Stock Options and Futures

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There is always a small probability that the stock may split. Weather it splits 1-1.5 or 1-2 or better is always a question that will be unanswered until this action actually occurs. Albeit, the stock will probably not split in 2011, however with the price dancing around $90 a share only makes it a more hopeful probability and tempting investment. I am no Financial Scholar nor Fortune teller, but being a well informed, educated investor, I am confident Costco is a good investment.

Once you enter into the contract, you can't change the price.

Counterparties in a swap contract exchange risk for money.

The easiest swap to understand is the Weather Swap. You are planning a big outdoor event. You are charging admission to help pay for it, and you know if it rains no one will come. So you go to a swaps dealer and buy a weather swap. If it doesn't rain the dealer will keep your money; if it does, he will pay you the difference between your predicted and actual gate receipts. This sounds a lot like insurance, but insurance is covered by regulations much stiffer than swaps are.

Check out Bloomberg, CNBC. Some of the best alternatives to Thompson Reuters

Options are priced using a theoretical model known as a "Black Scholes Model". The black scholes model price options based on a set of mathematical parameters known as the "greeks" which covers the variables that influence options prices.

However, this is only a theoretical model because it cannot take into consideration the actual demand and supply condition of specific options in the market. Actual demand and supply most often move the price of an option away from its theoretical value.

The people involved get sent to jail for aiding and abetting tax evasion.

This is why someone would falsify dates on an option: there are two important time frames in regards to incentive stock options, and they determine whether the sale of the stock is "qualified" or "disqualified." If you hold the stock for (1) two years after the issue of the option and (2) one year after the exercise of same, the sale is "qualified" and the money you make from the sale is taxed at the capital gains tax rate. (If you get the option on July 1, 2014, and exercise it before July 1, 2015, the exercise date doesn't play into it because the two timeframes run concurrently.) If you sell before then, the sale is "disqualified" and you pay taxes at the ordinary income rates. The difference could be substantial: for every $1 million you make selling qualified options you owe $150,000 in tax, whereas for every $1 million you make selling disqualified options you owe $350,000 in tax.

If you were to grant someone an option on July 1, 2014 but you backdate it and say it was granted in 2012 and exercised three days after, that person could claim to have made a qualifying sale and try to rip off the government for $200,000 per million of profit. The IRS is very interested in throwing people who do this in jail.

Stock share prices reflect the current price of a publicly traded company in the stock exchange, every second of the trading day. The price you see is actually the last transaction made for this stock and it is influenced by many factors such as news, expectations, market conditions, and fluctuations of supply and demand.

Waffle House is a privately held company, they don't trade stock on public markets.

There are different ways to trade system. You can engage in day trading in which each transaction is squared up by the end of the daily trading session. I am continuing to increase my business knowledge by visiting some online videos of market taker mentoring. I hope it will be helping others.

There are thousands (maybe millions) of fundamental factors that influence the value of a currency. Luckily for you, you only need to keep track of the big stuff. Remember that what I consider the big stuff today may not be the big stuff tomorrow.

I am giving this analysis from the perspective of a trader in the United States.

(In no particular order of importance):

- breaking news e.g. tsunami hits Japan

- crude oil futures

- the U.S. stock market (SPY)

- the U.S. CPI (consumer price index, a measure of inflation)

- USD/CNY and balance of trade (as well as other emerging markets)

- U.S. interest rates and TIC data (Treasury international capital)

The major advantage is to corporations who have separate accounts for capital expenditures (the buy option) and current bills (the lease option). The two have different tax, depreciation, etc., rules.

A corporation might also choose to lease something like a car because it ensures they always have newish cars. If you buy a car you'll keep it for seven years and take a big hit when it comes to resale time. If you lease one, you make payments for three years then give it back.

While the CALL options remain the same for both regular and binary options, the difference being that with binary options you don't actually own the asset you are trading on. It is based on mere speculation of the market movements.

Occasionally, corporations split their stock. However, this does not change the value of the shareholder's shares on the corporation records or the corporation's net worth.

You wouldn't use a futures contract for that; it would be an OTC swap contract.

This is a theoretical construct, but you can come up with a rough guess as to what the stock should be worth by taking the company's earnings per share and multiplying it by the industry multiple. Let's say you have some XYZ Tobacco stock. Tobacco stocks generally trade somewhere around seven times earnings, so if XYZ has a billion shares outstanding and earned $10 billion last year (EPS of $10), XYZ should trade at around $70 per share.

A stock trading significantly lower than the industry multiple would suggest was the cause of most of the leveraged buyouts of the last thirty years.

Once a stock starts trading, it is valued at whatever someone will pay for it.

Similarities:
1. Both are derivative securities for future delivery/receipt. Agree on P and Q today for future settlement or delivery in 1 week to 10 years.
2. Both are used to hedge currency risk, interest rate risk or commodity price risk.
3. In principal they are very similar, used to accomplish the same goal of risk management.
Differences:
1. Forward contracts are private, customized contracts between a bank and its clients (MNCs, exporters, importers, etc.) depending on the client's needs. There is no secondary market for forward contracts since it is a private contractual agreement, like most bank loans (vs. bond).
2. Forward contracts are settled at expiration, futures contracts are continually settled, daily settlement.
3. Most (90%) of forward contracts are settled with delivery/receipt of the asset. Most futures contracts (99%) are settled with cash, NOT the commodity/asset.
4. Futures markets have daily price limits.

Some people pronounce the word in a different manner.

There are two basic options strategies that have the gambler hold both a call and a put on the same stock with the same expiration date, the straddle and the strangle. You play one of these hands if you believe the price of the underlying asset is going to change quite a bit, but you don't know which way it's going to go.

In a straddle, both options have the same strike price; the strangle's two options have different strike prices.

You can play the strangle two ways, long and short. Long strangles (you buy the put and the call) come into play if you expect a lot of volatility. Short strangles (you sell both options) are used when just a little volatility is on the horizon.

It is the future's farming witch will acure in the coming years

EPS means Earnings per Share. It is the company's earnings for a certain period--usually a quarter or a year--divided by shares outstanding.

It could tell me a lot of things.

Wall Street investors feel that there is a certain range in which a stock's earnings per share should be. If the EPS drops below that range, the company needs to do something to improve it, and there are two basic ways to do that: increase earnings or decrease the number of shares outstanding through a stock buyback or a reverse stock split. Increasing earnings is, of course, much better--decreasing the shares outstanding is a bandaid...one that's soaked in blood and has half the glue missing.

EPS that's too high is bad too. That means either you're not putting enough money back into the company (when I worked for Home Depot, our stock took a serious hit because our EPS was too high; the analysts said our biggest problem was we had very outdated computers and it was slowing us down, and we should buy a lot of new automation to make the employees' jobs easier.) or you don't have enough stock outstanding and should do a stock split or another issue.