All-cap mutual funds invest in companies of all sizes. All-capitalization mutual funds invest in companies without a bias towards the capitalization of the company. In every mutual fund’s prospectus, the stated objective of the fund will be outlined, as well as the agreed-upon asset allocation guidelines. Deviation from these parameters can put fund managers in hot water with regulatory groups like the SEC. Continue reading...
A covered call is when the writer or seller of a call option either owns the underlying security, or has a guaranteed way to obtain it. Investors are able to open a position for another investor to take. An example of this would be selling a call option. The seller, or “writer,” of the contract is obligated to fulfill the contractual obligation outlined in the call, namely to deliver 100 shares of the underlying stock to the owner of the call option in exchange for the strike price listed in the call contract. Continue reading...
Mutual funds that invest heavily in companies that are small, but not micro-size, can be described as small cap funds. A small capitalization mutual fund primarily invests in small companies. Small companies are usually defined as companies with market capitalization of under $2 billion. The companies in this category are larger than those in the “micro” and “nano” cap categories. A mutual fund investing in small cap companies will generally experience higher price volatility than both mid cap and large cap mutual funds. Over time, small cap companies as a group have tended to outperform the broader market, so the higher risk is associated with higher return. Continue reading...
Large Cap mutual funds primarily invest in companies with the highest market capitalizations. Large capitalization mutual funds, also called “large cap funds,” invest primarily in large companies with market capitalization of over $10 billion. Some examples include Microsoft, General Electric, Google, and other well-known companies. Some large cap mutual funds invest in all of the companies in an index (therefore closely following the performance of that index), and some pick and choose which large companies to select in an attempt to outperform the index. For more information about indices, see “What is Index Investing?” Continue reading...
Mid-cap mutual funds invest in medium-size companies. A middle capitalization mutual fund invests mostly in medium-size companies. While the definition of “medium-size company” varies, most professionals define it as a company with a market capitalization from $2 billion to $10 billion. Companies you may have heard of within this size range are Eaton Vance, Guess, and others. In general, mid cap companies are more volatile than large cap companies, and the choice of the right fund managers becomes more important. Continue reading...
The CAC 40 is an index tracking performance of stocks in France. The CAC 40 is an index that tracks the 40 largest capitalization stocks of the 100 listed on the Euronext Paris stock exchange. It provides a good barometer for the performance and standing of the French economy. What is the DAX? What is the EURO STOXX 50? 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...
Ratio call spreads are options strategies where the investor combines purchased calls and short calls at the same expiration but with different strike prices. A Ratio Call Spread starts off as a delta-neutral strategy, which means that even if you have two long calls and one short call, the sensitivity of your overall position to move in the underlying is equal whether it moves up or down by small amounts. Continue reading...
A bear call spread seeks to make money on the sale of call options but does not believe the underlying security will increase. A Bear Call Spread strategy is utilized when one believes that the price of the underlying stock will go down (but not significantly) in the near future. It entails selling a call short at a lower price than you buy a long call, which is done to realize a net credit at the outset. Continue reading...
A margin call is a mandatory request by the custodian/broker for the account holder to add equity to the account, either by depositing cash or selling securities to raise cash. When an investor takes an account on margin, the custodian will require that they keep a certain amount of equity/cash in the account to maintenance the borrowed amount. If the account value drops past a certain level, the custodian may require the investor to add equity to the account to cover the margin balance. Continue reading...
A naked call is a type of option contract where the seller of a call does not own the underlying security, thereby exposing them to unlimited risk. Investors have the ability to “write” or sell options contracts as well as to buy them. The seller of a call option has opened a position in which the buyer is given the right to buy 100 shares of a stock at the strike price named in the contract. The seller – along with all other sellers of calls for that security – are the ones who must cover and close the open positions if the call owners exercise their options. Continue reading...
An earnings call is when a company opens up a teleconference line or webcast that the public can join to hear the company management talk about how the company performed recently, their plans for the future, and the market forces that exist in the current environment. Most publicly traded companies today have adopted this practice. Earnings calls may take place once a year or during earnings seasons after the quarterly earnings have been announced in a press release. Companies often have one executive whose job is to interface with the shareholders in such settings, but various executives are often given a chance to present some thoughts. Continue reading...
A bull call spread is a vertical spread that buys and sells calls in a way that benefits from upward price movement but limits the risk of the short position. Using calls options of the same expiration date but different prices, a bull call spread seeks to maximize profits for moderate price movements upward. A long position is taken in a call contract (meaning it is bought and held) that has a strike price near the current market price of the security or is at least lower than the other call contract used in this strategy. Continue reading...
If you own a Call Option, you have the right (not the obligation) to purchase a security at an agreed-upon price from the seller of the option. Buying a call option means you are bullish on the security. For example, an investor may buy an August 2017 call on stock XYZ for $50/share (strike price). This means that the owner of this call option has the ability to buy XYZ on the expiration date (August) for $50/share. Continue reading...
The Falling Wedge pattern forms when the price of a security appears to be spiraling downward, and two down-sloping lines are created with the price hitting lower lows (1, 3, 5) and lower highs (2, 4). The two pattern lines intersect to form a narrow triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. Continue reading...
The Falling Flag (or Bearish Flag) pattern looks like a flag with the mast turned upside down (the mast points up). The pattern forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points 2-4 and 3-5. After the consolidation, the previous trend resumes. This type of formation happens when anticipation of a downtrend is high, and when a security’s price consolidates during a broader decline. It may indicate growing investor concern of an impending downtrend. Continue reading...
The Falling Pennant (or Bearish Pennant) pattern looks like a pennant turned upside down (the mast points up). It forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the converging lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes. This type of formation happens when anticipation of downtrend is high, and when the price of a security consolidates during a declining trend. It may indicate growing investor concern of an impending downtrend. Continue reading...
The Falling Wedge pattern forms when prices appear to spiral downward, with lower lows (1, 3, 5) and lower highs (2, 4) creating two down-sloping trend lines that intersect to form a triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
Fluctuations are represented in terms of volatility, and different types of investments experience different levels of volatility. The answer here depends on which market you’re talking about. Generally speaking, the capital markets in fixed instruments, such as government bonds, are the least volatile. Market fluctuations of the price of commodities, small-cap stocks, and emerging markets are the largest, and can be as high as 30-40% per year. Continue reading...
A penny Stock is a term for equity shares valued below $5, many of which are not registered with the SEC and trade over-the-counter. They do trade on over-the-counter exchanges regulated by FINRA. Penny Stocks are equity in companies that may be small or have bad credit ratings, whose shares are priced below $5, per the SEC definition, but below $1 in the more widely accepted street definition. Because they do not have to observe all of the disclosure requirements of the SEC, there is not very much transparency about the companies or brokers issuing penny stocks. Continue reading...