By law, every year, mutual funds must distribute that year’s net investment income (the total of dividends and interest received, less fund expenses) and net realized gain (gains less losses on securities sales) to its shareholders. These distributions are taxable income reported to the IRS on Form 1099. Investors must report the income on their tax returns. This poses a problem for some mutual fund investors who make initial purchases of mutual funds near the end of a calendar year. Because they receive a capital gains distribution, they immediately receive taxable income and face a mutual fund NAV that is reduced from the distribution.
Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.
A Call Option gives the holder the right, but not the need to purchase a fixed quantity of a particular stock at a specific price inside a particular time. Call Options are bought by investors who anticipate a price increase.
A measurement of the relationship between the price of a stock and the movement of the whole market. An asset has a beta of zero if it moves are not related to the benchmark’s moves. A positive beta means that the asset generally follows the benchmark, in the sense that the asset tends to move up when the benchmark moves up, and the asset tends to move down when the benchmark moves down. A negative beta means that the asset typically moves in the opposite direction as the benchmark: the asset tends to move up when the benchmark moves down, and the asset tends to move down when the benchmark moves up.
The tendency of the stock market to trend higher over time. It can be used to describe either the market as a whole or specific sectors and securities. The opposite of a Bull Market is a Bear Market when the market is moving lower over time.
When an option’s strike price is identical to the price of the security. Both call and put options will be simultaneously “at the money.” For example, if the ABC stock is trading at 75, then the ABC 75 call option is at the money and so is the ABC 75 put option. An at-the-money option has no intrinsic value, but may have time value (value if the stock goes up during the period of the option). Options trading activity tends to be most active when options are at the money.
Current Ratio is the ratio of current assets divided by current liabilities. It provides A liquidity ratio that measures a company’s ability to pay short-term obligations. Also known as “liquidity ratio”, “cash asset ratio” and “cash ratio”.
