When you write, or sell, a call option but don't own the underlying instrument, such as a stock in the case of an equity option, the option is described as naked.
Similarly, you write a naked put if you don't have enough cash on hand or in liquid investments to purchase the underlying instrument.
Because you collect a premium when you sell the option, you may make a profit if the underlying instrument performs as you expect, and the option isn't exercised.
The risk you run, however, is that the option holder will exercise the option. In the case of a call, you'll then have to buy the instrument at the market price in order to meet your obligation to sell. Or, if it's a put, you'll have to come up with the cash to purchase the instrument.
If that price of the underlying has moved in the opposite direction from the one you expected, meeting your obligation could result in a substantial net loss. Because of this risk, your brokerage firm may limit your right to write naked options or require that you write them in a margin account.
- Browse Related Terms: assignment, At-the-money, Automatic exercise, Call, Call option, Covered option, Exercise, Go short, Green shoe clause, In-the-money, Incentive stock option (ISO), Long position, Naked option, offset, Option, Option premium, Put option, Short position, Stock option, Strike price, Uncovered option, Writer
A named perils policy is a standard homeowners insurance policy that offers limited protection for damage from fire and theft and other hazards specified in the policy.
- Browse Related Terms: Car insurance, Catastrophic illness insurance, claim, Credit Disability Insurance (CDI), Deductible, Exclusion, Homeowner's insurance, Indemnity insurance, Insurance (Hazard), Named perils policy, Participating policy, Policyholder or policy owner, Pre-existing Condition, Preferred Risk Policy (PRP), Rider
NASD is the largest self-regulatory organization (SRO) in the United States.
Formerly known as the National Association of Securities Dealers, NASD regulates broker-dealer firms and licenses registered representatives - better known as stockbrokers - who make a business of trading securities.
In addition, NASD regulates trading in stocks, mutual funds, variable annuities, corporate bonds, and futures and options contracts on securities, and acts as regulator for a number of securities exchanges, NASD also reviews materials that investment companies provide to their clients and prospective clients to ensure those materials comply with the relevant guidelines.
Through its BrokerCheck database, NASD provides a resource for investors to check the credentials of people and firms with whom they're considering working. The NASD website also provides investor education and alerts on current issues of importance to investors.
Finally, NASD also resolves disputes between broker-dealers and their clients, through either mediation or arbitration. NASD disciplines firms and individuals who violate the rules.
- Browse Related Terms: agent, Broker, NASD, registered representative, Series 6, Series 63, Series 7, Suitability rules
NASDAQ is the world's oldest electronic stock market and the largest stock exchange in the United States. It has no central trading location or exchange floor.
Instead it uses a fully automated, open market, multiple dealer trading system, with many market makers competing to handle transactions in each individual stock.
NASDAQ handles more initial public offerings than any other US exchange. It lists many emerging companies as well as industry giants, especially in biotechnology, communications, financial services, media, retail, technology, and transportation.
- Browse Related Terms: Bourse, Currency trading, Cyber Crime, NASDAQ, NASDAQ Stock Market, real time, Stock market, Wire house
The NASDAQ Composite index tracks the prices of all of the securities traded on the NASDAQ Stock Market.
That makes it a broader measure of market activity than the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500-stock Index (S&P 500).
On the other hand, many computer, biotechnology, and telecommunications companies are listed on the NASDAQ. So the movement of the index is heavily influenced by what's happening in those sectors.
The index is market capitalization weighted, which means that companies whose market values are higher exert greater influence on the index. Market capitalization, or value, is computed by multiplying the total number of existing shares by the most recent sales price.
So, for example, if a stock with 1 million shares increases $3 in value, it has a greater impact on the changing value of the index than a stock that also increases $3 but has only 500,000 shares.
- Browse Related Terms: Average, Breakout, Dogs of the Dow, Dow Jones 65 Composite Average, Dow Jones Industrial Average (DJIA), Dow Jones Transportation Average, Dow Jones Utility Average, Dow theory, Efficient market theory, Logarithmic scale, NASDAQ Composite Index, New York Stock Exchange Composite Index, Qubes, Value Line Composite Index, volume, Weighted stock index
The NASDAQ Stock Market is the world's oldest and largest electronic stock market and is now a national securities exchange and an independent self-regulatory organization (SRO).
The most active stock market in the nation, the Nasdaq lists many emerging companies as well as some industry giants, especially in computers, technology, and telecommunications.
- Browse Related Terms: Bourse, Currency trading, Cyber Crime, NASDAQ, NASDAQ Stock Market, real time, Stock market, Wire house
NASDAQ is a computerized stock trading network that allows brokers to access price quotations for stocks being traded electronically or sold on the floor of a stock exchange.
- Browse Related Terms: Electronic communications network (ECN), Fourth market, Instinet, National Association of Securities Dealers Automated Quotation System (NASDAQ), NYSE Arca, Off-board, Secondary market, Third market
All banks in the United States are chartered by either a state government or the federal government. Federally chartered banks, called national banks, are overseen by the Comptroller of the Currency of the US Department of the Treasury.
All national banks are members of the Federal Reserve System and deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
The dual banking system of federal- and state-chartered banks can be traced to the National Banking Act of 1863. The act created the new federal bank system in an attempt to impose order on what had been a chaotic situation. State banks have survived, however, and the two banking systems co-exist.
- Browse Related Terms: Check hold, Checking account, Commercial bank, Comptroller of the Currency, Federal Deposit Insurance Corporation (FDIC), Federal funds, Federal Reserve Fedwire, Federal Reserve System, Financial institution, Loose credit, Mutual company, National Bank, Nonbank banks, Open-market operations, Regulation D, Reserve requirement
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The Federal regulatory agency that charters and supervises Federal credit unions. NCUA also administers the National Credit Union Share Insurance Fund, which insures the deposits of federally insured credit unions (both Federal credit unions and state-chartered credit unions.)
The National Credit Union Administration (NCUA) is an independent federal agency that authorizes the establishment and oversees the administration of most federal- and state-chartered credit unions in the United States.
The National Credit Union Share Insurance Fund arm of the agency insures credit union deposits, just as the Federal Deposit Insurance Corporation (FDIC) does bank deposits.
NCUA is funded by member credit unions and is backed by the full faith and credit of the federal government.
- Browse Related Terms: Charter Number, European Central Bank (ECB), Federal Credit Union, Federal Credit Union Act, Insured Shares, National Credit Union Administration (NCUA), Over Limit, State Banking Department (also State Supervisory Authority), State Chartered Credit Union
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The total value of all outstanding Treasury bills, notes, and bonds that the federal government owes investors is referred to as the national debt.
The government holds some of this debt itself, in accounts such as the Social Security, Medicare, Unemployment Insurance, and Highway, Airport and Airway Trust Funds. The rest is held by individual and institutional investors, both domestic and international, or by overseas governments.
There is a debt ceiling imposed by Congress, but it is typically raised when outstanding debt approaches that level.
Interest on the national debt is a major item in the federal budget, but the national debt is not the same as the federal budget deficit. The deficit is the amount by which federal spending exceeds federal income in a fiscal year.
- Browse Related Terms: Back-up withholding, Custodial account, Estate, Estate tax, Gift tax, Income, Income in respect of a decedent, Income stock, National debt, Qualified domestic trust (QDOT), Revocable trust, Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA)
The program of flood insurance coverage and floodplain management administered under the Flood Disaster Protection Act (FDPA or Act) and applicable Federal regulations found in Title 44 of the Code of Federal Regulations, Subchapter B.
- Browse Related Terms: Federal Emergency Management Agency (FEMA), flood insurance, Flood Plain, living will, Medicaid, National Flood Insurance Program (NFIP), Participating Community, Regular Program Community, Special Flood Hazard Area (SFHA)
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The National Market System (NMS) links all the major stock markets in the United States and was developed to foster competition among them.
Federal rules require these trading centers to ensure that transactions are executed at prices at least as good as protected quotations displayed at another center. A protected quotation is one that's immediately and automatically accessible.
- Browse Related Terms: Crossed market, Dutch auction, Market order, National Market System (NMS), Noncompetitive bid, Offer, Order imbalance, Order protection rule, Small order execution system (SOES), Specialist, Spoofing, Tender offer, Toehold purchase
When your loan principal increases rather than decreases because your monthly payment isn't enough to cover the loan interest, that's called negative amortization.
This can happen if you have an adjustable-rate mortgage (ARM) that specifies a payment cap, or maximum rate increase, and the interest rate rises above the cap.
Negative amortization can also occur with mortgages that have no rate adjustment caps, or those that let you make very low initial payments that don't cover the loan interest.
The promise of low initial payments may make loans that could result in negative amortization attractive, but there are substantial risks. Eventually, your monthly payment will have to increase, sometimes sharply, to pay off the larger loan.
If interest rates have risen, you may not be able to refinance at a favorable rate. And if real estate prices fall, you could find yourself with a mortgage loan that is larger than the value of your home.
- Browse Related Terms: Adjustable-Rate Mortgage (ARM), balloon mortgage, Ceiling, Co-maker, Fixed Rate Loan, fixed-rate mortgage, Home Equity Loan, Hybrid mortgage, Interest-only mortgage, Loan note, Negative amortization, Payoff, Payoff statement, Prepayment penalty, Principal balance, Refinancing, Rule of 78, Usury
Occurs when the monthly payments in an adjustable-rate mortgage loan do not cover all the interest owed. The interest that is not paid in the monthly payment is added to the loan balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that are not high enough to cover the interest due or when the minimum payments are set at an amount lower than the amount you owe in interest.
- Browse Related Terms: Adjustable-Rate Mortgage (ARM), amortization, balloon mortgage, Convertible ARM, Debarment, Fixed-Rate Mortgage (FRM), Interest-only mortgage, Lock-In, Lock-in agreement, Mortgage life insurance, Negative amortization, Payment Cap, Right of rescission, Self-Amortizing Loans, Swap, term, Weighted Average Life (WAL)
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A negative, or inverted, yield curve results when the interest rate on short-term US Treasury issues is higher than the rate on on long-term Treasury bonds.
You create the curve by plotting a graph with rate on the vertical axis and maturity date on the horizontal axis and connecting the dots. When the curve is negative the highest point is to the left.
A positive yield curve - one that's higher on the right - results when the yield on long-term bonds is higher than the yield on the short-term bills. A level curve results when the rates are essentially the same.
In most periods, the yield curve is positive because investors demand more for tying up their money for a longer period. But there are times, such as when interest rates seem to be on the upswing, that the pattern is reversed and the yield curve is negative.
- Browse Related Terms: Level yield curve, Leveraged buyout, Negative yield curve, Positive yield curve, Variable rate, Yield Curve
A negotiable contract is one whose terms can be altered by agreement between the parties to the contract.
For example, when you negotiate the sale of your home, you might be willing to reduce the price, or you might be flexible about the closing date, generally in response to some concessions from the buyer.
Similarly, the interest rate on your mortgage or the number of points you pay might be negotiable with your lender.
A negotiable financial instrument or security is one that can be transferred easily from one party to another by endorsing and delivering the appropriate documentation.
Stock certificates are negotiable, for example, requiring the owner simply to sign the back and deliver the document to an agent. A check is also negotiable, transferring money from the writer to the payee on the basis of a signature and an endorsement.
- Browse Related Terms: Alteration, Draft, Escrow agent, Financial instrument, Forgery, Negotiable, Power of attorney, Return Item, Uniform Commercial Code (UCC)
A negotiable-order-of-withdrawal (NOW) account is an interest-bearing checking account that pays interest on the balance, usually at a rate comparable to a money market account.
You may be required to maintain a fairly substantial minimum balance in a NOW account to avoid high fees or loss of interest, or both.
- Browse Related Terms: affidavit, Asset management account (AMA), Charge-off, ChexSystems, Credit line, Drawer, Insufficient funds, Kiting, Lifeline account, Local check, money-market account, Negotiable-order-of-withdrawal account, Overdraft, Overdraw, Payee, Stale-Dated Check
The NAV is the dollar value of one share of a fund. It's calculated by totaling the value of all the fund's holdings plus money waiting investment, subtracting operating expenses, and dividing by the number of outstanding shares.
A fund's NAV changes regularly, though day-to-day variations are usually small.
The NAV is the price per share an open-end mutual fund pays when you redeem, or sell back, your shares. With no-load mutual funds, the NAV and the offering price, or what you pay to buy a share, are the same. With front-load funds, the offering price is the sum of the NAV and the sales charge per share and is sometimes known as the maximum offering price (MOP).
The NAV of an exchange traded fund (ETF) or a closed-end mutual fund may be higher or lower than the market price of a share of the fund. With an ETF, though, the difference is usually quite small because of a unique mechanism that allows institutional investors to buy or redeem large blocks of shares at the NAV with in-kind baskets of the fund's stocks.
- Browse Related Terms: American depositary receipt (ADR), Annuity unit, Block trade, Capital appreciation, Exchange-traded fund (ETF), expense ratio, Institutional fund, Mark to the market, Net asset value (NAV), Offshore fund, Open-end mutual fund, Proprietary fund, share, Standard & Poor's Depositary Receipt (SPDR), Underlying investment, Unit investment trust (UIT), Unit trust
The difference between the closing price of a stock, bond, or mutual fund, or the last price of a commodity contract, and the closing price on the previous day is reported as net change. It may also simply be referred to as change.
When a stock has gained in value, the positive net change is expressed with a plus sign and a number, such as +0.50, meaning that the price was up 50 cents from the previous trading day.
On days that a stock falls, the negative net change is expressed with a minus sign and a number, such as -1, meaning that the price was a dollar lower.
You can find net change information in the financial pages of newspapers and on financial websites.
- Browse Related Terms: Affinity fraud, Earnest Money, ex-dividend, Good faith deposit, Net change, Record date, Settlement date, Tick, Uptick
A company's net margin, typically expressed as a percentage, is its net profit divided by its net sales. Net profit and net sales are the amounts the company has left after subtracting relevant expenses from gross profits and gross sales.
The higher the percentage, the more profitable the company is. Fundamental analysts use net margin, sometimes called net profit margin, as a way to assess how effective the company is in converting income to profit.
In general, a higher net margin is the result of an appropriate pricing structure and effective cost controls.
- Browse Related Terms: Blue chip stock, Cook the books, Debt-to-equity ratio, Dividend payout ratio, Earnings per share (EPS), EBITDA, Free cash flow, Gross margin, Income statement, Net margin, Payout ratio, Price-to-cash flow, Profit margin, Return on equity, Revenue