About Investing

8 Investing Terms Many Professionals Don’t Know

In order to trade smart, whether you are an investor personally or professionally, you need to learn a lot of terminology to keep up. From historical options data, options implied volatility, and more, there are lots of useful and important terms to research before getting involved with mutual funds, stocks, bonds, and options. Investing and discussing trends such as historical option prices with colleagues can be a fun and rewarding experience. Impress your fellow investors by mentioning some of these lesser-known terms during your next networking event.

1. The cockroach theory supposes that when bad news is revealed to the public, there is usually more bad news happening behind the scenes. This news is likely to be revealed eventually. This term is also used to discuss trends where one company is forced to close and similar companies follow suite.

2. A suicide pill is a defensive strategy sometimes performed by targets of acquisitions to make their company less attractive to the potential investors. Often, they take on large amounts of debit, which can lead to issues with options implied volatility, historical option prices, and could scare off the acquiring company.

3. When businesses arrive in bagel land, there may be no coming back. This is a slang term that is used to describe stocks or options that are nearing $0 in price. This can greatly impact historical option prices, and could mean that the company is going under.

4. A dead cat bounce is a short-lived rise in a falling stocks price. It is described this way because “as a dead call falls, even they will bounce when they hit the ground”.

5. Acting on a tip from a dip can be deadly when investing. It is advice from someone claiming they have insider information about something like historical options data or higher than expected earnings that could impact stock prices, but ultimately does not.

6. Garbatrage or rumortrage refers to a surge in prices such as historical option prices and trading volume in a particular industry after a high-profile takeover. The expectation is that more takeovers will come as a result.

7. Bear hugs are buyout offers for far more than the company is worth. This is common when the target company is not willing to sell, or they need some additional incentive to pull the trigger.

8. A shark watcher is a firm specifically hired to watch the market for potential takeovers by monitoring trading, as well as the gathering of shares, and any other activities of note.

Terms like options implied volatility are thrown around a lot during investment discussions, but when was the last time you heard someone refer to the “cockroach theory”, or to reject “a tip from a dip”? These lesser known terms will help liven up your next investment discussion, and will let your colleagues know that you are an insider.

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