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Optionetics Trading Education Center
Labor-intensive
A term meaning that large pools of workers are required.
Used in conjunction with industries in which labor costs are
more important than capital costs, such as deep-shaft coal
mining.
Ladder Portfolio
A strategy used to diversify short-term holdings with
longer-term securities by investing in a selection of bonds
with different maturities. By including longer-term securities,
the portfolio generates higher average yields while maintaining
liquidity through its short-term holdings.
Lady MacBeth Strategy
A takeover tactic whereby a third party poses as a
white knight then turns coat and joins an unfriendly bidder.
Laffer Curve
A curve names for U.S. economics professor Arthur
Laffer. The curve is used to explain supply-side economics-a
theory that non-inflationary growth is spurred when tax policies
encourage productivity and investment.
Lag
The number of data points that a filter, such as a
moving average, follows or trails the input price data.
Lagging Indicators
Economic indicators that lag behind the overall pace
of economic activity. The six most frequently used components
of lagging indicators are the unemployment rate, business
spending, bank loans outstanding, bank interest rates, unit
labor costs and the book value of manufacturing and trade
inventories.
Laissez-faire
Based on Adam Smith's 1776 The Wealth of Nations,
this term describes the belief that government interference
in business and economic affairs should be minimal. Smith
took the position that if businessmen were free to pursue
profitable opportunities as they saw fit economic good for
all would follow. Industrial growth in England and in the
United States in early and late 19th century respectively
occurred in a laissez-faire capitalist environment.
Lapse
The expiration of a right or privilege because one
party did not live up to their obligations during the time
allowed, for instance, not paying an insurance premium on
time means the protection of the policy has lapsed.
Last Split
After a stock split, the number of shares distributed
for each share held and the date of the distribution.
Latest Quarterly Earnings (%)
The percentage change from the latest earnings reported
compared with the same quarter a year earlier.
Law of Series
A succession of random events, such as flipping a
coin.
Lead
The number of data points that a filter, much as a
moving average, precedes the input price data.
Leading Indicator
A measurable economic factor that changes before the
economy starts to follow a particular pattern or trend. Leading
indicators are believed to predict changes in the economy.
Examples include new orders for durable goods, slowdowns in
deliveries by vendors and numbers of building permits issued.
LEAPS®
Long-term Equity Anticipation Securities, or LEAPS®,
are long-term stock or index options. LEAPS®, like all
options, are available in two types, calls and puts, with
expiration dates up to three years in the future.
Leasing
A form of financing that is similar to debt and is
used to fund the acquisition of specific assets. Unlike debt,
however, the lessor retains title to the asset that he makes
available for use to the lessee in return for periodic lease
payments.
Least Squares Method
A technique of fitting a curve close to some given
points to minimize the sum of the squares of the deviations
of the given points from the curve.
Leg
One side of a spread.
Leg Out
In rolling forward in futures, a method that would
result in liquidating a position.
Lehman Brothers Gov't Bond Index
This unmanaged index of U.S. bonds, which includes
reinvestment of any earnings, is widely used to measure the
overall performance of the U.S. bond market.
Leverage
The amount of volume that enables a trader to buy
or sell a security or derivative and receive fair value for
it. Using borrowed capital to increase investment return.
Leveraged Buy Out (LBO)
A takeover financed to a large degree by debt that
is secured, serviced and repaid through the cash flow and
assets of the acquired company. Typically, an LBO is financed
predominantly by bank debt and low quality bonds, and to a
minimum degree by equity. Its extreme leverage makes an LBO
dependent upon a stable economy and stable interest rates,
as well as a stable cash flow from the acquired company for
its success.
Leveraged Capitalization
A corporate strategy to fend off potential acquirers
by taking on a large amount of debt and making a large one-time
cash distribution to shareholders. This strategy makes the
corporation much less attractive as a takeover target for
other companies and individual raiders.
Leveraged Company
A company with debt in addition to equity in its capital
structure. Companies with more than one-third of their capitalization
in the form of debt are usually considered highly leveraged
Leveraging
A strategy that uses borrowed moneys to purchase financial
assets with the objective of increasing returns.
Liability
A legal obligation to pay a debt owed. Current liabilities
are debts payable within twelve months. Long-term liabilities
are debts payable over a period of more than 12 months.
Lien
This is the claim against property pledged or mortgaged
to secure performance of an obligation.
Limit Move
The maximum daily price limit for an exchange traded
contract.
Limit Order
An order to buy a stock at or below a specified price
or to sell a stock at or above a specified price. For instance,
you could tell a broker to "Buy me 100 shares of XYZ
Corp at $8 or less" or "Sell 100 shares of XYZ at
$10 or better."
Limited Partnership (LP)
An association of two or more partners formed to conduct
a business jointly and in which one or more of the partners
is liable only to the extent of the amount of money they have
invested. Limited partners do not receive dividends but enjoy
direct flow-through of income and expenses. Losses are limited
to the amount invested and depending on the type of the partnership,
partners can be entitled to receive tax breaks.
Limit Up, Limit Down
Commodity exchange restrictions on the maximum upward
or downward movements permitted in the price for a commodity
during any trading session day.
Limit Move
A change in price that exceeds the limits set by the
exchange on which the contract is traded.
Limit Order
An order to buy or sell a stock, option or futures
contract at a fixed price.
Liquidating Value
Refers to the projected pricing for an asset, such
as office equipment or a real estate holding, belonging to
a company that is going out of business. Liquidating value
assumes that assets will be sold separately from the rest
of the company. Also called auction value and liquidation
value.
Liquidation
The process of converting property and securities
into cash. When a company is dissolved or closed down, cash
remaining after sale of its assets and payment of all indebtedness
is distributed to the shareholders, beginning with the preferred
shareholders and ending with the common shareholders.
Liquidity
The ease with which an asset can be converted to cash
in the marketplace. A large number of buyers and sellers and
a high volume of trading activity provide high liquidity.
Liquidity is a concern for any moneys that may be required
on short notice, whether for emergencies or for planned purchases.
LISP
A programming language based on predicate logic and
is the one most commonly used in artificial intelligence applications.
Listed Security
A financial instrument traded on a stock exchange,
having met the requirements imposed by the exchange on which
it is traded.
Listed Stock
The stock of a company that is traded on a stock exchange.
Companies pay fees to the exchange to be listed and must abide
by the rules and regulations set out by the exchange to maintain
listing privileges.
Listing Requirements
Rules that might be met before a stock is listed for
trading on an exchange. Among the requirements of the New
York Stock Exchange, a company must have a minimum of one
million publicly held shares with a minimum aggregate market
value of $16 million and an annual net income in excess of
$2.5 million before federal income taxes.
Listing Statement
A stock exchange document published when a company's
shares are accepted for listing. It provides basic information
on the company, its business, management, assets, capitalization
and financial status.
Little Dragons
A nickname given to developing Asian nations such
as Hong Kong, South Korea, Singapore and Taiwan that poses
a threat to the big dragon (Japan) because of their high productivity,
lower labor costs and pro-business attitudes.
Living Dead
Refers to companies that continue operations even
though they are insolvent and bankrupt. These companies may
also be referred to as brain dead or zombies.
Ljung-Box Statistic
A chi-square test of significance of higher order
correlation existence. The marginal significance level is
the probability that a no more higher order correlation exists.
Load
Commission and fees taken out of investment capital;
that is, the situation in which a front-loaded mutual fund
takes commission and fees out of investment capital before
the money is put to work. Term used in the mutual fund industry
to identify the sales charge or commission on a particular
fund. Common types of loads are front-end or back-end loads.
Load Fund
A mutual fund with shares sold at a price including
a sales charge-typically 4 % to 8% of the net amount indicated.
Some "no-load" funds have distribution fees permitted
by article 12b1 of the Investment Company Act; these are typically
0.25%. A "true no-load" fund has neither a sales
charge not 12b1 fee. A load implies that the fund purchaser
receives some investment advice or other service worthy of
the charge.
Local
The trader in a pit of a commodity exchange who buys
and sells for his or her account. An independent trader on
an exchange. Similar to a market maker but whom trades primarily
for himself/herself.
Locked In
When an investor has a profit on a security owned,
but does not sell because of either the absence of a market
or some legal restriction on the sale of the security. Also
refers to an investor holding a security that has declined
below the purchase price who cannot sell without incurring
a loss.
Locked Limit
A market that, if not restricted, would seek price
equilibrium outside the limit but, instead, moves to the limit
and ceases to trade.
Locked Market
A market where trading has been halted because prices
have reached their daily trading limit. Also refers to a highly
competitive market environment where there are identical bid
and ask prices for a stock. The appearance of more buyers
or more sellers unlocks the market.
Lock-up Option
A privilege, such as buying additional equity or crown
jewels, offered by a target company to a white knight in order
to discourage a hostile takeover by someone else.
Long
The term used to describe the owning of a security,
contract or commodity. For example, an owner of common stock
is said to have a long position in the stock.
Long Bond
Typically a bond that matures in more than ten years.
These bonds usually pay investors a higher yield than normal
bonds because they commit investor money for a long period
of time.
Long Hedge
The purchase of a futures contract in anticipation
of an actual purchase in the cash market. Used by processors
or exporters as protection against and advance in the cash
price.
Long Maturity
A long maturity, 60 days or more, indicates the fund
managers are convinced that interest rates are going to fall.
Long Position
Refers to the ownership of a security. Having a long
position, or ownership, means that the investor has the right
to transfer that ownership to someone else by gift or sale.
The owner has the right to receive any income paid by the
security and the right to any profits or losses as the value
of the security changes. Long Position may also refer to an
investor's ownership of securities held by a brokerage firm.
Long Position (Options)
An options position where a person has executed one
or more options trades where the net result is that they are
an "owner" or holder of options (i.e., the number
of contracts bought exceeds the number of contracts sold).
Long-term Assets
Value of property, equipment and other capital assets
minus the depreciation. This is an entry in the bookkeeping
records of a company, usually on a "cost" basis
and thus does not necessarily reflect the market value of
the assets.
Long-term Bond
A bond or debenture maturing in more than ten years.
Long-term Debt
A liability due to be paid within one year or longer.
Typically, interest is paid periodically over the term of
the loan and the principal amount is payable as notes or bonds
mature. A long-term debt may also be a long-bond or a long-term
bond with a maturity date of ten years or more.
Long-term Debt / Capitalization
Indicator of financial leverage. Shows long-term debt
as a proportion of the capital available. Determined by dividing
long-term debt by the sum of long-term debt, preferred stock
and common stockholders' equity.
Long-term Liabilities
Amount owed for leases, bond repayment and other items
due after one year.
Lookback Interval
The number of periods of historical data used for
observation and calculation.
Low (lo)
This is the lowest price paid for a stock during a
certain period. For example, the low for the day was $15,
but the low for the year was $7.50.
Low Pass Frequency Filter
A data smoother or filter that lets pass low frequency
trend sinusoids and rejects high frequency noise.
Low Risk Investing
A trade that is hedged for purposes of limiting price
loss as opposed to a directional trade where loss is unlimited.
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