Glossary

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.

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.

The Nasdaq Composite Index tracks the prices of all 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 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.

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).

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.

The most active stock market in the nation, 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.

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.

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 coexist.

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.

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.

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.

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.

A negative, or inverted, yield curve results when the yield on short-term US Treasury issues is higher than the yield on long-term Treasury bonds.

You create the curve by plotting a graph with yield 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 yields 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.

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.

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.

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 awaiting 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.

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.

Net earnings, also known as retained earnings, are a corporation's profits after paying all of its expenses. This money is available to pay dividends on common stock, make acquisitions or expand operations without incurring debt or issuing additional stock, or buy back outstanding shares.

Net income is the amount of money a corporation has earned after subtracting all of the expenses of producing its goods or services from the income or revenue it has realized from sales of those goods or services.

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.

Net unrealized appreciation (NUA) is the difference between the average cost basis, or purchase price, of company stock you hold in an employer sponsored retirement plan and its current market value.

The effect of your NUA is something to consider if you're retiring or leaving your job and plan to roll over plan assets to an individual retirement account (IRA). That's because it may make more sense, from a tax perspective, to take a distribution of the stock.

At distribution, you owe income tax on the cost basis of the stock at your regular rate. But the NUA is taxed at your long-term capital gains rate at the time you sell the shares, either immediately or in the future. Additional capital gains taxes apply on any appreciation in the stock's value that occurs after the distribution and before you sell the shares. That tax is also calculated at your long-term rate if you waited more than a year to sell.

In contrast, if you roll the shares into an IRA, you owe income tax at your regular rate on all distributions including the portion that is appreciation. The long-term capital gain tax rate never applies.

Taking a distribution of the stock may not be the best choice in all cases. You may incur a 10% tax penalty in addition to the tax on the cost basis if you're younger than 59 1/2. In addition, this strategy may not be the most tax-efficient for estate planning purposes if you still own the shares at your death.

A corporation's net worth is the retained earnings, or the amount left after dividends are paid, plus the money in its capital accounts, minus all its short- and long-term debt. Its net worth is reported in the corporation's 10-K filing and annual report.

Net worth may also be called shareholder equity, and it's one of the factors you consider in evaluating a company in which you're considering an investment.

To figure your own net worth, you add the value of the assets you own, including but not limited to cash, securities, personal property, real estate, and retirement accounts, and subtract your liabilities, or what you owe in loans and other obligations.

If your assets are larger than your liabilities, you have a positive net worth. But if your liabilities are more than your assets, you have a negative net worth. When you apply for a loan, potential lenders are likely to ask for a statement of your net worth.

Netting is a process the National Securities Clearing Corporation (NSCC) uses to streamline securities transactions.

To net, the NSCC compares all the buy and sell orders for each individual security and matches purchases by clients of one brokerage firm with corresponding sales by other clients of the firm.

Those orders can be finalized internally by adjusting the firm's books to reflect changes in ownership.

The small percentage of trades that aren't netted require firms with net short positions, whose clients sold more than they purchased, to deliver the required securities to the NSCC, or more precisely have them debited from their Depository Trust Corporation (DTC) custodial account for delivery to the NSCC.

The NSCC credits those shares to the firms with a net long position, whose clients purchased more shares than they sold.

In the final step, the DTC nets the total costs of buying and selling throughout the trading day to limit the amount of money that must be exchanged among firms. Firms with a net debit wire payment to the DTC, and firms with a net credit receive funds.

When a stock or bond is offered for sale for the first time, it's considered a new issue.

New issues can be the result of an initial public offering (IPO), when a private company goes public, or they can be additional, or secondary, offerings from a company that's already public.

For example, a public company may sell bonds from time to time to raise capital. Each time a new bond is offered, it's considered a new issue.

This New York Stock Exchange Composite Index measures the performance of the common stocks listed on the NYSE, including those of companies head-quartered in the United States and in other countries.

The Index is market capitalization weighted, so that companies with the most shares and the highest prices have the greatest impact on the changing value of the Index.

The New York Stock Exchange (NYSE) is one of the two securities exchanges operated by the NYSE Group, Inc. It's the oldest securities exchange in the United States and the largest traditional exchange in the world.

Trading on the floor of the exchange is by double auction system, handled by floor brokers representing buyers and sellers, and by specialists -- one for each listed security.

NYSEArca, the other NYSE Group exchange, is an all-electronic market, where trading is direct and anonymous.

The Nikkei Stock Average, sometimes call the Nikkei Index or simply the Nikkei, is a price-weighted index of 225 blue chip stocks traded on the Tokyo Stock Exchange.

The Nikkei, which was introduced in 1950, is frequently described as the Japanese equivalent of the Dow Jones Industrial Average (DJIA).

You buy a no-load mutual fund directly from the investment company that sponsors the fund. You pay no sales charge, or load, on the fund when you buy or sell shares.

No-load funds may charge a redemption fee if you sell before a certain time has elapsed in order to limit short-term turnover.

Some fund companies charge an annual fee, called a 12b-1 fee, to offset their marketing costs. Your share of this fee is a percentage of the value of your holdings in the fund.

You may also be able to buy no-load funds through a mutual fund network, sometimes known as a mutual fund supermarket, typically sponsored by a discount brokerage firm. If you have an account with the firm, you can choose among no-load funds sponsored by a number of different investment companies.

Load funds and no-load funds making similar investments tend to produce almost equivalent total returns over the long term -- say ten years or more. But it can take an investor nearly that long to offset the higher cost of buying load funds.

Nominal yield is the annual income that you receive from a bond or other fixed-income security divided by the par value of the security.

The result, stated as a percentage, is the same as the rate of interest the security pays, also known as its coupon rate.

If you purchase the security in the secondary market, at a price above or below par, your actual yield will be more or less than the coupon rate.

So, for example, if you have $55 in annual income on a $1,000 bond, the nominal yield is 5.5%. But if you paid $975 for the bond in the marketplace, your actual yield is 5.64%. Similarly, if you had paid $1,050, your actual yield would be 5.23%.

Nominee name is the name that a brokerage firm uses to register ownership of stocks or bonds it holds for investors.

Holding stock in a single generic name, sometimes known as street name, makes it easier to transfer ownership when the securities are traded.

Computations used to report corporate income and earnings that are not defined by generally accepted accounting principles (GAAP) are described as non-GAAP metrics.

These measures, including core earnings, free cash flow, pro forma earnings, operating earnings, and earnings before interest, taxes, depreciation, and amortization (EBITDA), provide useful financial information about individual companies.

But lack of standardization in these calculations, plus the potential for creative accounting, make it difficult to draw relevant comparisons among companies or draw meaningful conclusions from these statistics.

Nonbank banks, also called limited-service banks, offer some but not all the services of a traditional commercial bank.

They're typically owned by companies, including insurance companies, brokerage firms, and retail stores to provide financial services without being limited by the regulations that govern traditional banks, such as restrictions on interstate and branch banking.

Many nonbank banks are insured by the Federal Deposit Insurance Corporation (FDIC). Those banks are subject to the same reserve requirements and examinations as regular banks.

Opponents of nonbank banks believe they drain financial resources away from small towns to big cities in other states and undermine the nation's decentralized banking system.

When a bond is noncallable, the issuer cannot redeem it before the stated maturity date. Some bonds have call protection for their full term, and others for a fixed period -- often ten years.

The appeal of a noncallable bond is that the issuer will pay interest at the stated coupon rate for the bond's full term. In contrast, if a bond is called, you receive a lump-sum repayment of principal, which you must reinvest.

Frequently, rates are lower at call that they were when the bond was issued, which means your reinvested principal will provide a smaller yield.

Investors who can't or don't wish to meet the minimum purchase requirements for competitive bidding on Treasury bills or notes may enter a noncompetitive bid.

You can invest as little as $1,000 or as much as $5 million in each new issue through Treasury Direct. Treasury Direct is a system that allows you to buy government securities without going through a bank or a brokerage firm.

The Treasury sells T-bills, for example, to all noncompetitive buyers whose bids arrive by the weekly deadline, for a price equal to what competitive bidders pay for that week's issue.

A noncompetitive bid may also be known as a noncompetitive tender.

All qualified retirement plans, including 401(k) plans, must follow nondiscrimination rules. Among other things, the rules prevent highly paid employees from receiving more generous benefits than other employees.

However, employers may offer nonqualified plans to which antidiscrimination rules don't apply. Unlike contributions to qualified plans, contributions to nonqualified plans are not tax deductible.

If there is a nonforfeiture clause in your insurance policy contract, and you have let the policy lapse because you haven't paid a premium that's due, you may qualify for the benefit named in the contract for a limited time, for a smaller benefit, or for a partial refund of your premium.

However, the added protection of adding a nonforfeiture clause generally increases the premium for the policy.

Charitable, cultural, and educational organizations that exist for reasons other than providing a profit for their owners, directors, or members are nonprofit organizations.

However, these organizations can generate income to pay for their activities, salaries, and overhead by charging for services, making investments, and soliciting donations and memberships.

A nonprofit arts center, for instance, may charge patrons for tickets and event subscriptions.

Nonprofits incorporate in the states where they operate and are exempt from the state income taxes that for-profit corporations must pay. Some but not all qualify for federal tax-exempt status under section 501(c)(3) of the Internal Revenue Code.

Contributions to those qualifying organizations are tax deductible, though tax rules govern the percentage of your income you may deduct for gifts to different types of nonprofits.

In exchange for these tax benefits, nonprofits must comply with some of the same financial reporting rules that for-profit corporations follow.

For instance, nonprofits generally must follow corporate governance rules and make their financial reports available to the public.

An annuity you buy on your own, rather than through a qualified employer sponsored retirement plan or individual retirement arrangement, is a non-qualified annuity.

Nonqualified annuities aren't governed by the federal rules that apply to qualified contracts, such as annual contribution caps and mandatory withdrawals after you turn 70 1/2.

While there may be a 10% tax penalty for withdrawals before you turn 59 1/2, you can generally put up to $1 million in an annuity and postpone withdrawals until you're 75 or 80 or older. Those limits are set by the state where you purchase the contract or by the annuity company.

In other ways, though, qualified and nonqualified annuities are alike. You can choose between fixed or variable contracts, and the annuity can be either deferred or immediate.

Nonsystematic risk results from unpredictable factors, such as poor management decisions, successful competitive products, or suddenly obsolete technologies that may affect the securities issued by a particular company or group of similar companies.

Portfolio diversification, which means spreading your investment among a number of asset subclasses and individual issuers within those subclasses, can help counter nonsystematic risk.

A not-for-profit organization pays taxes and may make a profit, but those profits are not distributed to its owners or members.

Private clubs, sports organizations, political organizations, and advocacy groups are examples of not-for-profit institutions. Contributions to these not-for-profits are not tax deductible.

Until it became a publicly traded company in 2006, the New York Stock Exchange was a not-for-profit membership association.

A note is a debt security that promises to pay interest during the term that the issuer has use of the money, and to repay the principal on or before the maturity date.

For US Treasury securities, a note is an intermediate-term obligation -- as opposed to a short-term bill or a long-term bond -- that matures in two, three, five, or ten years from its issue date.

NYSE Arca, one of the two securities exchanges operated by the NYSE Group, Inc., is the first open, all-electronic stock exchange in the United States.

Trades are executed quickly -- electronically and anonymously -- on the US market trading center with the best available price. Among the securities traded on Arca are individual stocks, exchange-traded funds, and equity options.

NYSE Arca was formed by the merger of the NYSE and Archipelago Exchange, an electronic communications network (ECN), creating what is known as a hybrid market.