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71 Cards in this Set
- Front
- Back
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Zero Coupon Bonds
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Have the most interest rate risk
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Hypothecation agreement
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ONLY for margin accounts
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Capping
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Manipulative activity used to keep a price from rising (short the stock)
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Pegging
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Manipulative activity used to keep a price from falling (stabalization)
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Options
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Margin requirement is 100%
Can use SMA to pay for them |
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Death of partner in partnership
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Terminates partnership
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Outside activities
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Must notift and get approval from your firm
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Limited Partnership
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-Max underwriting comp for the general partner is 10%
-Minimum participation in profit and losses= 1% -Passive losses can only be used to offset passive income (can't use against ordinary income) |
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Rule 147- Intrastate Exemption
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-80% of revenue has to generated in state
-80% of the proceeds have to be used in state -100% of investors are in state residents -No re-sale to non-residents for nine months |
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Regulation A-small issue exemption
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5 Million over 12 months
-Offering circular- disclosure document |
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Regulation D- private placement- exempt transaction
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-accredited investor- 1M net worth and 200k in income for last 2 years (if married, 1M and 300K)
-No more than 35 nonaccredited investors -No limit to accredited investors -Offering Memorandum goes to both accredited and non accredited members (prospectus/info document) |
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Rule 144- How you sell restricted stock
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-Notify the SEC at the time of order to sell stock
-Then has 90 days to sell the stock -Restricted stock=unregistered stock (holding period=6 months) -Control stock (affiliated stock)- registered stock owned by officers, directors or greater than 10% owners (no holding period) -Both controlled and restricted stock --> you can sell the GREATER of 1% of outstanding shares or the average weekly trading volume for the last 4 weeks -Exception: if selling <5000 shares and < than 50k you don't have to notify the SEC - dribble rule 144A- -For institutions to sell to each other -No limit on the number of shares or frequency |
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Rule 415-Shelf Registration
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-More with bonds
-Selling on a delayed or continuous basis for up to 3 years |
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Green Shoe Clause
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Expansion of the issue by 15%
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Restricted Person
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-More than 10% interest in the company
-Member firms and any member firms employee (registered or not) -Immediate family membres of member firm employees (mom/dad/bro/sis or provide 25% support and live in the same house) |
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Broker vs Dealer
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Broker = Agent
Dealer = Principal |
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Regulation T
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-From the Securities Exchange Act of 1934
-Gave the Fed the power to regulate the extension of credit where securities are the collateral and rules on when you must pay for securities -5 business days to (pay for the trade) meet your margin requirement (T+3)+2 days = 5 days -Applies to both cash and margin accounts -Govt and municipal are exempt from Reg T, payment is generally due at settlement -Corporate securities in a cash or margin account = T+3 days settlement, payment is 5 days -Municipal securities- T+3 settlement Govt securities- T+1 settlement, exempt from Reg T (payment is T+1 or settlement) -Options= T+1 settlement, T+5 or S+2 (5 days) -Cash transactions- everything on the same day |
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5% Markup Rule
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-Guildeline is not a rule
-Doesn't apply to any security sold under a prospectus (mutual fund, etc) -For non-listed securities trading in the OTC market |
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Bond Yields
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-Nominal --> Stated on the bond
-Current yield "snap shot" --> annual interes / current market price -Yield to maturity or basis --> most important yield (total overall return, measures to the bonds maturity) Term bonds are priced on a dollar basis Serial bonds are priced on a yield basis |
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Callable bonds
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ALWAYS quote --> yield to worse
Bonds selling at a discount- YTM Bonds selling at a premium- YTC Pre-Refunded bonds always use YTC Big --> NAV Ask (offer)--> always sell at the Bid and Buy at the Ask/Offer |
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Dividend Exclusion Rule
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-Corporation recieves dividends from another corporation
-If they own >20%, exclude 80% -If they own <20%, exclude 70% |
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Initial Margin Requirement
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Long:
-Less than 2000 --> 100% of purchase -Between 2-4000 -->2000 -Over 4000 --> regT 50% Short: -Below 4000 --> 2000 -Above 4000 --> regT 50% |
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Margin requirement on Options
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Buy an option --> deposit 100% of the premium
Sell a covered option --> no required deposit on the option |
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Combined equity in a margin account
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LMV+Credit Balance-Debit Balance-SMV
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Working Capital
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Current assets - current liabilities
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Current Ratio
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Current Assets/Current Liabilities
(greater than 1yr) |
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Quick Acid Test
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Current Assets - INVENTORIES/Current Liabilities (for 1-3 months)
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EPS
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Net Income-Preferred Dividends/common shares outstanding
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P/E Ratio
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Market Price/EPS
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Balance Sheet
Current ASsets |
Issue Stock- Increase
Issue Bond- Increases Buy equipment for cash- Decreases Pay a cash divident- decrease |
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Balance Sheet
Current Liabilities |
Declare a cash divident- increases
Pay a cash dividend- |
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Balance Sheet
Fixed Assets |
Buy equipment for cash- increases
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Balance Sheet
Long Term Liabilities |
Issue Bond- Increases
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Shareholders Equity
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Preffered/Common
Retained Earnings Paid in Capital- stock sold at IPO higher than par value 1.) Issue Stock- increase 2.) Declare a cash divident- decreases |
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Working Capital
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Current assets - current liabilities
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Total Assets
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Total Liabilities + Shareholders equity
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Changes in balance sheet
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1.) Issue stock (working capital increases)
2.) Issue bonds (workin capital increases 3.) Buy equipment for cash (workin capital decreases 4.) Declare a cash dividend (workin capital decreases 5.) pay a cash divident (workin capital no change |
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Leading indicators
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S+P 500
Housing starts GDP Initial Jobless claims Fed Funds Rate |
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Lagging indicators
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Unemployment
Prime Rate Corporate Profits |
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Coincident Indicators
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Auto Sales
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The FED
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-Only controls discount rate
-Repo --> Sell securities and agree to buy them back later (take money out of the system) -Reverse Repo --> Buy securities and agree to sell them back later (puts money into the system) |
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Stagflation
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Inflation and high unemployment (slow growth and inflation)
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Notice of Sale
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The advertisement used by a municipal issuer announcing its intention to sell a new issue and inviting municipal underwriters to enter bids for the issue
-Contain a provision that the issuer has the right to reject any and all bids -Protect the issuer from being obligated to accept an unsuitable bid |
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Official Statement
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A disclosure document prepared for a new municipal issue by or for the issure. It contains a complete description of the issue and financial details about the issuer. MSRB rules require a copy of the official statement be given to each purchaser of a new issue if one has been prepared.
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Indenture
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A written agreement under which bonds are issued, setting forth the maturity date, interest rate, and other terms. IT is the contact executed by the issuer and trustee (who acts for the bondholders). Also known as a Deed of Trust or Bond Resolution
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Syndicate
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A group of investment banks that together underwrite and distribute a new issue of securities or a large block of an outstanding issue
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Margin
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Industry rules require a margin deposit of 7% of the market value of the bond
-Corporate municipal securities use a constant 30 day month and 260 day year method for accrued interest -When pricing a bond, only a call feature that allows the entire issue to called with be used (in-whole call) |
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Buying Calls
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Right to Buy
Bull Market going UP Long Buyer |
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Selling Calls
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Obligation to Sell
Bear market going DOWN Short Writer |
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Buying Puts
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Right to sell
Bear market going DOWN Long Buyer |
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Selling Puts
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Obligation to buy
Bull Market going UP Short Writer |
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Buying Calls
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Max Gain - Unlimited
Max Loss- Premium Paid Breakeven- Strike + Premium |
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Buying Puts
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Max Gain- Strike - Premium
Max Loss- Premium Breakeven- Strike - Premium |
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Selling Calls
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Max Gain- Premium Received
Max Loss- Unlimited Breakeven- Strike + Premium Recieved |
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Selling Puts
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Max Gain- Premium
Max Loss- Strike- Premium Breakeven- Strike -Premium |
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Options gain and loss
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Buyers max gain is sellers max loss
-Sellers max gain is the buyers max loss -Buyers and sellers have the same breakeven (strike plus premium for a call, strike minus premium for a put) -Call buyers and put sellers are bullish -Call writers and put buyers are bearish |
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Straddle ( call and put)
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An option position in which the investor purchases or sells a call option and put option on the same underlying stock. The expiration month and the excercise price of each contract must be the same
- Buyer- expects the market to fluctuate -Seller- expects the market to be stable |
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Spread
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Allow you to limit a loss but also limits gain potential
Purchase and sales of puts or calls on the same underlying security with different expirations and/or strike prices |
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Net Credit Spread (Seller
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An option spread position in which the premium of the option sold is greater than the premium of the option purchased
-Wants spread to narrow -Got more $$ than you paid -Max Gain- Premium Recieved -Max Loss- Difference in strike prices - difference in premiums recieved -Breakeven- Call Spread --> difference i npremium added to the lower strike -Credit call spread-bearish -Put spread- higher strike - difference in premiums -credit put spread - bullish |
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Net Debit Spread (Buyer)
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An option spread position in which the premium purchased is greater than the premium of the options sold
-Wants spread to widen -Paid more $$ than you got -Max Gain- Different in strike prices - Difference is premiums recieved -Max Loss- Net debit (premium paid) -Breakeven- Call spread --> difference in premium added to the lower strike -Debit call spread = bull spread -Put spread --> higher strike - difference in premium -debit put spread- bear spread |
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Vertical, Horizontal, Diagonal spread
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Veritcal or Price Spread- Same expiration month/ different strike price
Horiztontal or Time/Calendar Spread --> same strike prices/different expiration month Diagoanal Spread--> Diff. strike price and expiration month |
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Long Stock and Short Call
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Partial Hedge (covered call writing)
-Max Gain- Premium + Profit on the stock (strike+premium-cost basis) -Max Loss- Everything but the premium -Breakeven- Stock price - Premium Recieved |
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Long Stock and Long Put (Protective Put)
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Max Gain- Unlimited Upside Potential
Max Loss- Strike price - (basis + premium) Breakeven- Basis + premium paid |
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Short Stock and Long Call (Protective Call)
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Max Gain- If Stock goes to zero (keep short sales money and let the call expire worthless)
Max Loss- Cost to excercise the call (right to buy at 35=3500)-short sale proceed (3000) = 500 Breakeven- Short sales - premium paid |
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Short Stock and Short Put (Covered Put writing)
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partial hedge short position against rising prices
-max gain- (short sale+premium recieved) -(strike price of the put) EX- sold short at 35 and sold a xyz may put 30 for 3-->max gain=38-30=8 -Max loss- unlimited Breakeven- short sale + premium recieved |
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In-The-Money
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an option with intrinsic value. For example, a call option in which the underlying security is sellin above the strike price, or a put option in which the underlying security is sellin below the strike price
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Intrinsic Value
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The amount that the market price of astock is above the strike price of a call option or below the strike price of a put option of that stock (the in-the-money amount)
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Time Value
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The amount of an option premium that exceeds the intrinsic value of an option contract
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Market Order
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-Does not specify a price, it is excecuted at whatever price is available when ti reaches the floor
-Always excecuted immediately, customers cannot be sure of what excecution price will be |
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Limit Order
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-Customer wishes to buy or sell securities at a specific price
-Only excecuted at the specified price or better -Buy-Limit-Order- Excecuted at the limit price or lower -Sell-Limit-Order- Executed at the limit price or higher |
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Stop Order-
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Becomes a market-order to buy or sell securities once a specified price is reached or passed
- The specific price indicated by the investor is the stop price -Once the order is activated, the investor is guaranteed execution, but there is no guarantee on the execution price Sell-stop-order- Always placed below the current market price, used to limit a loss or protect a proft on a long stock position -Buy stop order- Always placed above the current market price, used to limit a loss or protect on a short sale |
