Stock market dictionary, stock market glossary, stock market glossary of terms, financial terms

Profit
Revenue minus cost. The amount one makes on a transaction.

Profit center
A division of an organization held responsible for producing its own profits.

Profit forecast
A prediction of future profits of a company, which may affect investment decisions.

Profit Graph
A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.

Profit margin
Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.

Profit Range
The range within which a particular position makes a profit. Generally used in refernce to strategies that have two break-even points - an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range.

Profit-sharing plan
An incentive system providing that employees share in companys profits through a cash fund or a deferred plan used to buy stock or bonds.

Profit Table
A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph. See also Profit Graph.

Profit taking
Action by short-term securities traders to cash in on gains created by a sharp market rise, which pushes prices down temporarily but implies an upward market trend. See: Ring the [cash] register.

Profitability index
The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.

Profitability ratios
Ratios that focus on how well a firm is performing. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.

Proforma
A financial projection based on assumptions.

Proforma Invoice
A quotation in the form of a ninvoice prepared by the seller that details items which would appear on a commercial invoice if an order results.

Program trades
Orders requiring the execution of trades in a large number of different stocks at as near the same time as possible. Also called basket trades. Related: Block trade

Program trading
Trades based on signals from computer programs, usually entered directly from the trader's computer in to the market's computer system and executed automatically. Applies to derivative products. A process of electronic execution of trading of a basket of stocks simultaneously, for index arbitrage, portfolio restructuring, or outright buy/sell interests. See: super dot.

Progress payments
Periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements.

Progress review
A periodic review of a capital investment project to evaluate its continued economic viability.

Progressive tax system
A tax system that taxes the wealthy at a higher percentage rate than the less wealthy.

Progressive taxation
Characterizes a convex tax schedule that results in a higher effective tax rate on higher income levels. Increases for some increases in income, but never decreases with an increase in income.

Project
The asset constructed with or owned via a project financing, which is expected to produce cash flow at a debt-service coverage ratio sufficient to repay the project financing.

Project contracts
In the context of project financing, the suite of agreements underlying the project.

Project Finance Loan Program
Program under which banks, the Ex-Im Bank, or a combination of both may extend long-term financing for capital equipment and related services for major projects.

Project financing
A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis.

Project link
An econometric model forecasting and describing the effects of changes in different economies on other economies.

Project loan certificate (PLC)
A primary program of Ginnie Mae for securitizing FHA-insured and coinsured multifamily, hospital, and nursing home loans.

Project loans
Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, nursing homes, hospitals, and other special development.

Project loan securities
Securities backed by a variety of FHA-insured loans-primarily multifamily apartment buildings, hospitals, and nursing homes.

Project notes (PN)
Notes issued by municipalities to finance federally sponsored programs in urban renewal and housing and guaranteed by the U.S. Department of Housing and Urban Development.

Projected benefit obligation (PBO)
A measure of a pension plan's liability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future. Related: Accumulated benefit obligation.

Projected maturity date
With CMOs, the date at the end of the estimated cash flow window where final payment is made.

Projection
The use of econometric models to forecast the future performance of a company, country, or other financial entity using historical and current information.

Promissory note
Written pledge to pay.

Property inventory
A list of personal property with corresponding values and initial costs often used to substantiate insurance claim and tax losses.

Property rights
Rights of individuals and companies to own and use property as they see fit and to receive the stream of income that their property generates.

Property tax
A tax levied on real property based on its use and its assessed value.

Proportional representation
A method of stockholder voting that allows minority shareholders and groups of small shareholders to have a better chance of getting representation on a Board of Directors than under statutory voting.

Proprietary trading
Principal trading in which firm seeks direct gain rather than commission dollars.

Proprietorship
An unincorporated business that is owned and operated by only one person who has complete liability for all assets, and complete rights to all profits.

Pro rata
Shared or divided according to a ratio or in proportion to participation.

Proration
Refers to the division between cash and stock in a takeover offer. Often a takeover is a combination of cash and the acquiring firm's equity. Shareholders can elect to take cash or equity. After the election is made, the stock is prorated. For example, if the takeover offer was 500 million in cash and 500 million in shares, if everybody elected cash, then the maximum cash for each shareholder is 50%. If 75% elected to receive cash, 25% of the shareholders would get 100% equity and the other 75% would get 75% cash and 25% equity. The proportions are complicated to compute if the new shares are worth more than the old shares. In this case, small shareholders (with say 100 shares) might receive 100% cash because it is disadvantageous to have a lot less than 100 shares.

Prospective Earnings Growth (PEG Ratio)
Based on forecasts from proprietary sources such as Institutional Brokers' Estimate System (IBES), First Call, or Zach's. Growth is forecast of earnings minus current earnings divided by current earnings. Forward-looking measure rather than typical earnings growth measures, which look back in time (historical).

Prospectus
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

Protect
Assure the salesperson or trader that interest, buy or sell, will be attended to, given any change in the trading circumstances, as follows:
At a price: If the stock trades at a certain price or price range, the trader will show this market to the salesperson and thus allow participation under these favorable circumstances.

Floor protection: Representation of a client on the floor of the exchange-so that if size were to trade at his price or a better price, salesperson would participate.
Volume (OTC): If a certain amount of volume trades (that parallels the protectee's interest), trader assures salesperson of reasonable participation in the trading activity. The extent of this protection depends on liquidity, number of market makers, and other aspects of the stock.

Protected Strategy
A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). See also Combination and Straddle.

Protectionism
Notion that governments should protect domestic industry from import competition by means of tariffs, quotas, and other trade barriers.

Protective covenant
A part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the lender's interests.

Protective put buying strategy
A strategy that involves buying a put option on the underlying security that is held in a portfolio. Related: Hedge option strategies.

Protest
Instructions given to a collecting bank that drafts falling due for payment are to be formally presented to the drawee by a notary, who is to formally record any default.

Prototype plan
A qualified retirement plan sponsored by a financial institution. It may be adopted by executing a written agreement. A prototype is generally more flexible than the IRS Form 5305 or 5305-A and may have additional special features. Also called a master pension plan.

Provision for income taxes
An amount on the P & I statement that estimates a company's total income tax liability for the year.

Provisional call feature
A stipulation in a convertible issue that allows the issuer to call the issue during the noncall period if the price of the stock reaches a certain level. In the case of convertible securities, right of an issuer to accelerate the first redemption date if the underlying common should trade at or above a certain level for a sustained period. Most typical terms are 150% of conversion price for 20 consecutive days. Note that under these circumstances the security has appreciated, at a minimum, 50% since being issued.

Proxy
Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified.

Proxy Committee
A group of individuals appointed by the board of directors of the companies to formally represent the shareholders who send in proxy cards, to vote the represented shares in accordance with the shareholders' instructions.

Proxy Committee Ballot
The ballot signed and submitted at the meeting by the Proxy Committee. It is the legal voting of shares represented by proxies assigned to the Proxy Committee and should always be completed.

Proxy contest
A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights.

Proxy fight
Often used in risk arbitrage. Technique used by an acquiring company to attempt to gain control of a takeover target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted n favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price.

Proxy Fight
Competition of outside group with management for stockholders' proxies in order to accumulate votes to elect a new board of directors.

Proxy Solicitor
A specialist (firm) hired to gather proxy votes.

Proxy statement
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy.

Proxy vote
Vote cast by one person or entity on behalf of another.

Prudent-man rule
A common law standard against which those investing the money of others fiduciaries are judged.

P&S
Purchase and sale statement. A statement provided by the broker showing change in the customer's net ledger balance after the offset of any previously established positions.

PSA Prepayment Rate
The Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans. 00% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate).

PSSG
Financial ratio defined as stock price divided by sales over sales growth. Often used in the valuation of Internet stocks. Related: PREG.

Public Book (of order)
The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist's book is closed (only he knows at what price and in what quantity the nearest public orders are). See also Market-Maker and Specialist.

Public Company
A company that has held an initial public offering and whose shares are traded on a stock exchange or in the over-the-counter market. Public companies are subject to periodic filing and other obligations under the federal securities laws.

Public debt
Issues of debt by governments to compensate for a lack of tax revenues.

Public housing authority bond
Bonds of local public housing agencies that are secured by the federal government and whose proceeds are used to provide low-rent housing.

Public limited partnership
A limited partnership with an unlimited number of partners that is registered with the SEC and is available for public trading by broker/dealers.

Public offering
Used in the context of general equities. Offering to the investment public, after compliance with registration requirements of the SEC, usually by an investment banker or a syndicate made up of several investment bankers, at a price agreed upon between the issuer and the investment bankers. Antithesis of private placement. See: Primary distribution and secondary distribution.

Public offering price
The price of a new issue of securities at the time that the issue is offered to the public.

Public ownership
The portion of a company's stock that is held by the public.

Public-purpose bond
A specific type of municipal bond used to finance public projects such as roads or government buildings. Interest on municipal bonds is federal income tax-free.

Public Securities Association(PSA)
The trade association for primary dealers in US government securities, including MBSs. In 1997, they became known as the Bond Market Association.

Public securities offering
A securities issue placed with the public through an investment or commercial bank.

The Public
Individual investors who trade single securities independently or invest in intermediaries such as mutual funds, as opposed to professional investors.

Public Utility Holding Company Act of 1935
Legislation intended to eliminate many holding company abuses by reorganizing the financial structures of holding companies in the gas and electric utility industries and regulating their debt and dividend policies.

Public warehouse
Storage facility operated by an independent warehouse company on its own premises.

Publicly held
Describes a company whose stock is held by the public, whether individuals or business entities.

Publicly traded assets
Assets that can be traded in a public market, such as the stock market.

Puke
Slang for a trader selling a position, usually a losing position, as in, "When in doubt, puke it out."

Pull
Used in the context of general equities. See: Cancel.

Pullback
The downward reversal of a prolonged upward price trend.

Pulling in their horns
Investors selling off positions after a stock or bond market has increased sharply or setting up hedging positions to guard against a negative turn of the market.

Purchase
Buy; be long; have an ownership position.

Purchase accounting
Method of accounting for a merger that treats the acquirer as having purchased the assets and assumed the liabilities of the acquiree, which are then written up or down to their respective fair market values. The difference between the purchase price and the net assets acquired is attributed to goodwill.

Purchase agreement
Used in connection with project financing; an agreement to purchase a specific amount of project output per period.

Purchase fee
A charge assessed by an intermediary, such as a broker-dealer or a bank, for assisting in the sale or purchase of a security.

Purchase fund
Resembles a sinking fund, except that money is used to purchase bonds only if they are selling below their par value.

Purchase group
See: Underwriting syndicate

Purchase loan
A consumer loan taken to finance a purchase.

Purchase method
Accounting for an acquisition using market value for the consolidation of the two entities' net assets on the balance sheet. Generally, depreciation/amortization will increase for this method (due to the creation of goodwill) compared to the pooling method resulting in lower net income.

Purchase-money mortgage
A mortgage given by a buyer in lieu of cash when the buyer is unable to borrow commercially for the purchase of property.

Purchase order
A written order to buy specified goods at a stipulated price.

Purchase and sale
A method of securities distribution in which a firm purchases securities from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Purchasing power
The amount of credit available for securities trading in a margin account, after taking margin requirements into consideration.

Purchasing power of the dollar
The amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period.

Purchasing power parity
The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.

Purchasing power risk
Related: Inflation risk

Pure discount bond
A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond.

Pure expectations theory
A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slope to the term structure implies increasing short-term interest rates. Related: Biased expectations heories.

Pure index fund
A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.

Pure monopoly
A market in which only one firm has total control over the entire market for a product due to some sort of barrier to entry for other firms, often a patent held by the controlling firm.

Pure play
A company involved in only one line of business.

Pure yield pickup swap
Moving to higher yield-bonds.

Purpose credit
Credit used for the purpose of buying, carrying or trading in securities.

Purpose loan
A loan that is backed by securities and that is used to buy other securities under certain government regulations.

Purpose statement
A form filed by a borrower that describes the use of a loan backed by securities, and guarantees that the funds lent will not be used illegally to buy securities against Federal Reserve regulations.

Put
An option granting the right to sell the underlying futures contract. Opposite of a call.

Put bond
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years. If the price is above par, the put is a "premium put."

Put-call parity
Applies to derivative products. Option pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship.

Put-call parity relationship
The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the underlying stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C = S + P - PV(k).

Put-call ratio
The ratio of the volume of put options traded to the volume of call options traded, which is used as an indicator of investor sentiment (bullish or bearish).

Put guarantee letter
A bank's letter certifying that the person writing a put option has sufficient funds in an account to cover the exercise price if required.

Put on
Used for listed equity securities. Trade, or cross, a block of stock at the designated price and quantity. See: Print.

"Put it on "
Used for listed equity securities. "Go to the floor to transact." See: Print.

Put option
This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

Put an option
To exercise a put option.

"Put pants on it "
Used in the context of general equities. "Elaborate on your intentions or your inquiry," especially with respect to size, side, and price. See: Open up.

Put price
The price at which an asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option.

Put provision
Gives the holder of a floating-rate bond the right to redeem the note at par on the coupon payment date.

Put ratio backspread
A complex options strategy adopted when one believes a stock price will decline but wants to protect against it rising.

Put to seller
Exercise a put option; require that the option writer to purchase the stock at the strike price.

Put swaption
A financial instrument giving the buyer the right, or option, to enter into a swap as a floating-rate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Put up
See: Print

Pyramid scheme
An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment.

Pyramiding
A type of stock swap option exercise in which a small number of previously-owned shares is surrendered to the company to pay a portion of the exercise price, for which a slightly larger number of option shares may be purchased, which are then immediately surrendered back to the company to pay additional amounts of the exercise price, and so on until the full option price has been paid and the optionee is left with just the number of shares equal to the option spread. With the advent of broker-assisted "Cashless Exercise/Same Day Sale" programs (see above), pyramiding has fallen out of favor.