15 Strange Bits of Trading Jargon Explained

Should a bull buy into a sleeping beauty after a dead cat bounce? Or rather hold onto their zombies until triple witching day? If those questions sound like gibberish to you, read on: In this article, moneyland.ch lists a selection of curious pieces of financial jargon and explains what they mean.

1. Dead cat bounce

This term stems from the somewhat morbid observation that even a dead cat will bounce if it falls from high enough. A “dead cat bounce” refers to a small spike in a stock’s rates after a major fall.

2. Ankle biter

If you have a pet chihuahua you likely have a good idea of what an “ankle biter” looks like. In finance the term is used to refer to a stock with such a low market capitalization that it is completely dwarfed by large-cap stocks.

3. Cockroach theory

Does spotting a single cockroach running across your kitchen floor mean that you have a roach problem? Usually. The cockroach theory assumes that negative facts which surface with regards to a company division are likely true for the entire company. In a broader sense, problems with one company indicate larger issues with the entire industry or the economy as a whole. 

4. Puke point

Have you ever gotten so sick after eating or drinking something that all you wanted to do was puke it up and be rid of it? You probably didn’t care about what you spent on the food or drink at that point. When an investor reaches the “puke point”, all they want to do is to get a badly-performing stock off their hands, regardless of the losses.

5. Sleeping beauty

Much like the fair princess of the popular folk tale, a “sleeping beauty” is an undiscovered security or company with high profit potential which is just waiting to be brought to life by savvy investors.

6. Poison pill

Spies once carried capsules filled with lethal poison capable of rendering them fairly useless to captors. In trading, a “poison pill” is a shareholder rights plan or clause which specifies legal mechanisms that can be enacted by a company in the event of a hostile takeover. The goal of poison pills is always to make hostile takeovers as unattractive as possible, thus protecting a company and its shareholders.

7. Suicide pill

A “suicide pill” is the extreme version of the poison pill. The measures included in this clause are so harsh that, if enacted, they generally destroy the company. The idea behind a suicide pill is to make a hostile takeover of the company so completely unprofitable that no party will attempt it. 

8. Haircut

Stock prices quoted on the stock market are often highly inflated. When you give those rates a “haircut”, you trim off the inflated portion of a stock’s price to find its real collateral value. That difference between a stock’s value and its market price is often referred to simply as its “haircut”.

9. Alligator spread

This term may sound wrong on so many levels, but in trading, an “alligator spread” simply denotes a trade which involves such high brokerage fees, taxes or commissions that the transaction’s profit potential does not justify its cost. Picture an alligator taking a giant bite out of your potential returns to understand how this term originated.

10. Zombies

While references to the living dead may be more closely associated with Netflix or video games than with finance, the terms “living dead” and “zombie” are alive and well in the stock market. Zombies, in this sense, are companies which reached their full growth potential at some point in the distant past. They are typically heavily indebted and are generally considered to be on a trajectory to eventual bankruptcy.

11. Bears and bulls

These terms might have more in common with the wild west than with finance, but they play such a key role in stock trading that statues of bears and bulls are a regular feature in financial districts.

Calling a short-seller a bear references an old adage about selling a bear skin before you have hunted the bear. It describes the practice of selling an asset you do not own in hopes of profiting from a later decline in its value. The term bull is used for investors who believe an asset will gain in value. Its introduction as the opposite of “bear” is commonly attributed to the once-popular sport of bear- and bull-baiting.

12. Triple witching day

The mention of a “triple witching day” or “triple witching hour” might evoke images of occult rituals or other fantastic events, but in trading these terms have a more practical meaning.

The term refers to the third Friday in the months of March, June, September and December. A “triple witching hour” is the last hour that exchanges remain open on those days. Index options, index futures and stock options expire on those days, hence the “triple.” The term quadruple witching day is sometimes used because single-stock futures expire at the same time.

With so many derivatives expiring, the chances of unusual market activity are exceptionally high, particularly during the last hour of trading.

13. Greenshoe

While environmentally-friendly footwear comes to mind, the stock market term “greenshoe” has a more complex meaning. It describes a special clause included in an initial public offering (IPO) which gives the issuing company the right to issue additional shares when there are not enough original shares to meet demand. Why greenshoe? The first company to make use of this option was the Green Shoe Manufacturing Company, which now operates as Stride Rite.

14. Dienstmädchenbörse

This German expression could best be translated as a “servant girls stock market.” But rather than describing a marketplace where female domestic workers are traded, the term “Dienstmädchenbörse” denotes a late stage in a stock’s market cycle. It is used interchangeably with the equally-dodgy term “Hausfrauenbörse” or “housewives stock market.”

During this phase, small investors with little knowledge of finance (hence the “servant” connotation) begin to buy shares in a climbing stock on the tail of initial investments made by savvy private and institutional investors. When this happens, the stock's price climbs rapidly, because inexperienced investors are willing to pay more for shares than what the underlying company is really worth. 

In the subsequent phase, serious investors sell their stock at the inflated price and exit their positions, causing prices to plunge and small investors to take the losses.

15. Bear hug

A bear hug is an offer made by a third-party to shareholders to buy their shares for a price much higher than the market value of the company. The third party – usually a competing company or a group of investors – offers the higher price because taking over the company would bring them strategic benefits.

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