Cost of carry: The relation between future prices and spot prices can be summarized in terms of what is known as cost of carr
Put Option:
An
option contract giving the owner the right, but not the obligation, to sell a
specified amount of an underlying security at a specified price within a
specified time. This is the opposite of a call option, which gives the holder
the right to buy shares.
A
put becomes more valuable as the price of the underlying stock
depreciates relative to the strike price. For example, if you have
one Mar 07 Taser 10 put, you have the right to sell 100 shares
of Taser at $10 until March 2007 (usually the third Friday of the
month). If shares of Taser fall to $5 and you exercise the option, you can
purchase 100 shares of Taser for $5 in the market and sell the shares to the
option's writer for $10 each, which means you make $500 (100
x $10-$5) on the put option.
Call Option:
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.
It
may help you to remember that a call option gives you the right to "call
in" (buy) an asset. You profit on a call when the underlying asset
increases in price.
Futures
contract :
It’s a standardized contract traded on a futures exchange, to buy or sell a
certain underlying instrument at a certain date in the future, at a specified
price. The future date is called the delivery
date or final settlement date
Options: are financial instruments
that convey the right, but not the obligation, to engage in a future
transaction on some underlying security.
The
primary Market
: It is that
part of the capital markets that deals with the issuance of new securities.
The
secondary market: is the financial market for
trading of securities that have already been issued in an initial private or
public offering.
Stock split increases the number of shares in a
public company. The price of adjusted such that the before and after market
capitalization of the company remains the same and dilution does not occur.
Options and warrants are included. Also known as a Stock Divide.
Initial Public Offering (IPO): Its is the first sale of
stock by a private company to the public. IPO’s are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large
privately-owned companies looking to become publicly traded
The
BSE Sensex or Bombay Stock Exchange Sensitive Index
is a value-weighted index composed of 30 stocks with the base April 1979 = 100.
It consists of the 30 largest and most actively traded stocks, representative
of various sectors, on the Bombay Stock Exchange
Rights issue:
Issuing
rights to a company's existing shareholders to buy a proportional number of
additional securities at a given price (usually at a discount) within a fixed
period.
Rights
are often transferable, allowing the holder to sell them on the open market.
Rights:
A
security giving stockholders entitlement to purchase new shares issued by the
corporation at a predetermined price (normally less than the current market
price) in proportion to the number of shares already owned. Rights are issued
only for a short period of time, after which they expire.
This
also known as "subscription rights" or "share purchase
rights".
Employee
Stock Option:
The
payment of stock in lieu of cash for services provided .This is a common method
used by corporations to compensate executives. The theory is that executives
will work harder since they want their own stock to rise in value and,
therefore, have the best interests of shareholders in mind.
Insider Trading:
Insider trading is the trading of a corporation's
stock or other securities (e.g. bonds
or stock
options) by corporate insiders such as officers, directors, or holders of
more than ten percent of the firm's shares. Insider trading may be perfectly
legal, but the term is frequently used to refer to a practice, illegal in many
jurisdictions, in which an insider or a related party trades based on material
non-public information obtained during the performance of the insider's duties
at the corporation, or otherwise misappropriated.[1]
All
insider trades must be reported in the United
States. Many investors follow the summaries of insider trades, published by
the United States
Securities and Exchange Commission (SEC), in the hope that mimicking these
trades will be profitable. Legal "insider trading" may not be based
on material non-public information. Illegal insider trading in the US requires
the participation (perhaps indirectly) of a corporate insider or other person
who is violating his fiduciary duty or misappropriating private information, and
trading on it or secretly relaying it. Insider
trading is believed to raise the cost of capital for securities issuers, thus
decreasing overall economic growth.[2]
Venture Capital:
Financing
for new businesses. In other words, money provided by investors to startup
firms and small businesses with perceived, long-term growth potential.
This is a very important source of funding for startups that do not have access
to capital markets. It typically entails high risk for the investor, but
it has the potential for above-average returns.
Venture capital can
also include managerial and technical expertise. Most venture capital comes
from a group of wealthy investors, investment banks and other financial
institutions that pool such investments or partnerships. This form of raising
capital is popular among new companies, or ventures, with limited operating
history, who cannot raise funds through a debt issue. The downside for
entrepreneurs is that venture capitalists usually get a say in company
decisions, in addition to a portion of the equity.
Seed Capital: The initial equity capital used
to start a new venture or business. This initial amount is usually quite small
because the venture is still in the idea or conceptual stage. Also,
there's a high risk that the venture will fail.
Bridge Financing: A
method of financing, used by companies before their IPO, to obtain necessary
cash for the maintenance of operations. These funds are usually supplied by the
investment bank underwriting the new issue. As payment, the company acquiring
the bridge financing will give a number of shares at a discount of the issue
price to the underwriters that equally offsets the loan. This financing is, in
essence, a forwarded payment for the future sales of the new issue.
Stock Split: A
type of corporate action where a company's existing shares are divided into
multiple shares. Although the amount of shares outstanding increases by a
specific multiple, the total dollar value of the shares remains the same
compared to pre-split amounts, because no real value has been added as a
result of the split.
In the U.K., a stock split is referred to as a "scrip issue",
"bonus issue", "capitalization issue" or "free
issue".
For
example, in a 2-for-1 split, each stockholder receives an additional share for
each share he or she holds.
One reason as to why stock splits are performed is that a company's share
price has grown so high that to many investors the shares are
too expensive to buy in round lots.
For example, if a XYZ Corp's shares were worth $1,000 each, investors would
need to purchase $100,000 in order to own 100 shares. Whereas, if each share
was worth $10 each, investors only need to pay $1,000 to own 100 shares.
Reverse
Takeover – RTO:
A type
of merger used by private companies to become publicly traded without resorting
to an initial public offering. Initially, the private company buys enough
shares to control a publicly traded company. At this point, the
private company's shareholder uses their shares in the private
company to exchange for shares in the public company. At this point, the
private company has effectively become a publicly traded one.A reverse takeover
can also refer to situation where a smaller company acquires a larger company.
With
this type of merger, the private company does not need to pay the expensive
fees associated with arranging an initial public offering. The problem,
however, is the company does not acquired any additional funds through the
merger and it must have enough funds to complete the transaction on its own.
Deep-Discounted
bonds:
- A bond that
sells at a significant discount from par value.
- A bond that is
selling at a discount from par value and has a coupon rate significantly
less than the prevailing rates of fixed-income securities with a similar
risk profile.
- Typically, a
deep-discount bond will have a market price of 20% or more below its face
value. These bonds are perceived to be riskier than similar bonds and are
thus priced accordingly.
- These
low-coupon bonds are typically long term and issued with call provisions.
Investors are attracted to these discounted bonds because of their high
return or minimal chance of being called before maturity.
Merger:
The combining of two or more
companies, generally by offering the stockholders of one company securities in
the acquiring company in exchange for the surrender of their stock.
Basically, when two companies
become one. This decision is usually mutual between both firms.
Factoring:
Factoring is a financial service
designed to help firms to arrange their receivable better. Under a typical
factoring arrangement a factor collects the accounts on due dates, effects
payments to the firm on these dates and also assumes the credit risks
associated with the collection of the accounts.
Sometimes
the factor provides an advance against the values of receivable taken over by
it. In such cases factoring serves as a source of short-term finance for the
firm.
Capital budgeting : The process of determining whether or not
projects such as building a new plant or investing in a long-term venture are
worthwhile. Also known as "investment appraisal". Popular methods of
capital budgeting include net present value (NPV), internal rate of return
(IRR), discounted cash flow (DCF) and payback period.
Bankruptcy: The
state of a person or firm unable to repay debts. If the bankrupt entity is a
firm, the ownership of the firm's assets is transferred from the stockholders
to the bondholders. Shareholders are the last people to get paid if a company
goes bankrupt. Secure creditors always get first grabs at the proceeds from
liquidation.
Diversification: A
risk-management technique that mixes a wide variety of investments within a
portfolio. The rationale behind this technique contends that a portfolio
of different kinds of investments will, on average, yield higher returns
and pose a lower risk than any individual investment found within the
portfolio.
Diversification strives to smooth out unsystematic risk events in a
portfolio so that the positive performance of some investments
will neutralize the negative performance of others. Therefore, the
benefits of diversification will hold only if the securities in the portfolio
are not perfectly correlated.
Market Capitalization:
A measure of a company's
total value. It is estimated by determining the cost of
buying an entire business in its current state. Often referred to as
"market cap", it is the total dollar value of all outstanding
shares. It is calculated by multiplying the number of shares outstanding
by the current market price of one share.
Derivatives: In
finance, a security whose price is dependent upon or derived from one
or more underlying assets. The derivative itself is merely a contract
between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying
assets include stocks bonds, commodities, currencies,
interest rates and market indexes. Most derivatives are characterized by high
leverage
Portfolio
management :Involves
deciding what assets to include in the portfolio, given the goals of the
portfolio owner and changing economic conditions. Selection involves deciding
what assets to purchase, how many to purchase, when to purchase them, and what
assets to divest. These decisions always involve some sort of performance
measurement, most typically expected return on the portfolio, and the risk
associated with this return (i.e. the standard deviation of the return).
Typically the expected return from portfolios comprised of different asset
bundles are compared.
