Investing Glossary: I

illiquid securities : Investments that don’t trade very actively and are difficult to sell on short notice.

implied volatility: A theoretical value representing the volatility of the security underlying an option. Implied volatility is used by the Black-Scholes model, among others, to calculate the price of an option. Implied volatility usually rises when the markets are in downtrends, and falls when the markets are in uptrends.

in the money: A condition that is met when a call option’s strike price is below the prevailing price for the underlying stock. For example, if stock ABC is trading at $125 and the option’s strike price is $120, then the option is in the money. For a put option, the strike price must be above the current market price of the stock for the option to be in the money.

index fund: A mutual fund designed to mirror the performance of a specific market index such as the Dow Jones Industrial Average or the S&P 500. Expenses of index funds tend to be lower than other mutual funds because the manager is not actively researching, buying, and selling securities.

Individual Retirement Account; IRA: A type of individual retirement savings plan. There are several types of IRAs, including, among others, Traditional IRAs and Roth IRAs. Traditional IRAs are tax-deferred accounts that currently allow individuals to contribute up to $5,000 per year. Contributions to a Traditional IRA may be tax deductible, depending upon several factors. You don’t pay taxes on the income and gains you generate in a Traditional IRA until you make withdrawals; all withdrawals will be taxed at the ordinary income tax rate. Roth IRAs are subject to different tax treatment.

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