If an option on an underlying security does not have a strike price giving the option holder the ability to exercise the option for a profit (based on the current market price of the underlying security) that option is “Out of The Money.” An option is Out Of The Money (OTM) if it isn’t profitable for the option holder to exercise it. Options have a strike price that contractually defines the amount which will be paid for the underlying security if the option is exercised. Continue reading...
Options are contracts used by investors to take a speculative position – or a hedge – based on expected future price movements of the underlying securities. An option is a contract which can be exercised if the price of an underlying security moves favorably. An option will be written or sold short by one investor and bought by another. It will name the strike price at which the security can be bought or sold before the expiration of the contract. Continue reading...
Intrinsic Value is the value of a security which is “built into it.” Both options and stocks have it, but it is different for each. Options and stocks have intrinsic value. For options, the intrinsic value is easy to compute, if the option is in-the-money. It is the difference between the strike price of the option and the market price of the underlying security. If an option is out-of-the-money it has no intrinsic value. Continue reading...
A put time spread is an options strategy that has the investor implementing a short put and a long put at the same strike price, but with different expirations. Time spreads can also be called calendar spreads or horizontal spreads. A put time spread will use two put contracts on the same underlying security but with different expiration dates. One of the puts will be sold short, and one will be held long (this is the nature of spreads). Continue reading...
There are some income limits and contribution limits on who can contribute to an IRA. Generally speaking, as long as you or your spouse is earning taxable income, you can contribute money to an IRA, be it a Roth or a Traditional IRA. There are limits at which you cannot contribute to a Roth IRA (in 2016, the limit is $132,000 for a single filer and $194,000 for a married couple). There are also income limits at which you are no longer able to deduct contributions to a Traditional IRA, but these are only applicable if you or your spouse has a qualified retirement plan at work. Continue reading...
A strike price names the price of the underlying security in options or derivative contract at which the underlying security will trade at settlement if it is exercised. In a call option, for example, the option would name a strike price, and if the current market price of the underlying security was more than the strike price, an investor who held the call contract would invoke his right to purchase the stock from the issuer/seller of the option at the strike price, which, remember is lower than the prevailing market price in this example, and the investor can turn around and sell it in the market at or near its most recent, and higher, price, for a profit. Continue reading...
A strangle is an options strategy which is profitable if the price of the underlying security swings either up or down because the investor has purchased a call and a put just out of the money on either side of the current price of the underlying. To execute a strangle an investor chooses an underlying security which he or she anticipates will experience some price volatility around a given expiration date for options, but is not sure which way it will go, so a call and a put are both purchased. Continue reading...
The strike price of an option is a crucial element of any options trade, and it plays a significant role in determining the outcome of your investment. Understanding how to choose the right strike price is essential for both seasoned traders and newcomers to the world of options. In this article, we will explore the basics of strike price selection, the factors to consider, and the potential impact on your trades. First, let's clarify what the strike price represents. The strike price, also known as the exercise price, is the price at which a put or call option can be exercised. Continue reading...
A call option is a type of contract that allows the holder of the contract to purchase an underlying stock at a specific price, even if the market price goes higher. A call option contract gives the owner of the contract the right to purchase a particular asset, which is typically a stock, at a strike price designated in the contract during a certain period of time. For example, if the stock of company ABC is trading at $100/share, you might purchase the right to buy it at $90/share for a $12/share premium. Continue reading...
Money markets are very short duration debt securities, essentially the equivalent of cash traded between banks and offered to investors at a very nominal interest rate. Money market securities are essentially IOUs issued by governments, financial institutions and large corporations, and they’re traded between each other in very high denominations. Retail investors can gain access to money markets via money market funds, which generally pay very low interest rates. Continue reading...
Over-the-Counter securities transactions are done outside of formal exchanges, and the term could refer to private investments and contracts or transactions in unlisted securities, such as penny stocks. The major exchanges have requirements for being listed, pertaining mainly to the size of the company offering equity shares and the nature of the securities. Resources such as the Over the Counter Bulletin Board and "pink sheets" help to facilitate trades that cannot be performed on the largest exchanges, but there are several caveats to bear in mind. Continue reading...
The debate on whether active or passive management is better for investors has polarized many advisors and theorists for years. There are two schools of thought when it comes to long-term investing. One basically states that you should determine a proper allocation of asset classes for yourself, buy index funds to reflect each particular asset class, and possibly rebalance the portfolio periodically. This basically means “set it and forget it,” and the investor must be willing to ignore fluctuations in the markets and maintain a faith in an Efficient Market. Continue reading...
The total United States national debt is $19.3 trillion as of fiscal year (FY) 2016. Total debt is near what the U.S. produces in annual GDP, and a majority of our national debt is public debt — money owed to those who have Treasury obligations. The U.S. also owes a large amount of money to foreign countries (foreign debt), but a majority of U.S. debt is held domestically. As of June 2012, the three countries who hold the most of our national debt are: Continue reading...
A Bear Straddle is another name for a short straddle, in which the investor writes (goes short) on both a call and a put, for the same strike price and expiration, on the same underlying stock. A short straddle can be called a bearish position because the investor believes that the underlying will basically hibernate until expiration. As long as the price of the underlying remains close to the strike price, the investor can make a profit, with the maximum profit being the premium collected from the sale of the options which have expired worthless. Continue reading...
A security is a marketable ownership contract which entitles the owner to the right to use the contract as a type of currency backed by a specific asset, which could be partial ownership in a company, a debt (bond), or a derivative interest. Securities are broadly categorized into debt securities (e.g., bonds), equity securities (e.g., stock), and derivatives (e.g., futures, options, etc.). They will generally be issued by a company or government entity and will entitle the owner of the contract the right to trade the ownership interest for value in the open market. Continue reading...
Mark to Market (MTM) is an accounting method meant to price an asset by its most recent market price. An example would be mutual funds, whose “NAV” price is a mark to market price of how much the mutual fund closed for at the end of a trading session. The mark to market accounting method has some pros and cons. On the pro side, if an asset is very liquid, then MTM will provide an accurate reflection of its current value. Continue reading...
Burn rate is a term for negative cash flow, or the rate at which a company burns through capital, especially a startup company. Burn rate is used frequently in the world of startups and venture capital. Using a burn rate, investors can see how much longer operations can be sustained with the capital at hand, and this length of time is called a runway. Startups will normally need at least a few months before they start generating enough revenue to have a positive cash flow. Burn rate is normally expressed as the monthly negative cash flow. Continue reading...
An interest rate is a simple financial principle that’s been around for centuries, whereby a borrower has to pay for money borrowed. The interest rate is agreed to between the lender and the borrower, and there may be provisions under which the rate could change over the course of a loan. In simple terms, an interest rate is the cost of money. Continue reading...
Currency in circulation tends to be defined as the currency held by commercial banks, and currency with the public, without including long-term deposits or investments. As much as 2/3rd of Currency in Circulation is held outside of the borders of the US, and is estimated to be around $1.5 trillion as of 2016. Currency in Circulation is one part of what’s known as the money supply. Money supply is divided into four levels: M0, M1, M2, and M3. Some might define currency in circulation as the larger part of M0, which is the money base, constituted by the currency held in commercial banking institutions and excluding central bank reserves / Federal funds. This definition disregards the Currency with Public, which is included in other definitions and is part of M1. Continue reading...
Ripple does not have a mining rewards system like Bitcoin for releasing new coins into the market, so they’ve enacted a plan to put 55 billion XRP into escrow accounts. Prior to 2017, Ripple did not offer any guarantees to coin-holders concerning the rate at which Ripple would release XRP coins into the wild, and this made investors nervous. At any moment, Ripple theoretically could have dumped the approximately 60 billion remaining XRP into the market and washed out any value that the investors... Continue reading...