Glossary


B
Backlog

Orders for goods and services that have been received, but not yet delivered or rendered.

Backspread

A ratio spread created by buying a greater number of calls (puts) with the higher (lower) strike and selling a lesser number of calls (puts) with a lower (higher) strike. Backspreads often bring in a net credit of premium, and for limited periods, can offer attractive gains with only moderate loss on time premium. See “Option Spreads III – Backspreads.” Ot07827.Pdf in our Reports Archive.  

Balance Sheet

Financial statement that lists the assets, liabilities, and shareholder's equity as of a specific date.

Basic Earnings Per Share

Net income divided by the weighted average number of common shares outstanding during a period. (This calculation is required by the Financial Accounting Standards Board for all years ending after December 15, 1997.)

Basis Point

One basis point equals one-hundredth of one percentage point.

Bear Spread

A basic bear spread is a combination of buying a higher strike put (or call, but not both in the same spread) and writing a lower strike put (or call). See “Option Spreads I – Basic Bull and Bear Spreads,” Ot070823.Pdf.

Beta

A relative measure of the historical sensitivity of the stock's price to overall fluctuations in the New York Stock Exchange Composite Index. A Beta of 1.50 indicates a stock tends to rise (or fall) 50% more than the New York Stock Exchange Composite Index. The ''Beta coefficient'' is derived from a regression analysis of the relationship between weekly percentage changes in the price of a stock and weekly percentage changes in the NYSE Index over a period of five years. In the case of shorter price histories, a smaller time period is used, but two years is the minimum. The Betas are adjusted for their long-term tendency to converge toward 1.00.

Beta 10-Year

Beta 10-Year (for a more thorough definition of this term, see Beta)

Beta 3-Year

Beta 3-Year (for a more thorough definition of this term, see Beta)

Beta 5-Year

Beta 5-Year (for a more thorough definition of this term, see Beta)

Beta(2)

The measure of a security’s so-called “market risk” or the degree to which the stock (portfolio, index) moves with the market. Beta = Covariance (Investment, Market)/Variance (Market). A stock with a Beta of 1.5 tends to rise (fall) 1.5% if the market rises (falls) 1.0%. Conversely, a stock with a Beta of 0.5 is expected to rise or fall only 0.5% if the market moves 1.0%. Beta comes from longer-term regression analysis and is not a reliable short-term predictor of stock price movements.

Bid Price

This is the price at which the market maker would be willing to buy the option. 

Binomial Options Model

Otherwise known as the Cox-Ross-Rubinstein model, the Binomial Model calculates the value of an American-Style option, which can be exercised anytime over the life of the option.

Black Scholes Model

Named for Fischer Black and Myron Scholes, who developed it in 1973. Today, most option models are variations of the Black Scholes model. Note The Black Scholes model assumes that options are ‘European-Style” – i.e., they be only be exercised at expiration.  

Bond

A long-term debt instrument, characterized typically by fixed, semiannual interest payments and a specified maturity date.

Book Value -

Net worth (including intangible assets) less preferred stock at liquidating or redemption value.

Book Value per ADR

Net worth (including intangible assets) less preferred stock at liquidating or redemption value, divided by common units outstanding.

Book Value per ADS

Net worth (including intangible assets) less preferred stock at liquidating or redemption value, divided by common units outstanding.

Book Value Per Share

Net worth (including intangible assets) less preferred stock at liquidating or redemption value, divided by common shares outstanding.

Book Value per Unit

Net worth (including intangible assets) less preferred stock at liquidating or redemption value, divided by common shares outstanding.

Borrowings

Debt obligations.

Box Spread

This is a combination of one synthetic long stock position (long call, short put at same strike and expiration) and one synthetic short stock position (long put, short call at a different strike price but the same expiration). These four-legged positions are profitable when there are differences in the time premiums of calls and puts at the same strike prices. Because of transaction costs, market makers are usually the only ones who can make money from these otherwise riskless arbitrage opportunities.  

Break-even

This is the stock price (or prices in the case of some spreads) at which the option position will neither make nor lose money. For example, the break-even price on a long call is the strike price plus the premium.

Breakeven Time (Payback)

The number of years it takes for the convertible income advantage to recover the premium paid.

Broker

In options, we really talk about two types of broker. One is the securities firm (or person at the securities firm) through which (or whom) investors place their trades and maintain their accounts. The other is the floor broker. This is the person on the Exchange floor who acts to execute customer orders. These days, most customer orders are executed electronically without the aid of floor brokers.

Bull Spread

A basic bull spread is a combination of buying a lower strike call (or put, but not both in the same spread) and writing a higher strike call (or put). See “Option Spreads I – Basic Bull and Bear Spreads,” Ot070823.Pdf in our Reports Archive 

Business Blurb

A data point that describes the company's most important products, lists large shareholders, and includes the company's address, telephone number, and Internet address.

Business Data

A section on a Value Line company report that describes the company’s most important products, lists large shareholders, and includes the company’s address, telephone number, and Internet address.

Busted Convertible

A convertible whose underlying commonstock has fallen below the conversion price creating a huge premium.

Butterfly Spread

A combination of one out-of-the-money call (or put), two at-the-money calls (or puts) and one in-the-money call (or put) or with a combination of calls and puts. A Butterfly spread can earn you time premium with only limited risk. 

Buy Write Indexes

These are informational indexes published by the Chicago Board Options Exchange that track the performance of hypothetical buy-write strategies on some of the major stock indexes. The CBOE S&P 500 Buy Write Index (BXM) tracks the total return of buying the S&P 500 index and writing the near-term slightly out-of-the-money call. The SPX call is held until expiration and cash settled, at which time a new one-month, slightly out-of-the-money call is written. There is also the CBOE S&P 500 2% Out-of-the-Money Index Buy Write Index (BXY), which write calls on the S&P 500 at strikes that are at least 2% out-of-the-money. Other buy write indexes are the CBOE Dow Jones Industrial Buy Write Index (BXD) and the CBOE Russell 2000 Buy Write Index (BXR) and the CBOE NASDAQ 100 Buy Write Index (BXN). In Graph 1 on page 3, we compare the performance of the BXM with that of the dividend adjusted S&P 500 Index.