Found 1748 Articles for Growth & Empowerment

Straddle is an options strategy where the investors buy and sell a put and a call option simultaneously. The type of underlying, expiry date, and strike prices remain the same for the straddle strategy to work. The investors who use the straddle strategy expect something drastic in the market to happen in the future but are unsure whether this will lead to the markets to go up or down.Types of Straddle OptionsStraddle options can be of two types −Long StraddleShort StraddleLong StraddleIn a long straddle options strategy, the investor buys both a long call and a long put option with ... Read More

Strips and straps are two options strategies applied to increase the returns from an investment. Both strips and straps are related to options where market movements are compared with the underlying stock’s prices. As profits can be made from both upward and downward direction of the stock’s value, adding one or more options to increase the profit is the underlying concept in the case of strip and strap option strategies.Strip OptionsStrips mean buying two put options and one call option at the same time where the expiry date, strike price, and the underlying assets are identical. This is also considered ... Read More

A number of studies using different techniques and different economies and time periods have found that equity betas are unstable in both individual common stock and portfolios.Equity beta measures the volatility of a security relative to the market’s volatility. A security with a beta of 1.00 rises and falls at the same rate as a broad market index, for example S&P 500.Finance theory ascertains that as individual stocks are aggregated into portfolios, the diversification effect must produce a beta for the portfolio that is relatively more stable since beta instability in the individual stocks is driven, at least in part, ... Read More

Arbitrage Pricing TheoryArbitrage Pricing Theory (APT) is used to assess and anticipate the returns of assets and portfolios.APT is a model that shows the relationship between an asset’s expected risk and the return.The APT model shows how the changes in macroeconomic factors affect an asset’s returns. These variables are inflation, interest rates, exchange rates, etc.APT is an alternative model to the Capital Asset Pricing Model (CAPM). Although, both the theories represent the relationship between risk and expected risk, the arbitrage pricing theory is harder to gauge and implementArbitrage is the process of buying an asset at a lower price and ... Read More

A "strangle" is an investment strategy where an investor buys both "call" and "put" options. Both of these options have identical maturity dates but the strike prices are different. These options are usually bought "out of money."Generally, the strike price of a call option is higher than the underlying stock’s price, whereas the strike price of a put option is lower than the underlying stock’s price. Strangle is a popular option when the investors realize that a large price movement will occur on their stock but they do not know the direction of the movement.In case the price of the ... Read More

Options are a type of derivative financial instrument between two parties who contractually agree to transact an asset at an agreed price before a future date. An "option" provides its owner the opportunity and right to either buy or sell the asset at the exercise price, but the owner is not bound to exercise (buy or sell) the option. If the option reaches its expiration date without being traded, it becomes useless without any value.Basically, two types of options are there in the market −Call options – Call options let the option holder buy an asset at a specified price ... Read More

"Opportunity cost" is a term that is used extensively in economics and finance. The uniqueness of the term lies in the fact that there is no mention of the opportunity cost of capital in the accounting books. It is not an "explicit cost"; so, there is no mention of this cost in the accounting records. Rather, it is an "implicit cost" that results out of the investment decisions.Alternate Uses of MoneyThe opportunity cost of capital represents various alternate uses of money. For example, if an investor has INR 1, 00, 000 to invest and he/she decides to invest it in ... Read More

What is a Put Option?A put option is a contract that allows the option holder to sell a number of underlying securities at an agreed-upon price before a certain date. The price at which put option’s securities are sold is known as the "strike price."When the option is exercised, the writer or issuer of the option is obligated to buy the option at the strike price. Exercising means the owner of the option is using their right to sell the option to earn a profit from it according to the given norms while the option was formed.Note − The writer ... Read More

Call options can help in minimizing portfolio losses. A call option can be exercised at any point in time to earn a premium. Call option holders are not obligated to buy the options, but they can hold options they have as long as they want. So, is there any specific rule to check whether and when to exercise a call option? The answer is "yes", and it should not be hard to earn a premium if the exercise goes well.Check if the call option is in the moneyOne would simply never buy an option to get a loss in his ... Read More

Sharpe’s Model of Capital Asset Pricing Model results in the cost of equity estimation. Sharpe’s model calculates the cost of capital by building a relationship between risk and return. As per the model, a risk-free return is expected out of every investment. The expectation is greater than that is based on the given amount of risk associated with the chosen investment. The model states that the anticipated or required rate of return is equal to the sum of the risk-free rate and a certain premium dependent on the systematic risk associated with the security.Systematic Risk and Unsystematic RiskSystematic Risk is ... Read More