its shareholders. These payouts are usually made in cash but can also be distributed as stock splits.
Dividend payout ratio: The amount of dividend paid to shareholders divided by the total net income of a company. The ratio is often used to gauge the long-term sustainability of a company.
Dividend reinvestment plan: A plan that allows investors to reinvest their cash dividends in shares or fractional shares of the dividend-paying company. Also known as a DRIP.
Exchange-traded fund (ETF): A group of stocks or various investments. ETFs permit investors to spread their money across multiple assets instead of in a single one.
Expiration: The last day an option can be exercised or offset. Make sure you know the exact expiration date of any option you purchase. Once an option has expired, it no longer conveys any rights and, in effect, ceases to exist.
Extrinsic value: The worth of the premium, represented by time and volatility as opposed to the option’s real, or intrinsic, value.
Fixed-income fund: A fund that pools money from many different investors and invests it into fixed-income securities, such as bonds. They can either be mutual or exchange-traded funds.
Fixed-return investment: An investment that grows at a guaranteed rate of interest. Fixed-return investments may also have fixed maturities, meaning the rate of return is ensured only for a certain period of time.
Float: The number of publicly traded shares that are available.
Form 4: The form that company insiders must file with the SEC when they buy or sell shares of the company in which they are designated as insiders.
Fundamental analysis: A way to evaluate an investment’s value by assessing related economic and financial factors.
Gold-to-copper ratio: Used to evaluate global economic health by tracking how many pounds of copper can be bought per ounce of gold. The more copper can be bought per ounce of gold, the higher the ratio and the weaker the economy.
Gold-to-silver ratio: Used to determine the value of silver compared to gold. The ratio indicates the number of ounces of silver it takes to purchase one ounce of gold.
Gross margins: Revenue minus the cost of goods sold, divided by total revenue. The gross margin is expressed as a percentage and tells how much a company gets to keep of every dollar it makes.
Hedge: Any maneuver to protect capital or profits, either by buying or selling the underlying item or by using an option or derivative.
Hedge fund: A partnership that brings a limited number of accredited investors together to invest in a wide variety of securities. A hedge fund is controlled by a fund manager that invests in securities that support the goals of the fund. Hedge funds carry higher risk because they may invest with borrowed money.
Hemp: A part of the cannabis plant that contains minimal amounts of THC. Hemp can be grown industrially to be used for a range of products: food, rope, clothing, paper, housing materials and other essentials.
Hold: Continuing to hold what you have with whatever stops have been noted, while not selling off the position or adding to it.
Initial public offering (IPO): The process in which a private company begins selling stock to outside investors to raise capital, thereby making it a public company.
In-the-money option: An option with intrinsic value. An in-the-money call option has a strike price below the current price of the underlying instrument. An in-the-money put option has a strike price above the price of the underlying instrument.
Intrinsic value: The portion of the premium representing real value. An option has intrinsic value if the difference between the market price and strike price would make the option profitable if exercised.
Legalization: Possession and consumption of marijuana isn’t penalized under the law. The nuances of legalization vary state by state and country by country.
Limit order: A buy order to purchase an option at or below a specified price or a sell order to sell an option at or above a certain price. Use limit orders to minimize risk, but be aware there is no guarantee your option can be bought at the desired price.
Liquidity: The degree to which an investment can be bought or sold quickly. Higher trading volume tends to make an investment more liquid.
Long: Buying an investment and hoping to sell at a higher price over an extended time frame.
Margin: This allows investors to borrow money to leverage their investment strategies.
Marijuana: A common name for the cannabis plant that is used for its medical and psychoactive benefits. Marijuana is commonly called pot, weed, cannabis, Mary Jane and more.
Market makers: Traders responsible for improving investment liquidity by facilitating buy and sell orders.
Market cap: The company’s total market value (stock price multiplied by number of shares outstanding).
Market order: An order to buy or sell an option at the market price, synonymous with telling your broker to “do his best” as quickly as possible. Using a market order means you have no control over your entrance or exit price, making your risk uncertain.
Medical marijuana: Refers to the use of the cannabis plant to provide a wide array of medical treatments for varying illnesses: anxiety, glaucoma, insomnia, low appetite, pain and more.
Microcap: A publicly traded corporation with a market capitalization ranging between $50 million and $300 million.
Moving average: The average closing price of a stock over a certain period of time. It is used to analyze price trends and determine support and resistance levels.
Municipal bond: A debt security that is issued by a state, county or other local government. The two types of municipal bonds are general obligation and revenue bonds.
Mutual fund: An investment that brings together money from many investors and invests it into securities that align with the fund’s goals.
Nanocap: A publicly traded company that is small and has a market capitalization under $50 million.
Option: A financial instrument giving an investor the right, but not the obligation, to buy or sell a specific investment at a set price for a predetermined amount of time.
Over-the-counter transactions: The process in which securities – that are not listed on formal exchanges (such as the New York Stock Exchange, NASDAQ, etc.) – are traded. These trades are done through a broker-dealer network and use the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets listing services.
Paper trade: Tracking options daily on paper, without actually investing any money in them. This is a good way to learn about premium movements as they relate to the underlying stock or future without risking any capital. Once you’ve paper traded for a while, you’ll be ready to start investing.
Penny stocks: A small company’s stock that typically trades for under $5 per share. The majority of penny stocks trade through over the counter (OTC) transactions, but some trade on larger exchanges like the New York Stock Exchange (NYSE).
Premarket: Trading activity before the market opens.
Premium: The price you pay to open a put or a call. The premium is the sum of an option’s intrinsic value and time value. Premiums are arrived at in the open competition of buyers and sellers.
Pre-tax contribution: Refers to a contribution made into an investment account using money that has not been taxed.
Price-to-book ratio (P/B): A means of comparing a company’s book value (the total amount) to its current market price.
Price-to-earnings ratio (P/E): Used to determine a company’s value by comparing its current share price to its earnings per share. The P/E indicates what investors are willing to pay for a stock based on its current earnings.
Price-to-sales ratio (P/S): A technique used to determine the total value that investors place on a company compared to the total revenue the company generates. The P/S ratio is found by dividing the share price by the sales per share.
Prospectus: An intricate legal document that must be submitted alongside any sale or solicitation of the initial offering of a security that is registered with the Securities and Exchange Commission (SEC).
Put: An option (agreement) that gives the option buyer the right to sell an investment at a set price within a specific amount of time.
Put selling: Selling options to collect income while simultaneously obligating yourself to buy the underlying shares if they close at or below the strike price at or before expiration.
Recreational marijuana: Refers to the use of cannabis without a doctor’s advisement. Recreational marijuana typically contains higher levels of THC than medical marijuana.
Relative strength index (RSI): A momentum gauge that measures the extent of recent price changes to determine overbought or oversold stocks. The reading ranges from 0 to 100 (>70 means a security is overbought or overvalued; <30 indicates a security is oversold or undervalued).
Relative value: A method used to determine an asset’s value by comparing it to the value of similar assets. It can be used to evaluate whether a stock is overvalued or undervalued.
Resistance: A price level that is difficult for an asset to exceed due to increased selling pressure.
Risk-to-reward ratio: The amount of money at risk compared with the potential return.
Share buyback: Takes place when a company’s management repurchases shares of its own stock. By doing so, the earnings per share and stock price of the company are artificially inflated.
Shares outstanding: The total number of shares a company has issued.
Short selling: Borrowing an investment, selling it and hoping the price drops so the investment can be repurchased for a lower price and then returned to the investment lender.
Small cap: Refers to publicly traded companies that have stocks with a market capitalization between $300 million and $2 billion.
Spread: The difference between the bid price and ask price.
Support: A price level that’s hard to go below due to increased buying pressure.
Stop-loss order: An order to close a position at a certain price if the market turns against you. A stop-loss order becomes a market order if the price of the item hits the stop limit.
Standard and Poor’s rating: An American financial services company that distributes research on stocks, bonds, and commodities. Standard and Poor is widely known for their benchmark on the U.S. stock market, the S&P 500.
Strike price: The price at which the option gives you the right, or obligates you, to buy or sell the underlying shares.
Technical analysis: Predicting an investment’s price movements by assessing market price movements, patterns and trends.
Tetrahydrocannabinol (THC): The psychoactive part of the cannabis plant that gives users a high. THC is used for both medicinal and recreational purposes.
Thinly traded: Securities that are difficult to exchange or sell for cash without a substantial shift in price. These securities are typically exchanged in small volumes with few interested buyers or sellers. They are also known as “illiquid.”
Trailing stop: A stop loss order that automatically goes higher as an option moves up in price. This can lock in greater profits if the market reverses, but be aware that sometimes profitable trades may reverse, triggering the trailing stop, and then resume their upward move.
Trend: The direction of an investment’s price movement, such as an uptrend or downtrend.
Volatility: The fluctuation in market price of the underlying security. Volatility can be a key factor in an option’s premium.
Volume: The number of shares that trade over a set time period.