Definitions by abu yahya
equity derivative
(FINANCE) a financial derivative whose underlying asset is a stock. The simplest kinds include the equity swap and the option.
As opposed to currency derivatives, interest rate derivatives, commodity derivatives, and so on. An equity swap typically involves an "equity side" of the transaction AND something else, like interest rates or oil prices.
Equity derivatives can be written on indices (e.g., the S&P 500, the FTSE-100, NASDAQ) as well as on stocks. In fact, they are often bought "out of the money" by mutual fund managers as insurance against a catastrophic decline in the fund value.
As opposed to currency derivatives, interest rate derivatives, commodity derivatives, and so on. An equity swap typically involves an "equity side" of the transaction AND something else, like interest rates or oil prices.
Equity derivatives can be written on indices (e.g., the S&P 500, the FTSE-100, NASDAQ) as well as on stocks. In fact, they are often bought "out of the money" by mutual fund managers as insurance against a catastrophic decline in the fund value.
One other reason that poison pills are back in favor is the growth of synthetic equity derivative swap transactions, where a “short party” agrees to pay a “long party” the cash flows from a particular amount of a target company’s stock. In exchange, the long party agrees to pay a fee and to cover any decrease in the market value of the stock ... Through such transactions, a long party can suddenly become a significant stockholder of a target company without warning.
--Dykema Gossett & Andrew H. Connor "The poison pill resurgence," Lexology (15 March 2010)
--Dykema Gossett & Andrew H. Connor "The poison pill resurgence," Lexology (15 March 2010)
equity derivative by Abu Yahya April 15, 2010
capital gains
(FINANCE) the increase in wealth that goes to the owner of a financial asset when it increases in value. If you buy a share of stock, and the share increases in value, then you have capital gains whether you have sold it or not.
If you sell the stock at the higher price, you have made money on the transaction and have "realized capital gains." If you hang onto the asset in the hopes its value will increase even more, you have "unrealized capital gains."
If you sell the stock at the higher price, you have made money on the transaction and have "realized capital gains." If you hang onto the asset in the hopes its value will increase even more, you have "unrealized capital gains."
For owners of stocks, wealth can come in the form of capital gains or dividends. For owners of gold, the only benefit comes from capital gains. This is why gold is usually not a good investment.
capital gains by Abu Yahya April 15, 2010
commodity fund
(FINANCE) a mutual fund that trades in commodities or commodity derivatives. This can include commodity index funds.
Usually a commodity fund makes its returns by trading derivatives rather than the underlying commodity.
commodity fund by Abu Yahya April 15, 2010
short cover
(FINANCE) when a trader in a short position is wrong about the price movement, and is consequently forced to buy the asset at the higher price in order to meet legal obligations.
The classic example of this is the broker who sells stocks he does not own, in the expectation that he can buy the stock in the future at a lower price for delivery. If the price goes up instead of down, the broker must "cover his shorts," and very possibly drive prices higher still.
The classic example of this is the broker who sells stocks he does not own, in the expectation that he can buy the stock in the future at a lower price for delivery. If the price goes up instead of down, the broker must "cover his shorts," and very possibly drive prices higher still.
When Morgan was ready to squeeze the shorts, he was damn certain his corner would hold as the Twombly men scrambled to buy shares at any price.
"I've got your short cover right here, Gentlemen," he snorted from his seat overlooking the trading pit.
"I've got your short cover right here, Gentlemen," he snorted from his seat overlooking the trading pit.
short cover by Abu Yahya April 15, 2010
Greenspan put
(FINANCE) the widely-held belief by most traders or speculators that Federal Reserve Chairman Alan Greenspan (s.1987 to 2006) would use monetary policy to ensure that asset prices would not fall below a certain level.
A "put" here refers to the put option, a financial derivative that allows the owner the guaranteed right to sell a fixed amount of the underlying asset for a fixed strike price. A person who has a put for the assets she owns therefore is immune from the risk of those assets falling below a particular floor.
In the case of the Greenspan put, it was widely observed that Greenspan intervened in order to protect gains in asset values; this tended to guarantee that purchases of financial assets during Greenspan's tenure were very unlikely to be mistakes. This, of course, created conditions of moral hazard in the asset markets. particularly in financial stocks and in housing prices.
A "put" here refers to the put option, a financial derivative that allows the owner the guaranteed right to sell a fixed amount of the underlying asset for a fixed strike price. A person who has a put for the assets she owns therefore is immune from the risk of those assets falling below a particular floor.
In the case of the Greenspan put, it was widely observed that Greenspan intervened in order to protect gains in asset values; this tended to guarantee that purchases of financial assets during Greenspan's tenure were very unlikely to be mistakes. This, of course, created conditions of moral hazard in the asset markets. particularly in financial stocks and in housing prices.
The outcome of that (October 1994) rate cut turned out to be far worse, as the committee's actions came to be viewed as the Greenspan Put, meaning speculators could take enormous amounts of risk trusting that Greenspan would do anything to stop the market from a serious decline.
William A. Fleckenstein & Frederick Sheehan, *Greenspan's bubbles* (2008), p.61
William A. Fleckenstein & Frederick Sheehan, *Greenspan's bubbles* (2008), p.61
Greenspan put by Abu Yahya April 15, 2010
call option
(FINANCE) a financial derivative that entitles the owner to buy a fixed amount of X for a fixed price (the strike price) by a specific date in the future. If this is an equity derivative, X is referred to as the underlying stock.
A call option allows one to reap profits from an increase in price of a traded item without actually buying the asset itself. Since it is an option, one is not compelled to exercise it if it not advantageous to do so; however, the party that initially issued the option (i.e., the one who "wrote" the option) is legally obligated to honor the option.
When the strike price of a call option is more than the current market price of the asset (i.e., its "spot price"), then it has no intrinsic value and is "out of the money."
A call option allows one to reap profits from an increase in price of a traded item without actually buying the asset itself. Since it is an option, one is not compelled to exercise it if it not advantageous to do so; however, the party that initially issued the option (i.e., the one who "wrote" the option) is legally obligated to honor the option.
When the strike price of a call option is more than the current market price of the asset (i.e., its "spot price"), then it has no intrinsic value and is "out of the money."
Buying a call option is one way to take a long position on the underlying asset.
Writing a call is a way to take a short position.
Writing a call is a way to take a short position.
call option by Abu Yahya April 15, 2010
dividends
(FINANCE) a quarterly payment that companies make to owners of their stock. In theory, the source of the company's stock's intrinsic value.
A company's dividends are usually chosen to be as regular as possible; they can be considerably lower than the company's quarterly earnings, provided the company is growing in value. They are important, because they are the direct motivation to buy the stock.
A company's dividends are usually chosen to be as regular as possible; they can be considerably lower than the company's quarterly earnings, provided the company is growing in value. They are important, because they are the direct motivation to buy the stock.