What is stock dilution?

July 8, 2024 No Comments

A: Stock dilution occurs when company actions reduce the ownership percentage of current shareholders. Dilutive stock is any security that generates this reduction..The reason why dilutive stock has negative connotations is quite simple: a company’s shareholders are its owners and anything that decreases an investor’s level

What is the CBOE Volatility Index? (VIX)

July 8, 2024 No Comments

A: The Chicago Board Options Exchange (CBOE) calculates a real-time index to show the expected level of price fluctuation in the S&P 500 Index option over the next 12 months. Officially called the CBOE Volatility Index and listed under the ticker symbol VIX, investors and

What is the difference between “right” and “obligation” on a call option?

July 8, 2024 No Comments

A: An option is a financial instrument whose value is derived from an underlying asset. A call option is an agreement that gives the buyer, or holder, the right to buy the underlying asset, or stock, at a predetermined strike price on or by a

What is the difference between a currency and interest rate swap?

July 8, 2024 No Comments

A: Swaps are derivative contracts between two parties that involve the exchange of cash flows. Interest rate swaps involve exchanging interest payments, while currency swaps involve exchanging an amount of cash in one currency for the same amount in another. An interest rate swap is

What is the difference between a short position and a short sale?

July 8, 2024 No Comments

A: A short position and a short sale are very similar concepts; for this reason, they are often collectively referred to as “shorting,” and the two terms are quite commonly used interchangeably. The difference between the two lies in the subject of the transaction. While

What is the difference between an option-adjusted spread and a Z-spread in reference to mortgage-backed securities (MBS)?

July 8, 2024 No Comments

A: Unlike the Z-spread calculation, the option-adjusted spread takes into account how the embedded option in a bond can change the future cash flows and overall value of the bond. Mortgage-backed securities often have embedded options due to the prepayment risk associated with mortgages. As

What is the difference between derivatives and options?

July 8, 2024 No Comments

A: A derivative is a financial contract that gets its value, risk and basic term structure from an underlying asset. Options comprise one category of derivatives while other types include futures contracts, swaps and forward contracts. Derivatives have been used to hedge risk and increase returns for generations, especially in the agricultural industry, where

What is the difference between derivatives and swaps?

July 8, 2024 No Comments

A: A derivative denotes a contract between two parties, with its value generally determined by an underlying asset’s price. Common derivatives include futures contracts, options, forward contracts and swaps. Swaps comprise one type of the broad derivatives universe but its value isn’t derived from an underlying security or asset. The Difference Between Derivatives and

What is the difference between in the money and out of the money?

July 8, 2024 No Comments

A: In options trading, the difference between “in the money” (ITM) and “out of the money” (OTM) is a matter of the strike price’s position relative to the market value of the underlying stock, called its moneyness. An ITM option is one with a strike price

What is the difference between open interest and volume?

July 8, 2024 No Comments

A: Two measurements describe the liquidity and activity of contracts In the options and futures markets: 1. Volume refers to the quantity of contracts traded in a given period 2. Open interest denotes the number of active contracts. [Open interest and volume are two important concepts to understand

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