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A positive covariance means that asset returns move together; a negative covariance means they vary inversely. Arbitrage – The purchase of securities on one market for immediate resale on another market in order to profit from a price or currency discrepancy. Amortization – Reduction in value of an asset over some period for accounting purposes. Precedent transaction analysis is a method of company valuation where past M&A transactions are used to value a comparable business today.
Further, a long vertical call spread is considered a debit spread which simply means that the purchaser had to put out money to buy the spread. Now, if the stock proceeds up, the spread’s value will expand. The strike price is the stated price per share for which the underlying asset may be purchased or sold by the option owner upon exercise of the options contract. The put-call ratio is a sentiment indicator based on the number of put options traded versus the number of calls. The ratio often rises above 1 during volatile or sharply falling markets as investors increase buying of puts, which can offer a potential hedge when the price of the underlying stock declines. A defined-risk, bullish spread strategy, composed of a long and a short option of the same type (i.e. calls).
Past performance of a security or strategy does not guarantee future results or success. In technical analysis, support is a price level where downward movement may be restrained by accumulated demand at or around that price level. An option position or order that contains two or more option “legs,” which typically includes at least one short and one long position. The price where a security, commodity, or currency can be purchased or sold for immediate delivery. Small-capitalization stocks are typically companies with market values under $1 billion.
Involves looking at charts and evaluating various indicators that may signal a stock is going to go up or down in the short to medium term. Examples include candlestick charts, momentum and moving averages, relative strength, and more. Net Present Value is the value of all future cash flows over the entire life of an investment discounted to the present. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.
Because of the greater risk of default, so-called junk bonds generally pay a higher yield than investment-grade counterparts. Inflation refers to a general increase in prices and a decrease in the purchasing value of money. Core inflation represents long-term price trends by excluding certain volatile items such as food and energy. Headline inflation represents the total inflation within the economy. A futures contract is an agreement to buy or sell a predetermined amount of a commodity or financial instrument at a certain price on a stipulated date. Investing a fixed dollar amount in a fund on a regular basis such that more fund shares are bought when the price is lower and fewer are bought when the price is higher.
Also known as the iShares S&P 500 VIX Short-Term Futures ETN, this exchange-traded note tracks the CBOE VIX futures. I mostly agree with Mike, except that the term cross-referenced was volatile, not volatility. The suggested wiki information might be semi-appropriate Finance for the volatile tag , but it was not appropriate for volatility. Even for volatile, the suggested information was very weak — I would probably not have accepted it for that either. The excerpt “should describe why and when the tag should be used”.
Convexity – A measure of the rate of change in duration; measured in time. The greater the rate of change, the more the duration changes as yield changes. An option to buy a certain quantity of a stock or commodity for a specified price within a specified time. A demand to submit bonds to the issuer for redemption before the maturity date. Variations include multi-stage growth models and assigning a probability or level of certainty to the cash flows and playing around with the discount rate.
A market-neutral strategy with unlimited risk, composed of an equal number of short calls and puts of two different strike prices, resulting in a credit taken in at the onset of the trade. Breakeven points of either strategy at expiration is calculated by adding the total credit received to the call strike and subtracting the total credit received from the put strike. A market-neutral strategy with unlimited risk, composed of an equal number of short calls and puts of the same strike price, resulting in a credit taken in at the onset of the trade. Break-even points of the strategy at expiration are calculated by adding the total credit received to the call strike and subtracting the total credit received from the put strike. Short call verticals are bearish, while short put verticals are bullish. The risk in this strategy is typically limited to the difference between the strikes minus the received credit.
The U.S. Federal Reserve’s QE program that began in 2008 involved buying about $85 billion worth of securities each month. Market price of a stock divided by the sum of active users in a 30-day period. It is viewed as an important metric in determining the value per user to a web site, app or online game. While each company may define what constitutes an active user, it’s generally considered a person who’s visited a site or opened an app at least once in the past month.
This curve usually slopes upward, indicating that investors usually expect to receive a premium for securities that have a longer time to maturity. Treasury securities with maturities ranging from three months to 30 years. Term structure – The relationship between the yields on fixed-interest securities and their maturity dates. Expectation of changes in interest rates affects term structure, as do liquidity preferences and hedging pressure. Gamma – The rate of change of delta for a derivative security relative to the price of the underlying asset; i.e., the second derivative of the option price relative to the security price. The difference in implied volatility levels in strike prices below the at-the-money strike versus those above the at-the-money strike.
Very simple active portfolio management opens up this profitable opportunity to generate growth from volatility. An options contract gives the holder the right but not the obligation to buy or sell the underlying security at the strike price, on or before the option’s expiration date. When the holder claims the right (i.e. takes a long or short position in the underlying security) that’s known as exercising the option. In bonds and other fixed-income securities, duration is the sensitivity of the security’s price relative to a 1% change in interest rates. Duration is measured in years; the higher the duration, the more a security’s price is expected to drop as interest rates rise. A measure of risk based on the standard deviation of the asset return.
Remote Direct Memory Access is a technology that enables two networked computers to exchange data in main memory without … Risk mitigation is a strategy to prepare for and lessen the effects of threats faced by a business. In general, volatile (from the Latin “volatilis” meaning “to fly”)is an adjective used to describe something unstable or changeable. Social categorization occurs in the realm of not only gender but also race. Default assumptions can be made, like in gender, to the race of an individual or a group of people based on prior known stereotypes.
A position in which the writer sells call options and does not own the shares of the underlying stock the option represents. This strategy’s upside potential is limited to the premium received, what is volatility less transaction costs. A defined-risk, directional spread strategy composed of a long options and a short, further out-of-the-money option of the same type (i.e. calls or puts).
REITs typically pay out most or all of their taxable income each year to their shareholders as dividends; the IRS requires them to pay out at least 90% annually. Qualified Longevity Annuity Contracts are one type of annuity that can offer flexibility and retirement planning choices for a portion of the assets held in certain qualified plans and IRAs. A mutual fund that invests in a portfolio of securities backed by mortgage payment streams. These may include residential or commercial properties, or both. Some are issued by government-backed institutions, such as Ginnie Mae, Fannie Mae and Freddie Mac, while others are considered “non-agency” and are not backed by the government. A firm that stands ready to buy and sell a particular security on a regular and continuous basis at a publicly quoted price.
Clients must consider all relevant risk factors, including their own personal financial situations, before trading. Happens when a stock price advances so fast that short sellers are forced to cover their positions , which drives the price even higher. The process of selling an asset with the hope of buying it back at a lower price . Short selling involves borrowing stock to sell, often using margin. If the price of the stock in question rises too much, the short seller will receive a margin call and be required to put up more money. The measure of the expected change in change in the theoretical value of an option for a 1% change in interest rates.
We, too, are guilty of using the term without providing further clarification of what this concept really means. Yield to maturity – A measure of the average rate of return that will be earned on a bond if held to maturity. Spread – For options, a combination of call or put options on the same stock with differing exercise prices or maturity dates.
It’s a ratio of the current volume of all the options for a stock and the average daily volume for all the options over the past five days. It indicates whether a stock’s options are more or less active than they have been. If the Sizzle Index is greater than 1.0, the current options volume is greater than the average of the past five days. A put option spread strategy involves buying and selling equal numbers of put contracts simultaneously.
Because standard deviation is a measure of volatility, Bollinger Bands adjust to the market conditions. When prices become more volatile, the bands widen , and during less volatile periods, the bands contract . Technical traders often view tightening of the bands as an early indication that the volatility is about to increase sharply. It involves simultaneously purchasing put and call options with the same exercise price and expiration date, and it is most profitable when the price of the underlying security is very volatile. Duration – The expected life of a fixed-income security considering its coupon yield, interest payments, maturity, and call features.
Net income is calculated by taking revenue and subtracting the costs of doing business, as well as depreciation, interest, taxes and other expenses. Used to determine earnings per share, net income is a key long-term performance measure and is often referred to as the “bottom line,” since it is listed at the bottom of the income statement. A trading position where the seller of an option contract does not own any, or enough, of the underlying security to act as protection against adverse price movements. High-yield bonds have a lower credit rating than investment-grade corporate debt, Treasuries and munis.
Graham’s book, The Intelligent Investor, laid the groundwork for Warren Buffett and the entire school of thought on the topic. This guide shows you step-by-step how to build comparable company analysis (“Comps”) and includes a free template and many examples. Clicking this link takes you Forex platform outside the TD Ameritrade website to a web site controlled by third-party, a separate but affiliated company. TD Ameritrade is not responsible for the content or services this website. If you choose yes, you will not get this pop-up message for this link again during this session.
Author: Callum Cliffe
