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What does out of the money (OTM) mean?
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...
What are Current Yields?
The current yield on a bond takes into account its annual interest payment but also the price at which it can be sold. The yield on a bond held to maturity is fairly straightforward. However, if the bond you are holding is trading at a price higher or lower than where you purchased it, the current yield would be different than the yield to maturity. For example, if you purchased a 5% bond at a price of $100, but the current market price was $90, your current yield would be significantly lower than 5%. To calculate, simply divide annual cash inflows by market price. Continue reading...
What Does Mark to Market (MTM) Mean?
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...
Learn Options Trading
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...
Options Basics: Which Strike Price is Right for You?
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...
What is Yield to Maturity?
The payments remaining on an interest-paying bond or instrument, plus principal, are totaled up and then annualized, and this annual rate is the yield to maturity. Yield to maturity is a calculation that helps an investor decide if he or she is getting a good deal. If yield to maturity is greater than the coupon rate, the bond is trading a a discount. If yield to maturity is less than the coupon rate, it is selling at a premium. If they are equal the bond is trading at par value. Continue reading...
What is a bear straddle?
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...
What are stock options, and how do they differ from regular stocks?
Unlock the mysteries of stock options with our comprehensive guide. Whether you're an investor, trader, or employee, stock options play a pivotal role in the financial landscape. Learn the difference between call and put options, the significance of strike prices, expiration dates, and premiums. Discover trading strategies to maximize profits and minimize risks. For employees, grasp the nuances of equity compensation through Employee Stock Options (ESOs). This guide offers a deep dive into the mechanics, strategies, and real-world applications of stock options, empowering you to harness their full potential in your financial journey. Dive in and master the art of stock options! Continue reading...
What is a strike price?
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...
What is a Callable Bond?
A callable bond, also known as a “redeemable bond,” is one where the issuer has the ability to pay off the debt prior to its maturity date, with certain conditions. Which the issuer has the right to redeem prior to its maturity date, under certain conditions. The primary reason that an issuer would choose to “call” a bond is that interest rates have declined since the bond was issued. By calling the bond, the issuer generally has to opportunity to refinance that debt at a lower rate. Once called, the issuer will notify the creditor and pay off the debt, typically with a slight premium added to close the deal. Continue reading...
What is Intrinsic Value?
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...
What is a call option?
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...
What is a put time spread?
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...
What is a strangle?
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...
What are the Top 10 Largest Companies Globally?
When it comes to the global business landscape, size often matters. The largest companies in the world not only wield immense economic influence but also play a crucial role in shaping our everyday lives. In this article, we will take a closer look at the top 10 largest companies globally, as of January 2023, ranked by their 12-month trailing revenue. Continue reading...
Is there any truth to saying “sell on Rosh Hashanah, buy on Yom Kippur?”
Since September is historically a lackluster month in the stock market, it can make sense to follow this modern proverb. There is an old saying on Wall Street, which stipulates that you should sell your positions on Rosh Hashanah (the Jewish New Year, which comes usually in September or October), and establish a new position on Yom Kippur (Jewish Day of Atonement), which usually comes a week later. Continue reading...
What Is a Debit Card?
A debit card is a financial tool that plays a fundamental role in the world of modern banking and personal finance. Often referred to as "check cards" or "bank cards," debit cards provide a convenient and efficient way for individuals to make purchases and access cash. In this article, we'll delve into what exactly a debit card is, how it works, and the associated fees, as well as explore the key distinctions between debit and credit cards. Continue reading...
What is a foreign transaction fee?
Credit card companies and banks generally charge an additional percentage for all purchases made with a card in a foreign country. If you’re traveling abroad, you may want to find another way to pay. Most credit card companies and bank debit cards will charge an additional percentage on transactions made abroad, to help them pay the cost of clearing the transaction with international institutions. This is sometimes called a currency conversion fee. Continue reading...
Exploring Top Food Industry Stocks and Emerging Trends
In the diverse world of food industry stocks, several notable companies stand out for their market presence and innovative approaches. This article delves into the financial aspects and market dynamics of these companies, exploring how they are adapting to changing consumer preferences and the impact on their stock performance. Continue reading...
What is Bond Yield?
Bond yield is a measure of the return on investment for bonds, and there several kinds of yield that can be computed. Yield on a bond is the amount of interest that it pays annually, as a percentage of the amount invested — at least, this is the most common type of yield discussed, which is known as Current Yield. If a bond pays quarterly or monthly income to the investor, these payments are totaled up and divided by the amount invested. Continue reading...