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Transcript of Finance+Terms
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American option
An option which can be exercised at any time between the purchase date and the expiration date. Most
options in the U.S. are of this type. This is the opposite of a European-style option, which can only be
exercised on the date of expiration. Since an American option provides an investor with a greater degree
of flexibility than a European style option, the premium for an American style option is at least equal to
or higher than the premium for a European-style option which otherwise has all the same features. also
called American-style option.
Beta
Beta is a statistical measure of the impact that stockmarket movements have historically had on a
stock's price. By comparing the returns of the Standard & Poor's 500 (S&P 500) to a particular stock's
returns, a pattern develops that indicates the stock's exposure to stock marketrisk. This will help you
decide whether you want to take on a riskier stock that moves with a higher correlation to the market or
a stock that is less susceptible to market fluctuations.
Contrarian
An investorwho behaves in opposition to the prevailing wisdom; for example, buying when
others are pessimistic and sellingwhen they're optimistic, or buying out-of-favorstocks. In an
extended bull market, the term contrarian can begin to mean someone who is bearishor prefers
value stocksto growth stocks, although this is really just a subset of contrarian investing.
Currency convertibility
The abilityto exchangemoneyfor goldor other currencies. Some governmentswhich do not have
large reservesof hard currencyforeign reserves try to restrict currencyconvertibility, since they
are not in a positionto handle large currency marketoperations to supporttheir currency when
necessary.
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Commercial mortgage-backed security CMBS
A type of mortgage-backed securitybacked by commercial mortgagesrather thanresidential
mortgages. They are comprised of a variety of loans, each of which represents different
propertysizesand locations. These loans are pooled and are broken into tranchesof riskthat are
soldto investors. In general, they carry less prepayment riskthan loans backed by residential
mortgages.
Condor
An optionsstrategy similar to a butterfly spread. The only difference is that in a condor, the two
middle options have different strike prices within the range established by the other two
options. This strategy is often undertaken when an increase in volatility is expected, since it
allows for positive payoffs over a relatively large range of underlying prices.
DRIP (Dividend Reinvestment Plan)
An investment plan offered by some corporations enabling shareholders to automatically
reinvest cash dividends and capital gains distributions, thereby accumulating more stock
without paying brokeragecommissions . Many DRIPs also allow the investment of additional
cash from the shareholder, known as an optional cash purchase. Unlike with a Direct Stock
Purchase Plan, with a DRIP the investor must purchase the first share in the company through a
brokerage. After that, the company will take whatever dividends it would normally send as a
check and instead it will reinvest them to purchase more shares in the company for you, all
without charging a commission. The only drawback is that the investor has no control over
when his/her money from the dividends is used to purchase new stock in the company, which
means he/she might be buying new shares at sub-optimal times. also called
DividendReinvestmentProgramEx-stock dividends. A security which no longer carries the right
to the most recently declared dividend; or the period of time between the announcement of
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the dividend and the payment. A security becomes ex-stock dividend on the ex-dividend date
(set by the NASD), which is usually two business days before the record date (set by the
company issuing the dividend). For transactions during the ex-stock dividend period, the seller,
not the buyer, will receive the dividend. Ex-dividend is usually indicated in newspapers with an
x next to the stock or mutual fund's name. In general, a stock'spricedrops the day the ex-stock
dividend period starts, since the buyer will not receive the benefit of the dividend payout till
the next dividend date. As the stock gets closer to the next dividend date, the price may
gradually rise in anticipation of the dividend. also called ex-dividend.
Lightspeed Trading
Trade equities as low as 40 per trade.Options and futures at 50 per contract. No
minimums. Transparent pricing. With the ability to trade equities, options, and futures- all
from a single screen, everything Lightspeed designs is with your success in mind. So it
makes sense that our pricing is, too. Here's to unfair advantages. Lightspeed Trading.
Monetary reserve
A governments stockpile of foreign currency and precious metals .Monetaryreserves are useful both for
settling transactions involving foreign counterparties and for undertaking trading in foreign exchange
and commoditymarkets. In general, the larger the monetary reserve, the better the country is able to
engage in transactions with foreign countries.
One-Touch Spot Options
For investors new to SPOT options or investors who are unsure of just what kind of scenarios to
predict with forex options trading, there is a One-Touch Spot option that will payout if the
exchange rate simply reaches a certain level before the expiration date.
Options Clearing Corporation OCC
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The organization that handles clearing of the optionstrades for the various options exchanges and
regulates the listing of new options. It is regulated by the Securities and Exchange Commission, and is
owned jointly by the U.S. stock exchanges that trade options (American Stock Exchange, Chicago Board
Options Exchange, Pacific Exchange, and Philadelphia Stock Exchange). The fact that all listed options are
cleared through OCC means that all options are free of default risk, since the OCC guarantees all option
contracts. Therefore, the buyer or a seller of an option only faces the credit risk of the OCC (which is
minimal), not the creditrisk of the counterparty. In order to manage risk, the OCC imposesmargin
requirements on all options brokers. The margin requirement depends on the particulars of each
specific contract.
Red herring prospectus
It is a document submitted by a company (issuer) who intends on having a public offering of securities
(either stocks or bonds) in the United States. Most frequently associated with an Initial Public Offering
(IPO), this registration statement must be filed with the Securities and Exchange Commission (SEC).
"Red-herring prospectus" Means a prospectus, which does not have complete particulars on
the price of the securities offered and quantum of securities offered. The red herring statement
contains:
1. purpose of the issue;2. proposed offering price range;3. disclosure of any option agreement;4. underwriter's commissions and discounts;5. promotion expenses;6. net proceeds to the issuing company (issuer);7. balance sheet;8. earnings statements for last 3 years, if available;9. names and address of all officers, directors, underwriters and stockholders owning 10% or more
of the current outstanding stock;
10.copy of the underwriting agreement;11. legal opinion on the issue;12.copies of the articles of incorporation of the issuer.
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Spot next
The purchase of a currency that is to be delivered the day after the spot date. The delivery price
is adjusted to account for the change in delivery date. For example, a spot one-week contract
will result in the delivery of a currency one week after the spot date.
Standard & Poor's Depositary Receipt (SPDR)
Sharesof a securitydesigned to track the valueof the S&P 500. Spiderstradeon the American Stock
Exchangeunder the symbolSPY. One SPDR unitis valued at approximatelyone-tenth of the value of the
S&P 500. Dividendsare distributed quarterly, and are based on the accumulated stock dividendsheld in
trust, less any expensesof the trust. also called SPDRs or Spiders.
Store of value
A commodity, currencyor other type of capitalthat is tradable and can be stored for future use. It
is a fundamental componentof the economic systembecause it allows tradeto occur with
itemsthat have inherentvalue. An example of a storeof value is currency, which can be
exchanged for goodsand services. If the value of currency becomes unpredictable, such as in
timesof hyperinflation, investorsand consumerswill shift to alternative stores of value, such as
gold, silver, precious stones and real estate
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
A federallaw signed by PresidentRonald Reagan in 1982 that reversed some of the taxcuts from
the previous year's EconomicRecoveryTax Act (ERTA). Specifically, the law created a 10%
withholdingfor dividends, repealed accelerated depreciationdeductionsused by corporations, and
increased both the wage baseand tax ratefor the federal unemploymenttax.