Investing in Equities, Futures, and Options
Explore the fundamentals of investing in equities, futures, and options. Discover how futures contracts allow early payment for future activities and the significance of equities, which represent ownership in corporations. Learn about the Efficient Market Hypothesis and the importance of portfolio diversification. Understand the roles of stock brokers and organized stock exchanges, including the prestigious NYSE and regional exchanges. Familiarize yourself with performance metrics like the Dow-Jones Industrial Average and the S&P 500, and get insights into trading strategies involving options.
Investing in Equities, Futures, and Options
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Presentation Transcript
Have you ever asked to receive your allowance early or asked to be paid early?
This is referred to as futures market- a contract is issued and payment is rendered for some future activity.
Equities • Stocks that represent ownership shares in corporations
Efficient Market Hypothesis • Used to explain the pricing of equities • Stocks are always priced about right, and bargains are hard to find
Portfolio Diversification • Holding a number of stock, so that increases in some could offset unexpected declines in others
Stock Broker • A person who buys or sells stock • From other brokers • At a stock exchange • Supplies inventory
Organized Stock Exchanges • The New York Stock Exchange • Oldest • Largest • Most prestigious • Located on Wall Street • Lists about 3,000 companies • Has about 1,400 seats, or memberships • Members pay over 1,00,000 for each seat
The American Stock Exchange • AMEX • Has about 1,000 stocks • 2nd largest, behind NYSE • 4th largest stock exchange in the country • Companies tend to be smaller than NYSE companies
Regional Stock Exchanges • Chicago, Philadelphia, Pacific, etc. • Also in cities • Smaller stocks, but today many stocks are dual and can be found on both NYSE and the RSE
Global Stock Exchanges • Developments in computer and electronic trading have linked this markets
Over-the-Counter Market • Electronic marketplace for securities not listed or traded on an organized stock exchange • Majority of stocks sold this way • National Market System (NMS)
Measures of Stock Performance • Dow-Jones Industrial Average • Most popular and widely used • DIJA focuses on percentage change • Standard and Poor’s 500 • Uses the price change of 500 representative stocks as an indicator • Uses index number (sum of 500 companies too high!)
Trading in the Future • Spot Market: transaction made immediately at prevailing price • Future Markets: Buyer pays money today, and sellers delivers the commodity in the future • Grain and livestock in the Midwest • Ex. Chicago Board of Trade
Trading in the Future, con. • Options- contracts that give investors the option to sell commodities in the future at a price decided on today • Call option- the right to BUY a share of stock at a specified price in the future • Put option- right to sell stock at a specified price in the future
