Trading Glossary

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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 a previously established position(s).

Parallel shift in the yield curve

A shift in the yield curve in which the exchange in the yield on all maturities is the same number of basis points. Related: Non-parallel shift in the yield curve

Parity value

Related: Conversion value

Par value

Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.

Passive portfolio strategy

A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities. Related: Active portfolio strategy

Perfect hedge

A hedge in which the profit and loss are equal.

Performance attribution analysis

The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was market timing statistically significant? and (4) Was security selection statistically significant?

Perpetual warrants

Warrants that have no expiration date.

Pit

A specific area of the trading floor that is designated for the trading of an individual futures or options contract.

Pit committee

A committee of the exchange that determines the daily settlement price of futures contracts.

Point

Related: Minimum price fluctuation.

Policy asset allocation

A long-term asset allocation method, in which the investor seeks to assess an appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced return.

Portfolio

A collection of investments.

Portfolio insurance

A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option.

Portfolio internal rate of return

The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.

Position

A market commitment; the number of contracts bought or sold for which no offsetting transaction has been entered into. The buyer of a commodity is said to have a long position and the seller of a commodity is said to have a short position. Related: Open contracts

Positive carry

Related: Net financing cost

Positive convexity

A property of option-free bonds whereby the price appreciation for a large change in interest rates will be greater (in absolute terms) than the price depreciation for the same change in interest rates.

Posstrade benchmarks

Prices after the decision to trade.

Preferred stock

A class of stock that shares characteristics of both common stock and debt.

Premium

The price of an options contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. Related: Inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a convertible security.

Pre-trade benchmarks

Prices occurring before or at the decision to trade.

Price compression

The limitation of the price appreciation potential for a callable bond in a declining interest rate environment, based on the expectation that the bond will be redeemed at the call price.

Price discovery process

The process of determining the prices of the assets in the marketplace through the interactions of buyers and sellers.

Price-earnings (P/E) ratio

The current market price of the stock divided by some measure of earnings per share.

Price momentum

Related: Relative strength

Price persistence

Related: Relative strength

Price risk

The risk that the value of a security (or a portfolio) will decline in the future.

Price value of a basis point (PVBP)

Also called the dollar value of an 01, a measure of the change in the price of the bond if the required yield changes by one basis point.

Price-volume relationship

A relationship espoused by some technical analysts that signals continuing rises and falls in security prices based on accompanying changes in volume traded.

Pricing efficiency

Also called external efficiency, a market characteristic where prices at all times fully reflect all available information that is relevant to the valuation of securities.

Primary market

The principal underlying market for a financial instrument or physical commodity.

Profit margin

The ratio of earnings available to stockholders to net sales.

Program trades

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

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

Provisional call feature

A feature in a convertible issue that allows the issuer to call the issue during the non-call period if the price of the stock reaches a certain price.

Pure expectations theory

A theory that asserts that the forward rates exclusively represent the expected future rates. Related: Biased expectations theories

Pure index fund

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

Put

An option granting the right to sell the underlying futures contract. Opposite of a call. Related: Call

Put-call parity relationship

The relationship between the price of a put and the price of a call on the same underlying with the same expiration date, which prevents arbitrage opportunities.

Put swaption

A swaption in which the buyer has the right to enter into a swap as a floating-rate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.