An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the whole.

The sale of securities to a relatively small number of select investors as a way of raising capital.

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has an exceptional degree of creditworthiness and can easily meet its financial commitments. Ratings agencies such as Standard & Poor's and Fitch Ratings use the AAA nomenclature to indicate the highest credit quality, while Moody's uses Aaa.

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive.

A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations are equally managed without any display of preference. An example of pari-passu occurs during bankruptcy proceedings when a verdict is reached, all creditors can be regarded equally, and will be repaid at the same time and at the same fractional amount as all other creditors.

A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms.

1. For a call option, when the option's strike price is below the market price of the underlying asset. 2. For a put option, when the strike price is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising.

Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not.

A market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.