STOCK OPTIONS - WHAT ARE THEY
Posted on January 22, 2008 - Filed Under Stock Market | Leave a Comment
STOCK OPTIONS - WHAT ARE THEY ?
A stock option is a specific type of option with a stock as the underlying instrument (the security that the value of the option is based on). Thus it is a contract to buy (known as a “call” contract) or sell (known as a “put” contract) shares of stock, at a predetermined or calculable (from a formula in the contract) price.
It is Having the Rights to purchase a corporation’s stock at a specified price.
Infact There are two definitions of stock options.
1. The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.
2. A widely used form of employee incentive and compensation.In some Companies, Stock options constitute part of remuneration.
Employee stock options are stock options for the company’s own stock that are often offered to upper-level employees as part of the executive compensation package. An employee stock option is identical to a call option on the company’s stock, with some extra restrictions.
Performance Stock Options are Options that vest if pre-determined performance measures are achieved. The performance goal (revenue growth, stock-price increases…) must be reached for the options to be exercisable or for the vesting to be accelerated
You Buy and Price Falls, You Sell and Price Rises
Posted on January 22, 2008 - Filed Under Article, Share Market | Leave a Comment
You Buy and Price Falls, You Sell and Price Rises !
One say’s “I bought “XYZ Company” at Rs.2200 and immediately after I bought the stock price dropped to Rs.2000.” I feel sad. Another comes with a different version “I sold “XYZ Company” at Rs.2000 and it went up to Rs.2400 same evening” I made an imaginary loss of Rs.400 per share.
Solution:
You can buy more shares @ Rs.2000 and reduce your overall buying cost. This has to be done only if believe in the fundamentals,management and the future prospects of the company.
To do this you need to keep money ready.whatever money you have and want to invest,split it into two parts. Then keep 50% cash aside, only invest with other 50%.So if need to buy more of any stock when the price falls you have ready cash.
Also now if you have 200 shares of XYZ Company 100 @ Rs.2200 and 100 @ Rs.2000.Then the price goes up to Rs.2400. Sell only 100 of the shares.Then if the price further shot up, you have some shares to sell And participate in the rally to make money.
Next, You sold the share and the price went up. The solution to this is never sell all the shares at one time. Sell only 50% of your shares.So if he price goes up later you still have the other 50% to sell and make profit.
The golden Rule is to first do your own analysis of the stock before investing and buy on tips.
Also invest only in companies which declare dividends every year. To be sure that you are not investing in loss making companies.
Every Market expert advise to do your stock analysis before investing in the stock market. But nobody tells you how.
Well in my next article I will write about how to do stock analysis using various tools such as financial ratios and by checking the track records of the companies you plan to invest in.
P.S: If you are not Indian then replace the Rs. into your own local currency to understand the article
What is Technical Analysis
Posted on January 22, 2008 - Filed Under Tutorials | Leave a Comment
What is Technical Analysis?
How is it different from Fundamental Analysis ?
Technical Analysis is a method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns.
A stock market term - The attempt to look for numerical trends in a random function. The stock market used to be filled with technical analysts deciding what to buy and sell, until it was decided that their success rate is no better than chance. Now technical stock analysis is virtually non-existent. The Readers Submitted Examples page has more on this topic.
Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. The analysis includes studying price movements and trading volumes to determine patterns such as Head and Shoulder Formations and W Formations. Other indicators include support and resistance levels, and moving averages. In contrast to fundamental analysis, technical analysis does not consider a corporation’s financial data.
Technical analysts study trading histories to identify price trends in particular stocks, mutual funds, commodities, or options in specific market sectors or in the overall financial markets. They use their findings to predict probable, often short-term, trading patterns in the investments that they study. The speed (and advocates would say the accuracy) with which the analysts do their work depends on the development of increasingly sophisticated computer programs.
Technical Analysis supposes markets have memory.If so, past prices, or the current price momentum, can give an idea of the future price evolution. Technical Analysis is a tool to detect if a trend (and thus the investor’s behavior) will persist or break. It gives some results but can be deceptive as it relies mostly on graphic signals that are often intertwined, unclear or belated. It might become a source of representiveness heuristic (spotting patterns where there are none)
Technical analysis has become increasingly popular over the past several years, as more and more people believe that the historical performance of a stock is a strong indication of future performance. The use of past performance should come as no surprise. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. The difference lies in the technical analyst’s belief that securities move according to very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable.
There are many instances of investors successfully trading a security using only their knowledge of the security’s chart, without even understanding what the company does. However, although technical analysis is a terrific tool, most agree it is much more effective when used in combination with fundamental analysis.
Fundamental Analysis
Fundamental analysis looks at a share’s market price in light of the company’s underlying business proposition and financial situation. It involves making both quantitative and qualitative judgements about a company. Fundamental analysis can be contrasted with ‘technical analysis’, which seeks to make judgements about the performance of a share based solely on its historic price behavior and without reference to the underlying business, the sector it’s in, or the economy as a whole. This is done by tracking and charting the companies stock price, volume of shares traded day to day, both on the company itself and also on its competitors. In this way investors hope to build up a picture of future price movements.
What is NET ASSET VALUE
Posted on January 22, 2008 - Filed Under Tutorials | Leave a Comment
What is NET ASSET VALUE ?
The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is calculated by subtracting liabilities from the value of a fund’s securities and other items of value and dividing this by the number of outstanding shares. Net asset value is popularly used in newspaper mutual fund tables to designate the price per share for the fund.
The value of a collective investment fund based on the market price of securities held in its portfolio. Units in open ended funds are valued using this measure. Closed ended investment trusts have a net asset value but have a separate market value. NAV per share is calculated by dividing this figure by the number of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV.
Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding.
Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund’s net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00.
Black Monday again: Biggest ever point fall for mkts
Posted on January 21, 2008 - Filed Under Latest News | Leave a Comment
Black Monday again: Biggest ever point fall for mkts
It was a highly dramatic and scary day for markets as markets saw their biggest ever fall. It was the worst day of trading in our trading history as the pace of the fall was unnerving. We started weak and with heavy bouts of selling was seen during the day with Sensex and Nifty down almost 12% at one point of time. Sensex went below 17,000 mark during the course of the day and Nifty sub 5000 mark.
BSE was shut for a brief period of time however it resumed trading immediately. Later it recovered Sensex recovered 700 points from the day’s low and finally Nifty closed down 8.5% and Sensex was down 7%.
Sensex closed down 1,408.35 points or 7.41% at 17605.35, and the Nifty down 496.50 points or 8.70% at 5208.80.
About 213 shares have advanced, 2746 shares declined, and 22 shares are unchanged.
Before this the markets saw the second highest point fall on May 18, 2006; Sensex was down 826 pts (6.76%) on account of Government circular on taxing investment gains; heavy selling by FIIs, retail investors and a weakness in global markets.
On April 28, 1992; Sensex was down 570 pts (12.77%) on account of Harshad Mehta securities scam. On May 17, 2004; Black Monday. Sensex was down by 565 points on concerns over NDA losing election to loses BJP.
It has not only been the pressure from global peers but on the domestic front also with increased unwinding pressure the fall has been accentuated.
Even experts were a bit shaken and shocked with the nasty fall. According to Raamdeo Agarwal with global news not favourable there might be a further fall in the markets. He feels that Indian markets can’t remain isolated when selling is seen in markets across globe including Asia.
Markets broke all the important technical and psychological levels.According to analyst the scenario was similar to the May 2006 fall. There is pressure due to triggering of margin call. Nifty Futures is trading at 100 points discount.
India was the worst performing market today in Asia; US recession fears have aggravated which led to Japan’s Nikkei declining 3.865% or 535.35 points, Hong Kong’s Hang Seng tumbled 4.425% or 1115.12 points Singapore’s Straits Times slipped 3.23 and South Korea’s Seoul Composite fell 2.95%.
Europe is trading extremely weak with DAX down over 3% followed by CAC and FTSE.
After seeing a sharp fall of over 15%, the BSE midcap and smallcap index closed down 10%.
Realty, metal, midcap index have collapsed, however all the BSE indices were trading with huge cuts. BSE realty and metal index were down over 13%, followed by power and oil & gas index was down over 10%. Pharma and auto were down over 7%.
Among the biggest midcap losers Nagarjuna Fert, WWIL, Oswal Chem down 33%, Essar Oil down 30% Ispat Ind was down 30%, Bajaj Hind down 28% and Chambal & Arvind down 26%.
Among the top Nifty losers RPL, REL, Bajaj Auto were down 19%, Tata Power down 16%.
The BSE Midcap Index ended at 7,881.99 down 11%.
The BSE Smallcap Index ended at 10,911.66 down 10%.
The BSE Bankex ended at 10,582.01 down 7%. ICICI Bank, Centurion Bank, HDFC Bank, Federal Bank, Canara Bank moved downwards.
The BSE Capital Goods Index closed down 7% at 17,087.82. Triveni Engg, Siemens, L&T, Thermax closed lower.
The BSE Auto Index closed at 4,664.53 down 10%. Hind Motors, Bharat Forge, Tube Investment, Maruti Suzuki, Apollo Tyres closed lower.
The BSE Metal Index closed at 14,963.38 down 13%. Among the top losers were Jindal Steel down 27%, SAIL down 13%, Tata Steel down 8%.
The BSE FMCG Index closed down 6% at 2,173.21. Colgate, ITC, Bata India, Godrej Consumer, HUL, GlaxoSmith Con closed lower
BSE Oil and Gas Index closed at 11,089.33 down 12%. RIL down 9.3%, ONGC down 7.9%. Reliance Natura, HPCL, RPL also ended in red
BSE power index closed at 3,828.81 down 11%. Torrent Power, NTPC, Reliance Energy, Tata Power, Power Grid Corp, Crompton Greave ended in red.
The BSE IT Index was down 6% at 3,573.25. I-Flex Solution, Patni Computer, Financial Tech, Mphasis, Tech Mahindra, TCS, Infosys closed lower.
The NSE cash turnover was at Rs 24508.6 crore and the NSE F&O turnover was at Rs 82241.65 crore. The BSE cash turnover was Rs 9305.91 crore. Total market wide turnover was at Rs 116056.16 crore.
FNO SNAPSHOT
* Stock Futures see largest Open Interest Unwinding ever
* Shed 12 crore shares in OI (prov)
* Lack of buying interest causes unwinding to take prices significantly lower
* 55 F&O stocks below 20%
* 150 F&O stocks at or below 10%
* 217 stocks shed OI
* Nifty adds 36 lakh shares in OI (prov)
* Huge short buildup, some day end covering
* Nifty Turnover at 37% (approx) of total F&O Turnover
* Total F&O Turnover at 82241 cr vs 72852 cr on 1 8th Jan
Biggest Losers:
* Essar Oil: Down 32.3%; Sheds 4.5 lakh shares
* Nagarjuna Fert: Down 32; Sheds 13.7 lakh shares
* WWIL: Down 31%; Sheds 15 lakh shares
* Oswal Chem: Down 30%; Sheds 4.6 lakh shares
* Jindal Steel: Down 30%; Sheds 3.4 lakh shares
* Bajaj Hind: Down 30%; Sheds 5.41 lakh shares
* MRPL: Down 30%; Sheds 26.14 lakh shares
* Ispat Ind: Down 29.4%; Sheds 74 lakh shares
* Sasken Comm: Down 29%; Sheds 1 lakh shares
* IVR Prime: Down 28%; Sheds 1.5 lakh shares