Trading Terms

Question 1

Christmas Tree Trading Strategy

Answer 1

A Christmas tree is an options trading spread strategy achieved by buying and selling six call (or six put) options with different strikes but the same expiration dates for a neutral to bullish forecast. This is termed a long call Christmas tree when using calls or a put Christmas tree when using put options. The strategy is also available long (bullish) or short (bearish).

This spread is essentially the combination of a long vertical spread and two short vertical spreads.

Question 2

Window Dressing

Answer 2

Window dressing is a strategy used by mutual fund and other portfolio managers near the year or quarter end to improve the appearance of a fund’s performance before presenting it to clients or shareholders. To window dress, the fund manager sells stocks with large losses and purchases high-flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.

Question 3

Break In Market Structure

Answer 3

This is when a market value exceeds the usual trend going over or under its “high-high” or low-low”.

Question 4

Fractional Share

Answer 4

A fractional share is a portion of an equity stock that is less than one full share. Fractional shares often result from stock splits, which don’t always result in an even number of shares. … Fractional shares don’t trade on the open market; the only way to sell fractional shares is through a major brokerage.

Question 5

Santa Claus Rally

Answer 5

A Santa Claus rally describes a sustained increase in the stock market that occurs in the last week of December through the first two trading days in January. There are numerous explanations for the causes of a Santa Claus rally including tax considerations, a general feeling of optimism and happiness on Wall Street, and the investing of holiday bonuses. Another theory is that some very large institutional investors, a number of whom are more sophisticated and pessimistic, tend to go on vacation at this time leaving the market to retail investors, who tend to be more bullish.

Question 6

Personal consumption expenditures PCE’s

Answer 6

Personal consumption expenditures (PCEs) are imputed household expenditures defined for a period of time. Personal income, personal consumption expenditures, and the PCE Price Index reading are released monthly in the Bureau of Economic Analysis’ (BEA) Personal Income and Outlays report. Personal consumption expenditures support the reporting of the PCE Price Index, which measures price changes in consumer goods and services exchanged in the U.S. economy.

Question 7

Purchasing Managers Index (PMI)

Answer 7

The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.

Question 8

Quadruple Witching

Answer 8

Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December.

Quadruple witching is similar to the triple witching dates, when three out of the four markets expire at the same time, or double witching, when two markets out of the four markets expire at the same time.