Focus Review 1 - Flashcards
Trading - Secondary Market
ECN - 4th Market
Institutional investors:
- Mutual funds
- Pension Funds
- others trading big blocks between themselves
-no human labor involved
Issuing Primary Market - Reg A
of the Securities Act of 1933
- small issue or small dollar exemption
- new issue of $5mil or less in 12 month period
- if offering is done by an affiliated person, max that can be raised is $1.5mil in 12 month period
- File an issuing statement called A1
- distribute an offering circular - 48 hours prior to purchase or at purchase with a 5 day right of recission
Trading - Secondary Market
Exchange Floor Functions
- Specialists can stop the stock for public orders
- trader guarantees an order fill at a specified price for a period of time
Trading - Secondary Market
Stop - Limit
sell 55.50 stop 56, triggers at 55.5, sells at 56 or higher
buy 66 stop 65, triggers at 66, buys at 65 or lower
Trading - Secondary Market
NASDAQ
1
Debt Instruments
Money Market Debt
1
Debt Instruments
Interest Rate Risk
1
Debt Instruments
Liquidity Risk
risk that an asset cannot be sold quickly
risk that selling quickly will result in a substantial loss
Debit Instruments
Selling Concession of 1 1/2 points
1
Option Contracts
Leap Contracts
last up to 39 months
Option Contracts
Customer Accounts
to open:
- New account form completed
- Customer Loan agreement and margin agreement must be fully executed unless customer is only buying options
- options disclosure document must be provided to the registered option principal approving the account
- The customer must return the signed options account agreement to the brokerage firm within 15 days of the new account approval. However, if the customer is late signing the option agreement and sending it back, only closing transactions may occur
Option Contracts
Debt/Yield Options
options on gov debt securities trade:
-bond options and yield options
- bond options: buy puts (sell calls) when you think interest is going up
- yield options: buy calls (sell puts) when you think interest is going up
Option Contracts
Exercise
Expire Saturday following the third Friday of the month at 11:59ET
Option Contracts
Covered Writes
- partial hedge
- writes options share for share against a stock position
- establish a position on the opposite side of the market
Option Contracts
Spreads
- vertical - price
- horizontal - time
- long and short positions of the same type, buy call and sell call\
- debit call spread - money is being paid to create spread - bullish
- buys a call with a lower strike price and sells a call with a higher price
- money increases as the stock rises and goes through the short call
-debit put spread - buy a put with a higher strike price and sell a put with a lower strike price - Bearish
Option Contracts
Straddles
- a call and a put on the same underlying security with the same strike price and the same expiration date
- buyer of straddle anticipates major market movemement, not sure which way
- makes money if the movement is big enough in either direction
-Long straddle - max gain unlimited
Customer Accounts
Maintenance Rules
- Long maintenance is 25% of LMV
- market value at maintenance = debit balance/.75
- Short maintenance is 30% of LMV
- stock trading at low price:
- $5-$17.50 rule is $5 per share
- $2.5 - $5, rule is 100%
- under $2.50, $2.50 a share
Customer Accounts
Equity Excess to a Current Reg T
- SMA on the long side
- E - 1/2 LMV
- 50% of the market appreciation
- SMA on the short side
- E - 1/2 SMV
- 150% of the market depreciation
Investment Companies
Exchange Privileges within Families of Funds
- exchanged without additional sales charge at NAV
- if there is a gain, it will be taxable
Investment Companies
Equity Linked Securities (ELKS)
- Hybrid debt instrument linked to the equity markets
- performance linked to a stock, group of stocks, or index
- guarantees principal and offers small returns
- structured as annuities, mutual funds, or CDs
Investment Companies
Holding Company Depository Receipts (HOLDRs)
- Traded on NYSE AMEX
- allows investors to trade one security comprised of a bucke of stocks in a specific market sector or industry
Investment Companies
Mortgage
1
Investment Companies
Hedge Funds
1
Direct Participation Programs
General Characteristics
1
