Notes from trading seminars + some of my own advice/notes:
The Death Cross: when a shorter moving average (50 day) crosses the longer moving average (200 day) - shows strong bearish trend with little to no support
Strong Bullish trend when candles don't even hit the 5 Day SMA - or when the five day regions and crosses the 10 or 20 day
Remember: all moving averages are inherently lagging indicators, they all use past data
Technical Analysis isn't a crystal ball but it is something that will help you make a more informed decision - it doesn't guarantee success but it increases your odds
Technical Analysis
Descending Triangle - previous breakout as support and now descending trendline for peak
Implied Volatility
HV: is true, used past price movement around a mean to tell you a expected percentage
Implied Volatility is presented to you in a analized number - if a stock has a IV of 100% then there is a one SD chance that it is within +- 100%
Rule of 16 - divide top part by root of trading days which will be about 16
Mathematical computation of demand
ATR: compares the high/low of the day with previous days, it will account for gaps, factors in range and gasping while HV only factories in the close of the trading day
Tick and Trin
Tick: Total view of all of the securities that trade on the NYSE (around 3000 stocks) - the net difference between advancing and declining values of all the stocks
Kind of like a market reading tool
When you see the bodies of the candles are above the zero tick line, you can kind of confirm that this is a strong day in terms of price action - market internals - you can make sure that market internals condoms price action
Trin (trains or arms index): one step further than the tick index - it is not only looking at advancing vs declining, it is corresponding volume of trading (a ratio of adv vs. decl of ratios of adv vol vs. deck vol)
If we have a declining value, it is a bullish trend, a net advancing
A increasing trin is a bearish signal
Trin is a oscillator between 0 and 2
A train above one means that declining volume is outpacing advancing
A train at under one means that there advancing volume is outpacing declining volume
The major limitation of tick is that you could have 100’s of declining penny stocks and a couple inclining major stocks and the tick would be negative, but it won't be indicative of the market, however with trin it takes into account volume and not just the pure number of advancers and decliners
You can add a moving average of the turn to smooth out the trin index to see if we are above the one or below the oen to show market internals
Tick and Trin is very old - not really focused on today because the market has changed since 1960 -volume is much higher
Poor Man’s Covered Call
Long call with 3-12 months until expiry (delta of 70) remember more delta = more expensive but lower break even
Paired with a short otu of the money call with about a month until expiry delta of (30) - less delta = less chance of it being in the money (taken away) but less money received on front
Stock Replacement Strategy
Using leverage to hold the stock while lightening up exposure
Losing - money due to premium and time decay
Delta will approach all the way to 1 as you go down the strikes
Iv will tell you about the demand for the option and how expensive it is - iv increases when the stock goes down probably due to increased demand for puts - stabilizing is never good for implied vol because we are losing time and iv will drop so your extrinsic value will get killed, while your intrinsic value is staying the same
You don't want to paying for such high extrinsic value - this is where you look at selling puts or buying calls, both do the same thing but you will pay less extrinsic value
Delta represents how many shares that you actually own and have power over - it is not 100
Your delta can change, when it turns down and you in the money call comes out of the money, you will lose delta, or the leverage that you own
Delta is reliant on iv
The greeks are all reliant on each other, they can all change
Buying a put is the same as buying the call at the same price
Buying a long call and selling a put at the same price for a credit - the gamma will about cancel out and therefore, delta should remain the same
Would you buy the option today? - that's how you should make a decision in options
SPXL - BULL: Leveraged 3x the S&P, this ETF bets with the S&P using 3x leverage
SPXS - BEAR: Leveraged 3x the S&P, this ETF bets against the S&P using 3x leverage
Notes From Follow the Smart Money Book by Jon and Pete Narjarian
Whisper numbers: EPS estimates that wall street is looking far not earnings estimate made by other companies
Margin call: brokerages can close any positions that they want top during a margin call, it is up to their discretion o which spotion creates the most risk for them
Rule of 3 for Crashes - 3 days in a row up this past crash
Bonds ranked bbb and below are below investment grade and is considered a junk bond
Notes From Class:
Chapter 7 GDP and others
"democracy system of government where limited authority and power are granted by law to its people who participate by voting on government goals and actions (Textbook, Chapter 7 Page 174)
"capitalism economic system with private ownership of assets, production of goods and services for profit, a price mechanism for allocating resources, and financial markets" (Textbook, Chapter 7 Page 174)
"democratic capitalism country or state organized as a democracy that uses or adopts a capitalistic economic system (Textbook, Chapter 7 Page 175)
"gross domestic product (GDP) measure of the output of goods and services in an economy (Textbook, Chapter 7 Page 175)
"autocratic capitalism country or state organized as an autocratic political system that uses elements of a markets-based economic system" (Textbook, Chapter 7 Page 175)
"capital formation creation of capital goods including residential and commercial buildings, equipment and machinery, and business inventories" (Textbook, Chapter 7 Page 175)
"personal consumption expenditures (PCE) expenditures by individuals for durable goods, nondurable goods, and services (Textbook, Chapter 7 Page 175)
government expenditures (GE) expenditures for goods and services plus gross investments by federal, state, and local governments (Textbook, Chapter 7 Page 175)
gross private domestic investment (GPDI) measures fixed investment in residential and nonresidential structures, producers’ durable equipment, and changes in business inventories (Textbook, Chapter 7 Page 175)
net exports (NE) exports of goods and services minus imports" (Textbook, Chapter 7 Page 175)
"mandatory spending government spending on entitlement programs that must be funded according to existing law (Textbook, Chapter 7 Page 178)
discretionary spending government spending provided by passage of appropriations bills that set aside funds for specific federal agencies and programs (Textbook, Chapter 7 Page 178)
federal statutory debt limits limits by Congress setting the maximum amount of national debt that can be outstanding" (Textbook, Chapter 7 Page 180)
"economic unit savings occur when an economic unit’s income exceeds its expenses, taxes, and real asset investments (Textbook, Chapter 7 Page 181)
savings surplus unit an economic unit that generates savings (Textbook, Chapter 7 Page 181)
undistributed profits proportion of after-tax profits retained by corporations (Textbook, Chapter 7 Page 181)
savings deficit unit an economic unit with income less than its expenses, taxes, and real asset investments (Textbook, Chapter 7 Page 181)
"personal saving savings of individuals equal to personal income less personal current taxes less personal outlays (Textbook, Chapter 7 Page 181)
voluntary savings savings held or set aside by choice for future use (Textbook, Chapter 7 Page 181)
contractual savings savings accumulated on a regular schedule by prior agreement" (Textbook, Chapter 7 Page 181)
"personal saving rate personal savings divided by disposable personal income" (Textbook, Chapter 7 Page 182)
"corporate retention rate calculated as undistributed profits divided by profits after taxes" (Textbook, Chapter 7 Page 183)
"capital consumption adjustment estimate of the “using up,” or depreciation, of plant and equipment assets for business purposes" (Textbook, Chapter 7 Page 183)
"dissaving involves spending of accumulated savings when consumption spending exceeds after-tax income (Textbook, Chapter 7 Page 185)
"capital markets securities debt securities with maturities longer than one year and corporate stocks (Textbook, Chapter 7 Page 188)
mortgage loan backed by real property in the form of buildings and houses" (Textbook, Chapter 7 Page 188)
"treasury note/bond debt instrument issued by the U.S. federal government (Textbook, Chapter 7 Page 189)
municipal bond debt instrument issued by a state or local government (Textbook, Chapter 7 Page 189)
corporate bond debt instrument issued by a corporation to raise longer-term funds (Textbook, Chapter 7 Page 189)
common stock ownership interest in a corporation (Textbook, Chapter 7 Page 189)
derivative security financial contract that derives its value from a bond, stock, or other asset" (Textbook, Chapter 7 Page 189)
"mortgage markets where mortgage loans to purchase buildings and houses are originated and traded" (Textbook, Chapter 7 Page 189)
"fixed-rate mortgage fixed interest rate with a constant periodic payment over the real estate loan’s life (Textbook, Chapter 7 Page 189)
"adjustable-rate mortgage (ARM) interest rate and periodic payments that vary with market interest rates over the real estate loan’s life" (Textbook, Chapter 7 Page 189)
"securitization process of pooling or packaging mortgage loans into debt securities (Textbook, Chapter 7 Page 190)
mortgage-backed security debt security created by pooling together a group of mortgage loans(Textbook, Chapter 7 Page 190)
credit rating indicates the expected likelihood that a borrower will pay a debt according to the terms agreed to (Textbook, Chapter 7 Page 190)
credit score a number that indicates the creditworthiness or likelihood that a borrower will make loan payments when due" (Textbook, Chapter 7 Page 190)
"prime mortgage home loan made to a borrower with a relatively high credit score indicating the likelihood that loan payments will be made as agreed to (Textbook, Chapter 7 Page 190)
subprime mortgage home loan made to a borrower with a relatively low credit score indicating the likelihood that loan payments might be missed when due" (Textbook, Chapter 7 Page 190)
Key Terms Page 194
Chapter 10: Bonds
"financial assets claims against the income or assets of individuals, businesses, and governments" (Textbook, Chapter 10 Page 263)
"bond agreement or contract between investor (lender) and a debtor (borrower), typically a business firm or government body" (Textbook, Chapter 10 Page 265)
"par value (debt); face value principal amount that the issuer is obligated to repay at maturity (Textbook, Chapter 10 Page 265)
coupon payments interest payments on a bond" (Textbook, Chapter 10 Page 265)
"registered bonds bonds issued in the United States; the issuer knows the names of the bondholders and the interest payments are sent directly to the bondholder (Textbook, Chapter 10 Page 265)
bearer bonds have coupons that are “clipped” and presented, like a check, to the bank for payment; the bond issuer does not know who is receiving the interest payments" (Textbook, Chapter 10 Page 265)
"trust indenture an extensive document that details the various provisions and covenants of the loan arrangement (Textbook, Chapter 10 Page 266)
trustee represents the bondholders to ensure the bond issuer respects the indenture’s provisions
covenants impose restrictions or extra duties on the firm (Textbook, Chapter 10 Page 266)
"bond ratings assess both the collateral underlying the bonds as well as the ability of the issuer to make timely payments of interest and principal" (Textbook, Chapter 10 Page 267)
"junk bonds (high-yield bonds) bonds with ratings that are below investment grade; that is, rated Ba1, BB+, or lower" (Textbook, Chapter 10 Page 269)
"Eurodollar bonds dollar-denominated bonds sold outside the United States (Textbook, Chapter 10 Page 269)
Yankee bonds dollar-denominated bonds issued in the United States by a foreign issuer (Textbook, Chapter 10 Page 269)
global bonds bonds that are generally denominated in U.S. dollars and marketed globally" (Textbook, Chapter 10 Page 269)
"mortgage bonds backed, or secured, by specifically pledged property of a firm (real estate, buildings, and other assets classified as real property) (Textbook, Chapter 10 Page 272)
“rolling stock” (movable assets), such as railroad cars or airplanes (Textbook, Chapter 10 Page 272)
closed-end mortgage bond does not permit future bond issues to be secured by any of the assets pledged as security under the closed-end issue (Textbook, Chapter 10 Page 272)
open-end mortgage bond allows the same assets to be used as security in future issues (Textbook, Chapter 10 Page 272)
debenture bonds unsecured obligations that depend on the general credit strength of the corporation for their security (Textbook, Chapter 10 Page 272)
subordinated debenture claims of these bonds are subordinate, or junior, to the claims of the debenture holders" (Textbook, Chapter 10 Page 272)
"
convertible bond can be changed or converted, at the investor’s option, into a specific number of shares of the issuer’s common stock (Textbook, Chapter 10 Page 273)
conversion ratio number of shares into which a convertible bond can be converted
conversion value stock price times the conversion ratio (Textbook, Chapter 10 Page 273)
callable bond can be redeemed prior to maturity by the issuing firm (Textbook, Chapter 10 Page 273)
call price price paid to the investor for redemption prior to maturity, typically par value plus a call premium of one year’s interest (Textbook, Chapter 10 Page 273)
call risk risk of having a bond called away and having to reinvest the proceeds at a lower interest rate (Textbook, Chapter 10 Page 273)
call deferment period specified period of time after the bond issue during which the bonds cannot be called (Textbook, Chapter 10 Page 273)
putable bonds (retractable bonds) allow the investor to force the issuer to redeem the bonds prior to maturity (Textbook, Chapter 10 Page 273)
extendable notes have their coupons reset every two or three years to reflect the current interest rate environment and any changes in the firm’s credit quality; the investor can accept the new coupon rate or put the bonds back to the firm (Textbook, Chapter 10 Page 273)
sinking fund requirement that the issuer retire specified portions of the bond issue over time" (Textbook, Chapter 10 Page 273)
"zero-coupon bond has no coupon payments; it's only cash return to the investor is payment of the bond’s principal, or par value, at maturity" (Textbook, Chapter 10 Page 274)
"Treasury Inflation Protected Securities U.S. Treasury debt with par value (and annual coupons) that rise with the official inflation rate each year" (Textbook, Chapter 10 Page 274)
"corporate equity capital financial capital supplied by the owners of a corporation (Textbook, Chapter 10 Page 275)
stock certificate certificate showing an ownership claim of a specific company (Textbook, Chapter 10 Page 275)
"street name allows stock to be held in the name of the brokerage house" (Textbook, Chapter 10 Page 276)
"common stock represents ownership shares in a corporation" (Textbook, Chapter 10 Page 276)
"par value (equity) stated value in the certificate of incorporation; for common stock, generally bears little relationship to the current price or book value of the share" (Textbook, Chapter 10 Page 277)
"preferred stock equity security that has preference, or a senior claim, to the firm’s earnings and assets over common stock (Textbook, Chapter 10 Page 277)
"cumulative preferred stock requires that before dividends on common stock are paid, preferred dividends must be paid for the current period and for all previous periods in which preferred dividends were missed (Textbook, Chapter 10 Page 278)
Callable preferred stock gives the corporation the right to retire the preferred stock at its option. (Textbook, Chapter 10 Page 278)
callable preferred stock gives the corporation the right to retire the preferred stock at its option (Textbook, Chapter 10 Page 278)
convertible preferred stock has a special provision that makes it possible to convert it to common stock of the corporation, generally at the stockholder’s option (Textbook, Chapter 10 Page 278)
participating preferred stock allows preferred shareholders to receive a larger dividend under certain conditions when common shareholder dividends increase" (Textbook, Chapter 10 Page 278)
"dividend reinvestment plans (DRIPs) allow shareholders to purchase additional shares automatically with all or part of the investor’s dividends (Textbook, Chapter 10 Page 280)
"dividend payout ratio dividends per share divided by earnings per share (EPS)" (Textbook, Chapter 10 Page 280) - Basically how much are they giving out in dividends as it compares to earnings, a dividend payout ratio of 100% means that the company is giving away all of its earnings in the form of dividends
"target dividend payout policy a policy of adjusting the dividend payout ratio toward the target dividend payout ratio if the higher earnings appear to be sustainable (Textbook, Chapter 10 Page 281)
special dividend an extra dividend declared by the firm over and above its regular dividend payout (Textbook, Chapter 10 Page 281)
residual dividend policy a policy that states that dividends will vary based upon how much excess funds the firm has from year to year (Textbook, Chapter 10 Page 281)
constant payout ratio a strategy in which the firm pays a constant percentage of earnings as dividends; as earnings rise and fall, so does the dollar amount of dividends" (Textbook, Chapter 10 Page 281)
"stock dividend a dividend in which investors receive shares of stock rather than cash" (Textbook, Chapter 10 Page 282)
"stock split a process in which the firms distributes additional shares for every share owned (Textbook, Chapter 10 Page 282)
"intrinsic value the maximum price we should be willing to pay for an asset; the best estimate of the true economic value of an asset based upon a forecast of future cash flows and an estimate of the appropriate discount rate" (Textbook, Chapter 10 Page 286)
"discount bond bond that is selling below par value" (Textbook, Chapter 10 Page 288)
"premium bond bond that is selling in excess of its par value" (Textbook, Chapter 10 Page 288)
"yield to maturity (YTM) return on a bond if it is held to maturity (Textbook, Chapter 10 Page 288)
"credit risk (default risk) the chance of nonpayment or delayed payment of interest or principal" (Textbook, Chapter 10 Page 290)
"interest rate risk fluctuating interest rates lead to varying asset prices; in the context of bonds, rising (falling) interest rates result in falling (rising) bond prices (Textbook, Chapter 10 Page 292)
horizon risk premium or horizon spread difference in return earned by investing in a longer-term bond that has the same credit risk as a shorter-term bond" (Textbook, Chapter 10 Page 292)
"political risk actions by a sovereign nation to interrupt or change the value of cash flows accruing to foreign investments (Textbook, Chapter 10 Page 293)
exchange rate risk fluctuating exchange rates lead to varying levels of U.S. dollar-denominated cash flows" (Textbook, Chapter 10 Page 293)
"perpetuity A security that pays a constant periodic cash flow as long as the issuer exists. It can be considered to be an “infinite annuity.” (Textbook, Chapter 10 Page 294)
Chapter 11 Securities and Margin
"primary markets original issue market in which securities are initially sold ((Textbook, Chapter 11 Page 309)
secondary markets market in which existing securities are traded among investors (Textbook, Chapter 11 Page 309)
flotation initial sale of newly issued debt or equity securities (Textbook, Chapter 11 Page 309)
initial public offering (IPO) initial sale of equity to the public (Textbook, Chapter 11 Page 309)
investment bankers (underwriters) main activity is marketing securities and dealing with the securities markets" (Textbook, Chapter 11 Page 309)
"public offering sale of securities to the investing public (Textbook, Chapter 11 Page 309)
private placement sale of securities to a small group of private investors (Textbook, Chapter 11 Page 309)
due diligence detailed study of a corporation (Textbook, Chapter 11 Page 309)
prospectus highly regulated document that details the issuer’s operations and finances and must be provided to each buyer of a newly issued security" (Textbook, Chapter 11 Page 309)
"underwriting agreement contract in which the investment banker agrees to buy securities at a predetermined price and then resell them to investors (Textbook, Chapter 11 Page 310)
offer price price at which the security is sold to the investors (Textbook, Chapter 11 Page 310)
spread difference between the offer price and the price paid by the investment bank (Textbook, Chapter 11 Page 310)
"best-effort agreement agreement which the investment bankers try to sell securities of the issuing corporation; but they assume no risk for the possible failure of the flotation" (Textbook, Chapter 11 Page 311)
"tombstones announcements of securities offerings placed in newspapers and other publications" (Textbook, Chapter 11 Page 311)
"syndicate group of several investment banking firms that participate in the underwriting and distributing of a security issue (Textbook, Chapter 11 Page 311)
aftermarket the period after a new issue is initially sold to the public; during this period, members of the syndicate may not sell the securities for less than the offering price (Textbook, Chapter 11 Page 311)
market stabilization intervention of the syndicate to buy back securities to prevent a larger price drop (Textbook, Chapter 11 Page 311)
"shelf registration allows firms to register security issues (both debt and equity) with the SEC and have them available to sell for two years" (Textbook, Chapter 11 Page 316)
"underpricing represents the difference between the aftermarket stock price and the offering
Price" (Textbook, Chapter 11 Page 318)
"flotation costs composed of direct costs, the spread, and underpricing" (Textbook, Chapter 11 Page 320)
"broker one who assists the trading process by buying or selling securities in the market for an investor (Textbook, Chapter 11 Page 322)
"dealer satisfies the investor’s trades by buying and selling securities from his or her own inventory (Textbook, Chapter 11 Page 322)
"blue-sky laws protect the investor from fraudulent security offerings (Textbook, Chapter 11 Page 322)
"floor brokers independent brokers who handle the commission brokers’ overflow (Textbook, Chapter 11 Page 322)
house brokers (commission brokers) act as agents to execute customers’ orders for securities purchases and sales (Textbook, Chapter 11 Page 322)
independent brokers handle the commission brokers’ overflow (Textbook, Chapter 11 Page 322)
registered traders individuals who purchase a seat on the exchange to buy and sell stocks for their own account (Textbook, Chapter 11 Page 322)
"designated market makers (DMM) assigned dealers who have the responsibility of making a market in an assigned security (Textbook, Chapter 11 Page 325)
Supplemental Liquidity Providers (SLPs) help add liquidity to the NYSE trading floor, meaning they supplement the work of DMMs by buying and selling shares throughout the day (Textbook, Chapter 11 Page 325)
"bid price offered by a potential buyer (Textbook, Chapter 11 Page 326)
ask price requested by the seller (Textbook, Chapter 11 Page 326)
spread difference between the bid and ask prices (Textbook, Chapter 11 Page 326)
"buying on margin investors borrow money and invest it along with their own funds in securities (Textbook, Chapter 11 Page 328)
margin minimum percentage of the purchase price that investors must pay in cash; it is the ratio of the investor’s equity (own money) to the market value of the security" (Textbook, Chapter 11 Page 328)
"margin call the option of either closing out the position or investing additional cash to increase the position’s equity or margin (Textbook, Chapter 11 Page 328)
initial margin initial equity percentage (Textbook, Chapter 11 Page 328)
maintenance margin minimum margin to which an investment may fall before a margin call will be placed (Textbook, Chapter 11 Page 328)
"round lot sale or purchase of 100 shares (Textbook, Chapter 11 Page 329)
odd lot sale or purchase of fewer than 100 shares" (Textbook, Chapter 11 Page 329)
"program trading technique for trading stocks as a group rather than individually; a minimum of 15 different stocks with a minimum value of $1 million are traded" (Textbook, Chapter 11 Page 329)
"third market market for large blocks of listed stocks that operates outside the confines of the organized exchanges (Textbook, Chapter 11 Page 330)
fourth market a market in which large institutional investors arrange the purchase and sale of securities among themselves without the benefit of broker or dealer (Textbook, Chapter 11 Page 330)
"high frequency trading uses powerful computers and computer algorithms to analyze price patterns, both within and across different markets, and to submit trades to exchanges in microseconds (Textbook, Chapter 11 Page 331)
"American depository receipt (ADR) receipt that represents foreign shares to U.S. investors (Textbook, Chapter 11 Page 335)
global depository receipt (GDR) listed on the London Stock Exchange; facilitates trading in foreign shares" (Textbook, Chapter 11 Page 335)