Equity Securities Flashcards
Outstanding Shares
these shares are in the hands of the public
Bearish (options)
Buy (long) put
Sell (short/ write) call
uncovered call writing (naked)
short stock, short call
this position has unlimited potential loss, and limited gain (premium received is max gain)
Issued shares
authorized shares have been sold to investors
record date
set by BOD, the owner of stock on record on this date is entitled to the dividend.
income strategies
used to earn income in a flat or sideways market. has a short options contract
ex: long stock, short call
short stock, short call
short stock, short put
dividends
these are paid to shareholders once declared by the BOD. They can be payable in cash or stock
declaration date
date the dividend is declared by BOD
common shareholder rights
- right to vote
- right to receive dividends
- right of free transfer (can sell, give, transfer)
- right to inspect the corporation’s books and records
convertible preferred stock
allows the investor to exchange preferred shares for common shares. This gives the investor potential upside if the stock does well
call option
gives the holder/buyer the right to buy shares of a stock at the strike price, from the writer/seller of the contract
authorized shares
the max number of shares the issuer is permitted to sell.
covered call writing
long stock, short call
income strategy is used by portfolio managers in a flat market. short call position generates income
In-the- money (calls)
when the market price of the stock is above the strike price
in-the- money (puts)
when the market price of the stock is below the strike price
ex-dividend date
the date the price of the stock is reduced by the declared dividend. (one business date before the record date, set by FINRA)
Treasury shares
Shares that have been issued and repurchased by the company. (has no voting rights and does not receive dividends)
Proxy
absent shareholders vote on corporate issues by mail
put option
gives holder/buyer the right to sell shares of stock at the strike price to the writer/ seller of the contract
strike price
the price the option will be exercised at. (set when the option is written)
Bullish (options)
Buy (long) call
sell (short/write) put
round lot
100 shares of stock
odd lot
share amounts in less than 100
reverse stock split
shareholder receives fewer shares at an increased price
common stock
ownership in a corporation, junior security, last to be paid in bankruptcy
at the money
when the strike price is the same as the current market price
types of preferred stocks
callable, convertible, participating, cumulative and straight
Break even point (call)
Strike price + premium
Break even point (put)
strike price - premium
Book value
amount stock would be worth if assets were sold, liabilities were paid and other obligations were settled
market value
price investors will pay in the secondary market
voting rights
common share holders only have voting rights
what can common shareholders vote on?
board of directors, mergers and acquisitions, changes in the number of authorized shares, stock splits
what can common share holders not vote on?
dividends
preferred stock
pays a fixed dividend that is paid before common stock and has no voting right
stock split
shareholders receive additional shares, reducing the price
payable date
the date the dividend is paid
who sets the payable date
the Board of Directors
What is suitable for investors with an income objective
preferred stock
difference between common stock and preffered
preferred has no voting rights and is first to receive dividends
Straight stock
has a fixed dividend
cumulative stock
pays dividends in arrears
participating stock
can be paid by a dividend beyond the fixed dividend
callable stock
can be retired “called” early by the issuer
convertible stock
convert preferred stock into common stock
most junior security
common stock
last to be paid in bankruptcy
common stock
represents ownership in a comany
stock
Set at the time the option is written
strike price
largest number of shares
authorized stock
who sets the declaration date
the Board of Directors
who sets the record date
the Board of Directors
Calculate Outstanding shares
issued shares - treasury shares
