REBOUND ON WALL STREET : Glossary of ‘Wall Street Speak’

Wall Street likes to speak its own language much of the time. Here is what some of it means: Arbitrage: The attempt to make a profit on takeovers by guessing which company will be the next target. Also used to describe the practice of buying and selling comparable securities--for instance, a stock and a stock index future--and profiting on the price difference.

Call option: An option agreement that allows an investor to buy a stock or other investment at a certain price during a certain period of time. The call buyer is speculating that the investment’s price will rise.

Computerized program trading: A type of stock trading used by big institutional investors that involves trading huge blocks of stocks and stock index futures. This kind of trading is believed to have aggravated the stock market crash of October, 1987.

Junk bonds: High-yield bonds that also carry high risk and, after recent market reverses, appear to be earning their name as companies fail to make interest payments. Junk bonds have been used to finance many takeovers, particularly leveraged buyouts.

Leveraged buyout: Buying a company with borrowed funds that are repaid with cash generated by company operations or by selling parts of the company.

Margin account: A line of credit to buy stocks, limited to 50% of the value of the stock.

Margin call: A demand by a lender that an investor put up more collateral for securities bought on credit.

Mutual funds: A fund managed by an investment company that raises money from shareholders and puts it into a variety of investments.

Option: An agreement, arranged for a fee, to buy or sell a stock or other investment at a certain price for a limited time. See call option and put option.

Portfolio Insurance: An investor ploy to avoid losing money by selling options or futures against the stock in a portfolio in hopes of offsetting price declines and magnifying price increases. Widely viewed as a contributor to the October, 1987, crash.

Put option: An option agreement that allows an investor to sell a stock or other investment at a certain price during a certain period of time. The put buyer is speculating that the price will fall.

Price-earnings ratio: The price of a company’s stock divided by the company’s annual earnings per share. It is an indicator of how much an investor is paying for a company’s earnings muscle.

Selling short: Selling borrowed stock to take advantage of an anticipated drop in the price. The investor hopes to buy back the stock at a lower price before it is time to return the securities.

Stock index futures: Contracts to buy and sell packages of stocks for delivery in the future. Investors use stock index futures to speculate on where stock prices are going and to hedge against the market’s ups and downs.