Found 1748 Articles for Growth & Empowerment

By the term financial leverage, we usually mean how much debt a firm has, or how ‘levered’ it is, in comparison to equity. This means also how much debt does a firm hold in its capital structure?Higher debt means high-interest payments and high-interest payments mean a lower profit. These high-interest payments and low profit mean higher risks for shareholders.What is actually the meaning of beta? Beta is a measure of risk a company holds. It lets us know how much riskier a particular firm is in comparison to an index, such as the S&P index. For example, if the beta ... Read More

Spread is an options trading strategy where a trader buys or sells multiple options of the same type (call or put) which have the same underlying asset but the expiration dates and strike prices or both may vary.Depending on the nature of options included, there are three types of spread strategies in the market. Here are the spreads of different types −Vertical spread strategyHorizontal spread strategyDiagonal spread strategyVertical Spread StrategyAlso called money spread, this strategy includes two options of the same expiry date but different strike prices. A vertical strategy is helpful in diminishing downside risk, but it also limits ... Read More

The "market model" shows how the forces of demand and supply correlate with each other to measure the prices and the quantities that are sold in the market. The market model is very important because many other models of finance are derived from it, such as the forex market and the market for loanable funds.Market Model – Graphical PresentationTwo axes − "Quantity" or "Q" labeled on the horizontal axis and "Price" or "P" on the vertical axis.Two curves − A demand curve labeled "D" sloping downward and a supply curve labeled "S" sloping upward.To show a change in supply or ... Read More

The capital asset pricing model (CAPM) asserts that the anticipated return of a security is related to its beta. Beta is a representation of the systematic risk, which cannot be eliminated simply by means of diversification.According to CAPM, the term ‘beta’ simply means the covariance of a security’s return while the return is obtained from the market portfolio. Dividing the covariance to the market variance standardizes the relationship between the anticipated return and accounting beta.Although the beta is estimated from CAPM, the model does not provide any information regarding the factors that affect beta. This particular issue of CAPM and ... Read More

Options are a great way to make money from short-term sales. However, one must be aware of the market and make a resilient strategy to gain profits from the options. There are definitely some risks while investing in options, but they can be minimized to a large extent. A "protective put" is a special version of the put option to let the investors earn profit without having to lose money too badly if the strategy goes wrong.What is a protective put?A protective put is an investment strategy that is designed to help an investor limit the losses in case of ... Read More

If the issuers of the underlying security of an option call early, the investors lose some money. A call premium is a compensation paid by the issuers to make up for the gap or loss suffered by the option holders. The premium is meant to balance the risk option owners face while the underlying is exercised earlier than its maturity period.Call Premium – What is it?Some securities, such as bonds have the luxury to be called early. If such securities are kept as the underlying in an option, they may be called earlier than the deadline of the security. This ... Read More

A covered call is an options strategy for which one needs to hold a long position in the underlying asset, such as a stock while selling the call option on the underlying asset. By selling the call option, the investor generally locks the price in of the asset, to enjoy a short-term profit. Moreover, the investor also gets a slight cushioning from a future decline in stock prices.When should you use the covered call option strategy?The covered call works well when the market is neutral or moderately bullish. In such circumstances, the future upside potential of the stock is limited. ... Read More

The classification of a security risk into "diversifiable" and "non-diversifiable" risks has come up from the portfolio approach of capital investment. It has culminated in the well-known and popular Capital Asset Pricing Model (CAPM), developed by Sharpe, Lintner, and others. According to this framework, the "diversifiable risk" is the risk that can be eliminated by diversification, while "non-diversifiable risks" are the risks that cannot be diversified away. Many investors define the two types of risks as two complementary components of the standard deviation (SD) of a security's rate of return.Diversifiable RiskDiversifiable risk is also called as "unsystematic risk". These risks ... Read More

If you create a contract and then file for bankruptcy, then the lender or creditor can file a "contingent claim" against your estate. A contingent claim that is based on some future event can be dealt with by the court in a number of ways.Certain Conditions Must be MetFor the contingent claim to file, some certain events must have taken place in the preceding phases. Because the future event is not guaranteed to happen or the creditors cannot say with 100% condition that the bankruptcy will take place, the claim may or may not become valid.Contingent claims are usually filed ... Read More

Options are "derivative investments", meaning the price movements of the investments are based on the price movements of another financial product. The financial product from which the derivative is obtained is called the "underlying."Call and Put OptionsOptions are contracts that provide the buyer the right to buy or sell an underlying asset, at a predetermined price and before a specific date.A call option is bought by a trader if the investor expects the price of the underlying to rise within a certain time frame.A put option is bought by a trader if he/she expects the price of the underlying to ... Read More