$ 5 Opciones De Acciones

Las mejores acciones de $ 5 ahora mismo

Por Benzinga. 16 de mayo de 2014, 09:16:48 AM EDT

Luke Jacobi, Escritor de Benzinga

La mayoría de los fondos mutuos no están autorizados a comprar acciones que cotizan por debajo de $ 5, estas acciones a menudo son demasiado riesgosas para los fondos de cobertura y estas compañías suelen estar cubiertas por un par de analistas, si los hay.

El bajo perfil de estas empresas hace que algunos de los mejores juegos de valor alrededor. Sin embargo, existe un riesgo significativo en la compra de acciones pequeñas.

No sólo la desviación estándar de retorno para estas cuestiones será mayor, ya que el flotador pequeño les permite ser empujado alrededor, pero hay varias razones por las que las acciones deben tener un precio de $ 5. La empresa podría estar saliendo del negocio, podría haber actividad fraudulenta y una gran cantidad de incertidumbre podría hacer que sea difícil predecir los flujos de efectivo futuros.

Las compañías en esta lista tienen varias características en común.

Para reducir el riesgo: el ratio actual (activos corrientes / pasivos corrientes) es superior a uno, las instituciones no han reducido sus posiciones en más del 5% en el trimestre más reciente y los flujos de efectivo han aumentado en los últimos 12 meses en comparación con los 12 anteriores Meses para asegurar que estas empresas no son trampas de valor. Para encontrar valor: precio / libro y precio / patrimonio se utilizaron.

Fundada en 2003, LifeVantage (LFVN) ha crecido sus ventas a más de $ 200 millones por año. La compañía investiga y vende productos antienvejecimiento científicamente validados. La compañía está investigando actualmente un producto del estrés oxidativo.

Los ingresos aumentaron un 65,1 por ciento en comparación con el año anterior, aunque los ingresos bajaron un 33,3 por ciento, pasando de 12 millones de dólares a 8 millones de dólares. Los gastos de venta, generales y administrativos son responsables de la mayor parte de la caída, que representan el 68,3 por ciento de las ventas de 2013 y el 76 por ciento de las ventas de 2014. La compañía dice que este aumento fue para apoyar la infraestructura y el personal. Independientemente, la escalabilidad es una preocupación para el negocio.

LifeVantage tiene un alto precio / libro, pero lo hace bien en todas las otras métricas probadas. El flujo de caja creció 2,63 por ciento en el último año, colocando a la compañía en el percentil 95 para la industria, el retorno sobre el patrimonio es de 49,71 por ciento y la propiedad institucional ha aumentado un 9,08 por ciento.

2014 ha sido un año fuerte para los cargadores de gran capitalización, sin embargo Ultrapetrol (ULTR) ha caído casi 22 por ciento.

Como su nombre indica, Ultrapetrol envía productos de petróleo, pero también envía cereales, productos forestales y minerales.

Debido a la estacionalidad en el negocio, los estados financieros anuales dan una mejor idea de cómo la empresa está realizando frente a las declaraciones trimestrales. Los ingresos crecieron un 31,3 por ciento año con año y los ingresos subieron de una pérdida de 64 millones de dólares a una ganancia de 7 millones de dólares. Las acciones han reaccionado muy positivamente durante ese período (las acciones suben casi un 40 por ciento), pero la compañía sigue siendo barata en comparación con sus pares.

El precio / libro es sólo 1.02, limitando la desventaja, adelante PE es 11.8 y el crecimiento positivo del flujo de liquidez sitúa a Ultrapetrol en el percentil 87 de la industria.

Zix (ZIXI) ofrece tecnologías de encriptación de correo electrónico y prevención de pérdida de datos para empresas que tienen empleados que traen sus propios dispositivos (laptops, por ejemplo) al lugar de trabajo. La empresa lanzó una solución móvil en 2013. Según la firma de investigación IBISWorld, "La creciente tendencia de los empleados que utilizan sus propios dispositivos móviles en el lugar de trabajo, denominada BYOD, ha dado lugar a numerosas preocupaciones de seguridad. A medida que las empresas acepten los beneficios de una mayor satisfacción de los empleados, menores costos operacionales y ganancias de productividad logradas mediante la institución de una política BYOD, cada vez más demandarán software de seguridad móvil ".

Zix tiene una impresionante proporción actual de 1,4 y muy poca deuda a largo plazo (2,9 millones de dólares con ganancias anuales de 10,5 millones de dólares). Estos dos factores llevan mucho riesgo fuera de la empresa por lo que es menos susceptible a las recesiones en las ventas. Las instituciones han reducido su participación en un 1,54 por ciento para el trimestre más reciente. Aunque esta cifra es ligeramente alarmante, no es suficiente para desalentar tomar una posición.

Aunque los mineros de oro han tenido un buen desempeño en 2014, medido por el ETF de los Mineros de Oro de los Vectores de Mercado (GDX), estas compañías bajaron un 47 por ciento desde el comienzo de 2013. Los márgenes fueron aplastados durante este período de tiempo, mientras los futuros de oro cayeron desde su máximo de $ 1,923.70 a Las bajo como $ 1,179.40.

Gold Fields (GFI) se está negociando en sólo 0,8 veces el valor contable. La compañía también tiene uno de los aumentos más fuertes en el crecimiento del efectivo en la industria para el año pasado contra el año anterior en el 1.09 por ciento.

Además, el oro ha demostrado el apoyo justo por debajo del nivel de $ 1,300, lo que debería ayudar a los precios de la caída. También es probable que los mercados geopolíticos y de renta variable presionen al alza sobre el precio de la mercancía (y, posteriormente, Gold Fields).

Comprometerse a comprar Genworth Financial a $ 5, gane 7% usando opciones

Por BNK Invest. 26 de junio de 2015, 11:35:18 AM EDT

Los inversores que contemplan la compra de acciones de Genworth Financial, Inc. (Symbol: GNW), pero cautelosos sobre el pago del precio de mercado en curso de $ 7.74 / share, podrían beneficiarse considerando las ventas entre las estrategias alternativas a su disposición. Un contrato de put interesante en particular, es el enero de 2017 puesto en la huelga de $ 5, que tiene una oferta en el momento de esta escritura de 35 centavos. La recaudación de esa oferta como prima representa un rendimiento del 7% frente al compromiso de $ 5 o una tasa de rendimiento anualizada del 4,5% (en el canal de opciones de acciones denominamos esto el YieldBoost).

La venta de un put no da acceso a un inversionista al potencial de crecimiento de GNW de la forma en que las acciones poseedoras, porque el vendedor de put sólo termina siendo dueño de acciones en el escenario donde se ejerce el contrato. Y la persona en el otro lado del contrato sólo se beneficiaría de ejercer en la huelga de $ 5 si hacerlo producía un resultado mejor que vender al precio de mercado en curso. (¿Las opciones llevan el riesgo de contraparte? Este y otros seis mitos de opciones comunes debunked). Así que a menos que Genworth Financial, Inc. vea sus acciones caer 35,1% y el contrato se ejerce (lo que resulta en una base de costos de $ 4,65 por acción antes de comisiones de corredor, restando los 35 centavos de $ 5), el único alza Esa prima por la tasa de rentabilidad anualizada del 4,5%.

A continuación se muestra un gráfico que muestra el historial de operaciones de doce meses de Genworth Financial, Inc. y destacando en verde donde se encuentra la huelga de $ 5 en relación con esa historia:

El gráfico anterior y la volatilidad histórica de la acción pueden ser una guía útil en combinación con un análisis fundamental para juzgar si la venta de la campaña de enero de 2017 en la huelga de $ 5 por la tasa anualizada del 4,5% representa una buena recompensa por los riesgos. Calculamos la volatilidad de doce meses para Genworth Financial, Inc. (teniendo en cuenta los últimos 252 valores de cierre del día de negociación, así como el precio de hoy de $ 7.74) al 62%. Para otras ideas de contrato de opciones de venta en las diferentes expiraciones disponibles, visite la página Opciones de stock GNW de StockOptionsChannel. com.

A mediados de la tarde, el volumen de ventas entre los componentes de S & amp; P 500 fue de 838.995 contratos, con un volumen de llamadas de 838.995, para una relación de put: call de 0.71 hasta ahora para el día, Término medio puesto: cociente de llamada de .65. En otras palabras, si observamos el número de compradores de llamadas y luego utilizamos la mediana a largo plazo para proyectar el número de compradores que esperamos ver, en realidad estamos viendo más compradores que esperamos en compras de opciones hasta el momento actual. Averigüe qué 15 call y opciones de venta de los operadores están hablando hoy.

16 acciones con menos de $ 5 de negociación a descuentos a precio objetivo

¿Está buscando acciones infravaloradas? Los inversionistas de valor buscan oportunidades para comprar acciones que están negociando con descuentos significativos a su valor razonable, con la suposición de que se moverán hasta su valor razonable en un futuro próximo. Un proxy para el valor razonable es el precio objetivo del analista. [Lista Relacionada: 5 Stocks Under $ 5 Undervalued by EPS Trends]

Dirigimos una pantalla sobre acciones que cotizaban por debajo de $ 5, y por encima de $ 1, y con límites de mercado por encima de $ 100 millones, para aquellos que negocian con fuertes descuentos a los precios objetivo de sus analistas, lo que puede indicar que están infravalorados.

Pero debido a que los precios objetivo son notoriamente inflados, sólo usamos los precios objetivo más pesimistas (los más bajos), y para las acciones con suficiente cobertura de analistas sólo examinamos las acciones con 5 o más calificaciones de analistas.

Dieciséis compañías hicieron nuestra lista. Utilice la siguiente información como punto de partida para su propio análisis.

Gráfico interactivo: Ver cambios en las calificaciones promedio de los analistas de las primeras 8 acciones de esta lista en los últimos dos años. La mayoría de estas acciones tienen calificaciones promedio de "Strong Buy"

1. ShoreTel, Inc. (SHOR): Proporciona sistemas de telecomunicaciones de protocolo de Internet (IP) para empresas en los Estados Unidos. Capitalización de mercado en $ 217.34M, el precio de cierre más reciente en $ 3.70. De los 7 analistas que han establecido un precio objetivo en la acción, la meta de precio más bajo es de $ 5. Esto implica un alza potencial de 32.97% de los niveles actuales alrededor de $ 3.76.

2. Vical Inc. (VICL): Participa en la investigación y desarrollo de productos biofarmacéuticos basados ​​en sus tecnologías de entrega de ADN para la prevención y el tratamiento de enfermedades graves o potencialmente mortales. Capitalización de mercado en $ 348.45M, el precio de cierre más reciente en $ 4.04. De los 5 analistas que han fijado un precio objetivo en la acción, la meta de precio más bajo es de $ 5. Esto implica un alza potencial de 30.54% de los niveles actuales alrededor de $ 3.83.

3. Noranda Aluminum Holding Corp. (NOR): Participa en la producción y venta de productos de aluminio primario y bobinas de aluminio laminado en los Estados Unidos. Capitalización de mercado a $ 309.57M, precio de cierre más reciente en $ 4.57. De los 6 analistas que han fijado un precio objetivo en la acción, la meta de precio más bajo es de $ 6. Esto implica un alza potencial de 30.43% de los niveles actuales alrededor de $ 4.6.

4. Curis Inc. (CRIS): Se centra en la investigación y el desarrollo de la terapéutica del cáncer. Capitalización de mercado en $ 269.2M, precio de cierre más reciente en $ 3.36. De los 6 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo se sitúa en $ 4.5. Esto implica un alza potencial de 30.057% de los niveles actuales alrededor de $ 3.46.

5. Callidus Software Inc. (CALD): Proporciona software y servicios de gestión del rendimiento de ventas (SPM). Capitalización de mercado en $ 172.42M, precio de cierre más reciente en $ 4.63. De los 5 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 6 dólares. Esto implica un alza potencial de 29.58% de los niveles actuales alrededor de $ 4.63.

6. Mitel Networks Corp. (MITL): Proporciona soluciones de comunicaciones integradas principalmente al mercado de PYMES en los Estados Unidos e internacionalmente. Capitalización de mercado a $ 201.8M, precio de cierre más reciente en $ 3.76. De los 5 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 4,75 dólares. Esto implica un alza potencial de 26.32% de los niveles actuales alrededor de $ 3.76.

7. Thompson Creek Metals Company Inc. (TC): Participa en la minería, molienda, procesamiento y comercialización de productos de molibdeno en los Estados Unidos y Canadá. Capitalización de mercado a $ 521.55M, precio de cierre más reciente en $ 3.06. De los 8 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 4 dólares. Esto implica un alza potencial de 26.18% de los niveles actuales alrededor de $ 3.17.

8. Silicon Image, Inc. (SIMG): Participa en el diseño, desarrollo e implementación de semiconductores y soluciones de propiedad intelectual (IP) para el almacenamiento, distribución y presentación de contenido de alta definición en entornos domésticos y móviles en todo el mundo. Capitalización de mercado a $ 375.09M, precio de cierre más reciente en $ 4.86. De los 6 analistas que han fijado un precio objetivo en la acción, la meta de precio más bajo es de $ 6. Esto implica un alza potencial de 22.19% de los niveles actuales alrededor de $ 4.91.

Este gráfico es interactivo. Pulse play para ver los cambios en las calificaciones promedio de los analistas de las siguientes 8 acciones de esta lista

9. Lone Pine Resources Inc. (LPR): Participa en la exploración, desarrollo y producción de propiedades de petróleo y gas en Alberta, Columbia Británica, Quebec y los Territorios del Noroeste de Canadá. Capitalización de mercado en $ 102.44M, precio de cierre más reciente en $ 1.20. De los 5 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo se sitúa en 1,46 dólares. Esto implica un alza potencial de 21.66% de los niveles actuales alrededor de $ 1.2.

10. Crimson Exploration Inc. (CXPO): Se dedica a la adquisición, explotación, exploración y desarrollo de propiedades de gas natural y crudo principalmente en el este de Texas, el sureste de Texas, el sur de Texas, Colorado, Mississippi y el suroeste de Louisiana. Capitalización de mercado en $ 137.26M, el precio de cierre más reciente en $ 2.98. De los 6 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 3,75 dólares. Esto implica un alza potencial de 21,35% de los niveles actuales alrededor de $ 3,09.

11. Companhia Siderúrgica Nacional (SID): Opera como productor de acero integrado en Brasil y América Latina. Capitalización de mercado en $ 6.55B, precio de cierre más reciente en $ 4.49. De los 6 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 5,5 dólares. Esto implica un potencial alza de 20.61% de los niveles actuales alrededor de $ 4.56.

12. PetroQuest Energy Inc. (PQ): Opera como una compañía independiente de petróleo y gas. Capitalización de mercado a $ 278.3M, precio de cierre más reciente en $ 4.31. De los 10 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 5,25 dólares. Esto implica un potencial alza de 20.13% de los niveles actuales alrededor de $ 4.37.

13. Penn Virginia Corporation (PVA): Participa en la exploración, desarrollo y producción de gas natural y petróleo en varias regiones costeras nacionales de los Estados Unidos, incluyendo Texas, Appalachia, Mid-Continent y Mississippi. Capitalización de mercado en $ 227.65M, precio de cierre más reciente en $ 4.13. De los 14 analistas que han establecido un precio objetivo en la acción, el objetivo de precio más bajo se ubica en $ 5. Esto implica un alza potencial de 19.61% de los niveles actuales alrededor de $ 4.18.

14. Parker Drilling Co. (PKD): Presta servicios de perforación por contrato y de perforación en los Estados Unidos, América Latina, África y Oriente Medio (AME), Asia Pacífico y Comunidad de Estados Independientes (CEI). Capitalización de mercado a $ 548.12M, precio de cierre más reciente en $ 4.62. De los 5 analistas que han fijado un precio objetivo en la acción, el objetivo de precio más bajo asciende a 5,5 dólares. Esto implica un alza potencial de 18.27% de los niveles actuales alrededor de $ 4.65.

15. Callon Petroleum Co. (CPE): Participa en la adquisición, exploración, desarrollo y producción de petróleo crudo y propiedades de gas natural en la costa de Louisiana y Texas, y las aguas costa afuera del Golfo de México. Capitalización de mercado en $ 149.51M, precio de cierre más reciente en $ 3.75. De los 9 analistas que han fijado un precio objetivo en la acción, la meta de precio más bajo asciende a $ 4.5. Esto implica un potencial alza de 17.49% de los niveles actuales alrededor de $ 3.83.

16. Vantage Drilling Company (VTG): Ofrece servicios de perforación contratada en alta mar a grandes compañías multinacionales de petróleo y gas natural, compañías estatales de petróleo y gas natural y productores independientes de petróleo y gas natural en Estados Unidos e internacionalmente. Capitalización de mercado a $ 524.89M, precio de cierre más reciente en $ 1.74. De los 8 analistas que han establecido un precio objetivo en la acción, el objetivo de precio más bajo es de $ 2. Esto implica un alza potencial de 15.60% de niveles actuales alrededor de $ 1.73.

(Lista compilada por Rebecca Lipman, Editor de Kapitall)

5 acciones de menos de $ 5 para ver

Las acciones que están haciendo grandes movimientos como estos son favoritos entre los comerciantes a corto plazo porque pueden saltar en estos nombres e intentar capturar algo de esa volatilidad masiva. Las acciones que están realizando movimientos de gran porcentaje hacia arriba o hacia abajo usualmente están en juego porque su sector se está volviendo atractivo o tienen un catalizador fundamental importante como un reciente lanzamiento de ganancias. A veces acciones que hacen grandes movimientos han sido golpeados con una actualización de analista o un analista rebaja.

& Gt; & gt; 5 acciones listas para romper

Independientemente de la razón detrás de él, cuando una acción hace un movimiento de gran porcentaje, a menudo es sólo el comienzo de una nueva tendencia importante - una tendencia que puede dar lugar a enormes beneficios. Si el tiempo de su comercio correctamente, la combinación de indicadores técnicos con las tendencias fundamentales, la disciplina y la gestión del dinero de sonido, que estará bien en su camino hacia el éxito de las inversiones.

& Gt; & gt; 5 Acciones Odiadas Ganancias Para Pop

Dynavax Technologies (DVAX), una empresa biofarmacéutica de estadio clínico, descubre y desarrolla nuevos productos para prevenir y tratar enfermedades infecciosas, asma y enfermedades inflamatorias y autoinmunes. Esta acción cayó un 9,2% a $ 2.13 el martes.

Martes Rango: $ 1.91- $ 2.14

Intervalo de 52 semanas: $ 1.74- $ 5.34

Volumen: 3,27 millones

Volumen promedio de tres meses: 3,26 millones

Desde una perspectiva técnica, DVAX rasgó más alto aquí fuera del territorio de sobreventa con un volumen por encima del promedio. Este stock recientemente se redujo de alrededor de $ 3 a $ 1.87 con el volumen de desventaja pesado. Las acciones de DVAX llegaron a su récord reciente de 1,74 dólares y las acciones entraron en el territorio de sobreventa, ya que su índice de fuerza relativa se redujo a menos de 30. Dicho esto, las acciones de DVAX han comenzado a rebotar fuera de 1,74 dólares y las acciones se acercan rápidamente a un gran desglose comercio. Ese comercio afectará si DVAX logra sacar algo de resistencia aérea a corto plazo en $ 2.13 a $ 2.14 con alto volumen.

Los operadores ahora deben buscar operaciones largamente sesgadas en DVAX siempre y cuando su tendencia sea superior a la mínima de $ 1,91, y luego una vez que mantenga un movimiento o cierre por encima de esos niveles de ruptura con un volumen cercano o superior a 3,26 millones de acciones. Si ese fracaso llega pronto, entonces DVAX se instalará para volver a llenar parte de su anterior brecha hacia abajo zona de finales de febrero que comenzó cerca de $ 3. Algunos objetivos al alza posibles si DVAX entra en esa brecha con el volumen son $ 2.70 a su media móvil de 50 días en $ 2.80.

Las mejores acciones de $ 5 para 2014

Con muchos comerciantes ignorando las acciones por debajo de cinco dólares, hay una seria ventaja para aquellos dispuestos a asumir un riesgo adicional.

Un precio de acciones bajo por sí solo no indica una compra como muchas empresas ver sus acciones cabeza a cero a medida que salen del negocio.

Las compañías en esta lista tienen indicaciones fuertes para el crecimiento - incluyendo compra de información privilegiada e institucional, crecimiento de los ingresos, y industrias en expansión.

No sólo las capitalizaciones más bajas del mercado aumentan, sino que es mucho más fácil para una acción de cinco dólares doblar en precio que $ 500.

Las empresas también están deseosas de tener sus acciones por encima del nivel de cinco dólares y pueden emplear tácticas para llegar allí (es decir, recompras) porque muchos fondos no invertirán en valores inferiores a cinco dólares.

Una versión anterior de este artículo contenía cuatro acciones, pero se ha actualizado para incluir empresas adicionales.

&dupdo; 2016 Benzinga. com. Benzinga no proporciona asesoramiento de inversión. Todos los derechos reservados.

Cerrar Siguiente 1/7 Anterior

Mandalay Digital

Mandalay Digital (NASDAQ: MNDL) crea soluciones para plataformas móviles. Estos incluyen herramientas para completar el proceso de facturación, fidelizar a los lectores y realizar análisis predictivos para que los comerciantes sugieran productos.

Las acciones se estrellaron en agosto, iniciando una serie de adquisiciones de mercado no abierto de varios directores. Además, las instituciones comenzaron a construir posiciones de manera agresiva y ahora poseen algo más de una cuarta parte de la compañía.

Haciendo un vistazo a los estados financieros, los ingresos han crecido un tremendo 766 por ciento en el último año a casi siete millones de dólares para el trimestre más reciente. Sin embargo, la compañía se ha vuelto cada vez menos rentable: perdió $ 3.78 millones hace un año y $ 6.22 millones para el mismo trimestre de este año. Una razón clave para el aumento de la pérdida es un adicional de dos millones de dólares en el desarrollo de productos.

Los dos factores que impulsarán el precio de las acciones de 2014 son el crecimiento continuo de los ingresos y el aumento de la dependencia de las tecnologías móviles. Las acciones se cotizan actualmente a 2,65 dólares.

Tecnologías de la iluminación de la revolución

Revolution Lighting Technologies (NASDAQ: RVLT) produce productos de LED para clientes comerciales, típicamente en las industrias de hospitalidad, educación y salud.

Se espera que la industria del LED casi duplique para 2015, dando a Revolución la oportunidad de capturar la cuota de mercado considerable. Una de las principales razones por las que la empresa se apresta a tomar sus competidores es su red de distribuidores expansiva, proporcionando alcance a un grupo amplio de clientes. Debido a que sus productos son más eficientes energéticamente que muchos de sus competidores, la educación es una ventaja competitiva clave.

Varios directores y funcionarios agregaron acciones en 2013 con compras y adquisiciones de mercado no abierto. Las instituciones y fondos mutuos, que poseen casi el 58 por ciento del flotador, agregaron 23,32 y 39,9 por ciento, respectivamente.

La posición de la revolución para capturar una porción significativa del creciente mercado del LED es una razón para el upside significativo en precio de parte. Después de rebotar de $ 5.50 en julio, las acciones ahora están negociando en $ 3.28.

Support. com

Support. com (NASDAQ: SPRT) IPO "a mediados de 2000 con un tope de mercado alrededor de dos mil millones. Posteriormente, las acciones se desplomaron en 2001 durante el colapso de la burbuja tecnológica. Support. com crea herramientas SaaS para que las pequeñas empresas crezcan ingresos y aumenten la experiencia del cliente. La empresa también ofrece servicios de premisa tales como instalación y mantenimiento de computadoras.

Los ingresos de año a año aumentaron un 28,5 por ciento, impulsados ​​principalmente por el negocio de servicios. A pesar del impresionante crecimiento de las ganancias, al mirar los estados financieros, destaca el aumento en los ingresos. Ganancias saltó de 298 mil a 3,03 millones en un sólo año, ya que el costo de los bienes vendidos aumentó mucho menos los ingresos. Los gastos de SG & amp; A también vieron mucho menos de una subida. Este informe de ganancias impactó a Wall Street, ya que duplicó la estimación.

Las instituciones que poseen más del 80 por ciento del flotador continúan agregando acciones este trimestre después de las adiciones consistentes del trimestre pasado.

La continua demanda de soluciones de software y el interés de los inversionistas en las compañías basadas en la nube son catalizadores que probablemente empujarán a Support. com más alto durante 2014. Las acciones se están negociando actualmente a $ 3.68.

Vringo

Vringo (NASDAQ: VRNG) es una empresa de litigios de patentes que actualmente defiende patentes relacionadas con la búsqueda.

La compañía tiene varias fuentes de ingresos disponibles para 2014. Primero, la compañía ganó su caso contra Google (NASDAQ: GOOG) en noviembre de 2012.

A medida que el proceso legal se arrastra, los inversionistas esperan que el juez Raymond Jackson del Tribunal de Distrito del Este de Virginia otorgue a Vringo su pago. La cifra clave a vigilar no es sólo la suma global, sino también un porcentaje de regalías por el futuro ingreso norteamericano de Google.

En segundo lugar, la empresa está comprometida con la compañía china de telecomunicaciones, ZTE, en varios países europeos. En diciembre de 2013 su división india se vio obligada a entregar información adicional y Vringo ganó un mandato judicial en Alemania. Estos éxitos hacen probable un acuerdo de licencia global.

En un acuerdo de 2013 con Microsoft (NASDAQ: MSFT), que depende en parte del resultado del juicio de Google, Vringo recibió seis patentes. Los inversionistas aún no están seguros de cuáles son las patentes, pero muestra que la compañía tiene varias oportunidades de crecimiento después de litigar con Google y ZTE.

Las acciones de Vringo han sido increíblemente volátiles, fluctuando a menudo alrededor del nivel de tres dólares. Las acciones se cotizan actualmente a 2,93 dólares.

Imation

Esta compañía está tocando contra el nivel de cinco dólares después de subir más del ocho por ciento en las últimas cinco sesiones de negociación. Las acciones de Imation (NYSE: IMN) se desplomaron en los últimos años, ya que los negocios de medios ópticos y de cinta de la compañía han caído en desgracia. Sin embargo, la perspectiva para Imation es brillante, ya que la empresa transita en almacenamiento de datos y seguridad.

La demanda de seguridad de datos es cada vez mayor, ya que los hackers (y los gobiernos) se comen la privacidad personal y corporativa. Hace sólo dos semanas, 40 millones de tarjetas de crédito y débito se vieron comprometidas por una violación de seguridad en Target.

En una encuesta de HBGarry, el 78,1 por ciento de los inversores dijo que es poco probable que inviertan en una empresa que ha sido víctima de la guerra cibernética. Además, la investigación de Gartner espera que la seguridad de los datos sea una industria de 86.000 millones de dólares para 2016, aproximadamente un 39 por ciento de crecimiento.

Las acciones de Imation son especialmente susceptibles de apreciar con el crecimiento de la industria porque los inversionistas son en gran medida inconscientes de la transición de la compañía. Desde que la compañía anunció su nueva estrategia en 2011, ha gastado 167 millones en seis adquisiciones de almacenamiento de datos y compañías de seguridad.

Lake Street Capital Markets predice que la compañía se volverá rentable en la segunda mitad de 2014 y calificó a la compañía de una compra con un objetivo de precio de ocho dólares.

Las acciones cerraron el martes a 4,98 dólares con una ganancia del 3,97 por ciento.

Gold Fields Limited

Gold Fields (NYSE: GFI) es uno de los miembros más grandes pero más arriesgados de la lista. La compañía es una minera de oro y cobre que opera principalmente en África. Como el oro tomó una caída de treinta por ciento en 2013, las acciones de Gold Fields cayó más del 70 por ciento como toda la industria fue duramente golpeado.

Una razón clave para ser optimista en Gold Fields es que la compañía está trabajando por su costo por onza. De acuerdo con Hebba Investing, el costo total de la mina de una onza de oro en el tercer trimestre de 2013 fue de $ 1,449.21, frente a $ 1,526.72 en el primer trimestre. A pesar de la reducción, Gold Fields sigue siendo uno de los productores de mayor costo en la industria.

Si la empresa puede seguir trabajando en su costo de producción, las implicaciones son muy optimistas. Debido a que las acciones de la compañía cayeron más que sus pares, un costo promedio de producción probablemente dará como resultado un fuerte rebote.

Los inversores también deben tener en cuenta que la compañía informó 495 millones en efectivo para el tercer trimestre de 2013 con un ingreso neto de un millón. Esto da una sensación de seguridad como los mineros de oro lucha con el valor deprimido de la mercancía. Las acciones se negociaron por última vez a 3,20 dólares.

Enlaces relacionados

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Las Mejores 3 Acciones de Dividendos Menos de $ 5 (AUO, LYG)

Las acciones de dividendos han ganado en popularidad desde la recesión de 2008, debido a la continuación del entorno de baja tasa de interés. Los inversionistas siguen buscando bonos de bajo rendimiento e inversiones de renta fija con opciones limitadas para tratar de encontrar el rendimiento adicional en sus carteras a las que estaban acostumbrados antes de la recesión. El ambiente de baja tasa ha sido una bendición para las acciones, y los inversionistas han seguido acostumbrando a las acciones de dividendos, ya que buscan el rendimiento, además de las ganancias de capital.

Por supuesto, no todas las acciones de dividendos son iguales, y es importante asegurarse de que la empresa subyacente está sana y parece probable que continúe pagando el dividendo. Garantizar el stock de dividendos está respaldado por un amplio flujo de caja libre es absolutamente clave, porque, como inversionista, desea asegurarse de que los dividendos siguen pagando. La combinación de dividendos con acciones con un precio inferior a $ 5 puede ser una estrategia más agresiva para un inversionista que busque rendimiento además de ganancias de capital especulativas.

1. AU Optronics Corp.

AU Optronics Corp. (NYSE: AUO) es una compañía de semiconductores con sede en Taiwán que crea pantallas de cristal de película delgada (TFT-LCDs) para HDTV, computadoras, tabletas y teléfonos móviles de panel plano. La compañía también tiene un negocio solar que desarrolla paneles solares, sistemas y hardware de apoyo. A partir de octubre de 2015, AU Optronics Corp. cotiza en 3,04 dólares y tiene un dividendo de 4,87%.

Mientras que la acción está experimentando el funcionamiento áspero hasta ahora en 2015, cayendo casi -40%, los analistas están comenzando a dar vuelta alcista en la industria de la pantalla plana de la fabricación pues las expectativas bajas se creen ya para ser tasadas en las acción. El 1 de septiembre de 2015, los analistas de Barron aumentaron a AU Optronics Corp. a un índice de rendimiento superior con un precio objetivo de $ 4.

El descenso en AU Optronics Corp. ciertamente ha creado algo de valor para la acción. Tiene un precio a los ingresos de 4,46; Relación precio / libro de 0,52; Precio al efectivo de 0.98; Y el precio al flujo de caja libre de 2,02. La compañía tiene una deuda limitada al patrimonio de 0,70 pero un efectivo decente de alrededor de 3,15 por acción. Con sólo mirar más de cerca el flujo de caja libre, AU Optronics pudo aumentar el flujo de caja libre del 104% de 2013 a 2014.

2. Grupo bancario de Lloyds

Lloyds Banking Group plc (NYSE: LYG) es un gran banco multinacional con sede en el Reino Unido. Lloyds ofrece soluciones de banca comercial y comercial, seguros, servicios de préstamos, ahorros y más. El banco opera bajo las entidades Lloyds Bank, Halifax y Bank of Scotland, y fue fundada en 1695. Las acciones cotizan a $ 4.77 y tienen un rendimiento de dividendos de 1.89%.

El banco U. K. alcanzó un máximo de 5,60 dólares en 2015, pero desde entonces se ha corregido a los niveles actuales. Sin embargo, el stock sigue subiendo casi un 5% hasta la fecha. Mientras que el banco ha luchado desde que fue rescatado por el gobierno de los Estados Unidos, los inversores están empezando a entusiasmarse con el futuro de Lloyds. Mientras tanto, el gobierno de U. K. planea comenzar a desinvertir su participación en el Lloyds Bank alrededor de la primavera de 2016.

Lloyds Bank tiene un precio a las ganancias de 43 y un precio a término a las ganancias de 15,5. Mientras que Lloyds no es una ganga, la acción tiene un precio al efectivo de 0,22 y un precio al flujo de caja libre de 1,42. Lloyds Bank tiene una pila asombrosa de efectivo en mano en alrededor de 21.29 por acción, mientras que la deuda con el patrimonio se sitúa en 2.11. Sin embargo, el flujo de caja de Lloyds no siempre fue tan impresionante. En 2013, el banco informó un flujo de efectivo negativo negativo de -18.500 millones de libras esterlinas. Afortunadamente, pudo recuperarse en 2014 con un flujo de caja libre de 6,900 millones de libras esterlinas por año. El flujo de efectivo está en camino de seguir creciendo en 2015.

3. Nevsun Resources Ltd.

Nevsun Resources Ltd. (AMEX: NSU) es una empresa minera con sede en Canadá especializada en cobre, oro, plata y zinc. La principal operación minera de Nevsun se encuentra dentro de la propiedad Bisha, ubicada en el noreste de África. Nevsun es capaz de producir 150 millones de libras de cobre al año con sus operaciones. Sin embargo, está en el proceso de transición de parte de su mina de cobre a zinc, como un déficit global de zinc se ve en el horizonte. Las acciones cotizan a 3,14 dólares y tienen un rendimiento de dividendos del 5,10%.

La caída de los precios de las materias primas de cobre, zinc, oro y plata contribuyó a una abrupta venta a finales del verano de Nevsun. Dicho esto, parece que la compañía encontró apoyo en septiembre y está buscando para probar la resistencia al alza.

Después de caer -16.5% año hasta la fecha, Nevsun parece tener algunos fundamentos interesantes. Precio a ganancias es 9; Precio a reservar es infravalorado en 0,92; Precio al efectivo es de 1,38; Y el precio al flujo de caja libre entra en un impresionante 4.74. Además, la empresa minera no tiene deuda y efectivo por acción de 2,27. Como la mina de Bisha es una de las minas con menor costo de cobre en el mundo, Nevsun tiene un margen de beneficio de casi el 28%.

Los ingresos por dividendos son gravables pero se gravan de diferentes maneras dependiendo de si los dividendos están calificados o no. Leer respuesta completa >>

Los ratios de deuda se pueden utilizar para describir la salud financiera de individuos, empresas o gobiernos. Como otras cuentas. Leer respuesta completa >>

Los precios del petróleo y el mercado de valores no suelen comerciar como un par altamente correlacionado, pero desde principios de 2016, el S & amp; P. Leer respuesta completa >>

El Instituto de Investigación de Economía Política (PERI) es una unidad independiente de la Universidad de Massachusetts, Amherst que busca. Leer respuesta completa >>

La correlación, por sí misma, no puede afectar el mercado de valores, ya que es simplemente el grado en que dos cosas se comportan en el. Leer respuesta completa >>

Un activo líquido es el efectivo disponible o un activo que puede convertirse fácilmente en efectivo. Un activo que se puede convertir fácilmente. Leer respuesta completa >>

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20 acciones con menos de $ 5 con sentimiento alcista de las opciones

La siguiente es una lista de acciones de menos de $ 5 que tienen un gran número de posiciones de opción de compra abierta en relación con las opciones de opción de venta, es decir, el sentimiento de mercado de opciones alcistas. This list might offer an interesting starting point to investors looking for hidden gems.

To compile the list, we started with a universe of about 250 stocks with market caps greater than $300M, priced below $5. We then narrowed down the list by only focusing on those stocks with the lowest Put/Call ratios.

The options market seems to be betting on some near-term gains for these low-priced stocks - what do you think?

Short float and performance data sourced from Finviz, options data sourced from Schaeffer's.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

The list has been sorted by the Put/Call ratio.

1. TransAtlantic Petroleum Ltd. (NYSEMKT:TAT ): Oil and Gas Drilling and Exploration Industry. Market cap of $1.09B. Stock is priced at $3.24. Call open interest at 486 contracts vs. put open interest at 3 contracts (Put/Call ratio at 0.01). Short float at 3.16%, which implies a short ratio of 7.18. The stock has gained 0.31% over the last year.

2. Warren Resources Inc. (NASDAQ:WRES ): Oil and Gas Equipment and Services Industry. Market cap of $321.07M. Stock is priced at $4.51. Call open interest at 562 contracts vs. put open interest at 11 contracts (Put/Call ratio at 0.02). Short float at 2.6%, which implies a short ratio of 3.54. The stock has gained 81.12% over the last year.

3. Trident Microsystems Inc. (TRID): Semiconductor Industry. Market cap of $337.82M. Stock is priced at $1.62. Call open interest at 2,134 contracts vs. put open interest at 47 contracts (Put/Call ratio at 0.02). Short float at 4.82%, which implies a short ratio of 4.71. The stock has lost -2.55% over the last year.

4. Augusta Resource Corp. (NYSEMKT:AZC ): Industrial Metals and Minerals Industry. Market cap of $483.49M. Stock is priced at $3.72. Call open interest at 873 contracts vs. put open interest at 56 contracts (Put/Call ratio at 0.06). Short float at 1.43%, which implies a short ratio of 2.75. The stock has gained 38.85% over the last year.

5. Gleacher & Company, Inc (GLCH): Investment Brokerage Industry. Market cap of $334.56M. Stock is priced at $2.48. Call open interest at 306 contracts vs. put open interest at 20 contracts (Put/Call ratio at 0.07). Short float at 3.53%, which implies a short ratio of 7.69. The stock has lost -41.38% over the last year.

6. VisionChina Media Inc. (NASDAQ:VISN ): Advertising Agencies Industry. Market cap of $334.01M. Stock is priced at $4.74. Call open interest at 2,496 contracts vs. put open interest at 166 contracts (Put/Call ratio at 0.07). Short float at 2.46%, which implies a short ratio of 2.8. The stock has lost -60.63% over the last year.

7. Northgate Minerals Corp. (NXG): Gold Industry. Market cap of $896.53M. Stock is priced at $3.04. Call open interest at 6,563 contracts vs. put open interest at 457 contracts (Put/Call ratio at 0.07). Short float at 3.57%, which implies a short ratio of 3.07. The stock has lost -4.35% over the last year.

8. Wave Systems Corp. (NASDAQ:WAVX ): Computer Peripherals Industry. Market cap of $314.9M. Stock is priced at $3.96. Call open interest at 2,638 contracts vs. put open interest at 250 contracts (Put/Call ratio at 0.09). Short float at 9.57%, which implies a short ratio of 18.38. The stock has gained 120.45% over the last year.

9. Magma Design Automation Inc. (NASDAQ:LAVA ): Business Software and Services Industry. Market cap of $314.96M. Stock is priced at $4.85. Call open interest at 216 contracts vs. put open interest at 21 contracts (Put/Call ratio at 0.1). Short float at 4.74%, which implies a short ratio of 4.05. The stock has gained 101.27% over the last year.

10. Level 3 Communications Inc. (NYSE:LVLT ): Diversified Communication Services Industry. Market cap of $1.72B. Stock is priced at $1.12. Call open interest at 59,481 contracts vs. put open interest at 7,272 contracts (Put/Call ratio at 0.12). Short float at 9.11%, which implies a short ratio of 5.27. The stock has lost -37.58% over the last year.

11. Paramount Gold and Silver Corp. (NYSEMKT:PZG ): Industrial Metals and Minerals Industry. Market cap of $493.98M. Stock is priced at $3.93. Call open interest at 416 contracts vs. put open interest at 57 contracts (Put/Call ratio at 0.14). Short float at 1.65%, which implies a short ratio of 1.12. The stock has gained 144.44% over the last year.

12. RealNetworks Inc. (NASDAQ:RNWK ): Internet Software and Services Industry. Market cap of $560.32M. Stock is priced at $4.16. Call open interest at 491 contracts vs. put open interest at 78 contracts (Put/Call ratio at 0.16). Short float at 3.37%, which implies a short ratio of 5.1. The stock has gained 5.36% over the last year.

13. Ivanhoe Energy Inc. (NASDAQ:IVAN ): Independent Oil and Gas Industry. Market cap of $959.24M. Stock is priced at $2.86. Call open interest at 827 contracts vs. put open interest at 133 contracts (Put/Call ratio at 0.16). Short float at 1.04%, which implies a short ratio of 2.37. The stock has lost -8.89% over the last year.

14. The McClatchy Company (NYSE:MNI ): Newspapers Industry. Market cap of $413.76M. Stock is priced at $4.96. Call open interest at 10,389 contracts vs. put open interest at 1,949 contracts (Put/Call ratio at 0.19). Short float at 29.83%, which implies a short ratio of 19.04. The stock has gained 9.68% over the last year.

15. Rite Aid Corp. (NYSE:RAD ): Drug Stores Industry. Market cap of $820.01M. Stock is priced at $0.95. Call open interest at 7,556 contracts vs. put open interest at 1,474 contracts (Put/Call ratio at 0.2). Short float at 3.03%, which implies a short ratio of 4.91. The stock has lost -41.4% over the last year.

16. PMI Group Inc. (PMI): Surety and Title Insurance Industry. Market cap of $588.27M. Stock is priced at $3.81. Call open interest at 36,221 contracts vs. put open interest at 7,119 contracts (Put/Call ratio at 0.2). Short float at 17.04%, which implies a short ratio of 4.26. The stock has gained 39.85% over the last year.

17. Abraxas Petroleum Corp. (ABP): Independent Oil and Gas Industry. Market cap of $332.3M. Stock is priced at $4.32. Call open interest at 2,120 contracts vs. put open interest at 420 contracts (Put/Call ratio at 0.2). Short float at 6.93%, which implies a short ratio of 7.92. The stock has gained 99.54% over the last year.

18. SIRIUS XM Radio Inc. (NASDAQ:SIRI ): Broadcasting Industry. Market cap of $6.56B. Stock is priced at $1.65. Call open interest at 232,488 contracts vs. put open interest at 49,052 contracts (Put/Call ratio at 0.21). Short float at 5.79%, which implies a short ratio of 3.89. The stock has gained 142.03% over the last year.

19. Synovus Financial Corp. (NYSE:SNV ): Regional Bank. Market cap of $2.14B. Stock is priced at $2.71. Call open interest at 59,175 contracts vs. put open interest at 12,569 contracts (Put/Call ratio at 0.21). Short float at 12.13%, which implies a short ratio of 5.92. The stock has gained 24.66% over the last year.

20. Sonus Networks, Inc. (NASDAQ:SONS ): Communication Equipment Industry. Market cap of $776.88M. Stock is priced at $2.79. Call open interest at 15,681 contracts vs. put open interest at 3,703 contracts (Put/Call ratio at 0.24). Short float at 2.83%, which implies a short ratio of 2.42. The stock has gained 23.79% over the last year.

Divulgación: No tengo posiciones en ninguna de las acciones mencionadas, y no planeo iniciar ninguna posición dentro de las próximas 72 horas.

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E-mini Dow ($5) Options Contract Specs

Strike Prices Strike Price Interval

500-point intervals within ± 50% previous day’s settlement price of the underlying futures 100-point intervals within ± 20% previous day’s settlement price of the underlying futures 50-point intervals within ± 10% previous day’s settlement price of the underlying futures for the two nearest quarterly cycle month options. Exercise prices for serial options shall be identical to the exercise prices that are listed for the March quarterly options on the same underlying futures contract

Strike Listings: All strike intervals

Settlement At Expiration

Option exercise results in a position in the underlying cash-settled Futures contract. Options which are in-the-money on the last day of trading are automatically exercised. In-the-money QUARTERLY OPTIONS, in the absence of contrary instructions delivered to the Clearing House by 7:00 p. m. on the day of the expiration, are exercised automatically into expiring cash-settled futures, which settle to the SOQ calculated the morning of the 3rd Friday of the contract month. In-the-money SERIAL OPTIONS, in the absence of contrary instructions delivered to the Clearing House by 7:00 p. m. on the day of the expiration, shall be exercised automatically on serial option expiration day.

All strike prices within 60 strike price intervals above and below the underlying futures contract settlement price on the previous Trading Day.

European Style. Exercisable only on expiration day. On expiration day, as of 3:00 p. m. CT, all in-the-money options will be automatically exercised, and all out-of-the-money options will be abandoned. On expiration day, exercise and abandonment is based on the 3:00 p. m. fixing price. Contrarian instructions are not allowed.

Settlement At Expiration

Option exercise results in a position in the underlying cash-settled Futures contract.

All strike prices within 30 strike price intervals above and below the underlying futures contract settlement price on the previous Trading Day.

European Style. Exercisable only on expiration day. On expiration day, as of 3:00 p. m. CT, all in-the-money options will be automatically exercised and all out-of-the-money options will be abandoned. On expiration day, exercise and abandonment is based on the 3:00 p. m. fixing price. Contrarian instructions are not allowed.

Settlement At Expiration

Option exercise results in a position in the underlying cash-settled Futures contract.

E-mini Dow ($5) Futures

About E-mini Dow

An electronically traded futures contract representing a portion of standard DJIA futures, E-mini Dow futures offer an accessible alternative to manage exposure to the U. S. stock market. Based on the Dow Jones Industrial Average, E-mini Dow futures offer exposure to the 30 U. S. blue-chip companies represented in the stock index.

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Options and Futures MCQs

body preview (5 words)

xxxxxxx and Futures xxxxxxxxxxxxx

file1.doc preview (1405 words)

1. You xxx x xxxxxx and xxx’re concerned xxxx xxx price of the stock xxx xxxxxxxx What xxxxx xxx do to minimize risk xx xxxx on the stock?

D. xxx x xxxxxxxx

2. xx a single time, a stock’s xxxxx xx $10 and xxx premium for x xxxx option on xxx stock is $3.

The strike xxxxx xx xxx xxxxxx xx xxx How should xxx explain the additional value xx xxxx

premium xxxx xxx xxxxxxxxxx between xxxxxx price xxx stock xxxxxxx

A. The xxxxx xxxxx and option xxxxx may xxxx been xxxxxx at xxxxxxxxx times when xxxxxx

xxxxxx were different.

B. The market value xx the option xxxxxxx xxxxxx the difference between the strike price

xxx xxx market value of xxx xxxxxxx

C. The market value of the xxxxxx xxxxxxx xxxxxx the xxxxxxxxxx between xxx xxxxxx

market value xxx xxx strike xxxxx plus x time premium.

xx xxx hypothetical price of the xxxxxx is less than xxx xxxx xxxxxxxxx

xx Which of xxx xxxxxxxxx strategies xxxxxx xxx greatest xxxxxxxxx to maximize rate xx

- - - more text follows - - -

Exercise Value & Price

The exercise price on one of ORNE Corporation's call options is $30 and the price of the underlying stock is $35. The option will expire in 25 days. The option is currently selling for $5.50.

a. Calculate the option's exercise value?

segundo. What is the value of the premium over and above the exercise value? What does this value represent?

do. Is this an out-of-the money option, at-the-money, or in-the-money? ¿Por qué?

re. What will happen to the value of the option if the underlying stock price changes to $30? ¿Por qué?

mi. Is this an example of a covered call option or a naked call option? ¿Por qué?

Solution Preview

Question A The exercise value of an option can be found as:

Max(0, S - K) where S is the price of the underlying stock and K is the strike price of the option. In this case, S=35 and K=30, so S-K = 5. Since 5 is greater than 0, then the exercise value is $5.00

Question B Since the option sells for $5.50 and the exercise value is $5.00, then the premium is $0.50. This premium represents the volatility of the stock price and the time left to expiration of the option. Usually.

Solution Summary

Discussion guides student through how to answer and gives solution with worded reasoning and displayed calculations. 371 words.

Behind the $5.5 million bet on McDonald’s

This week's unusually bullish options activity on McDonald's continues, as one trader stakes $5.5 million in a massive bet on the fast food giant. It will make money only if McDonald's shares continues to rise through January.

It was Thursday's single biggest options trade on any stock in terms of the number of contracts traded. Specifically, the trader bought 38,786 January 95-strike calls on McDonald's for $1.41 per share. Since each call contract controls 100 shares of stock, this trade cost the buyer $5.47 million in options premium.

For the trade to make money, McDonald's needs to rise above the $95 strike price by more than the $1.41 being spent by January expiration—or above $96.41.

McDonald's shares were at about $92 when the trade was made, meaning the trader was looking for a 5 percent rise. However, the stock has powered higher since the trade, so only 3 percent gain from Friday's opening price is needed.

As the stock has cooperated, the value of those calls has risen substantially. Bought at $1.41, their value at Friday's open was $2. That means the trader has enjoyed a $2.3 million profit already.

Andrew Kelly | Reuters

The Ronald McDonald balloon during the 88th Annual Macy's Thanksgiving Day Parade in New York November 27, 2014.

A recent surge in the stock has been driven by the rumor that activist investor Bill Ackman is initiating a new position in MCD. Ackman and his firm, Pershing Square Capital Management, have declined to comment. But some have gone so far as to speculate that Ackman was behind Thursday's call purchase.

On CNBC's "Fast Money ," Mike Khouw said there was some logic behind such speculation.

"If you're acquiring the stock, the last thing you might to do is go out and buy some call options right before you make an announcement. That can be a way for you to level your bet without actually committing as much capital as purchasing the stock would require," he said. "And certainly, if he confirmed the rumors, you would probably see the stock go higher still."

So how does McDonald's feel about the notion that an activist may be getting involved?

In an earlier statement to CNBC, McDonald's spokeswoman Becca Hary wrote in part: "We welcome investment in our company."

The 5 Best Stocks Under $5

Look out for these money-multipliers-in-waiting

Jul 20, 2011, 10:04 am EDT | By Louis Navellier. Editor, Blue Chip Growth

It is well known that low-priced stocks generate the biggest returns in the market. Stocks under $5 tend to be smaller companies, but as we have seen during this last recession, plenty of big companies are trading under $5 per share, as well.

Whatever your preference, large or small, you can do well riding the momentum of inexpensive stocks. It is far easier for a sub-$5 stock to double in value than it is for a $500 stock to do the same. All that is needed is a reasonable valuation and strong earnings growth.

The larger extent to which companies trading under $5 serve monster markets, the better. It is that potential that is likely to be bid up. Prove that potential with demonstrated earnings growth, and away you go.

Here are five of my favorite stocks trading for under $5 per share.

Article printed from InvestorPlace Media, http://investorplace. com/2011/07/best-5-stocks-under-5-dollar/.

©2016 InvestorPlace Media, LLC

5 Stocks Under $10 Worth Buying

*Bare Escentuals was acquired for $18.20 a share in 2010. Focus Media was acquired for $27.50 a share in 2013.

The average gain of 589% in five years is pretty remarkable. Yes, it was five years ago when the market was bottoming out, but that still blows away every major market index in that time.

Let's go over this month's picks.

Groupon (NASDAQ:GRPN ) -- $8.36 The daily-deals leader seemed to be trading in the double digits for good last month until a poorly received quarterly report sent it plunging back into the single digits.

But things aren't that bad at Groupon.

Acquisition integration costs have eaten at the company's bottom line, but we're looking at a niche leader that's growing revenue at a healthy clip. Analysts see another year of profitability, with revenue climbing 23% in 2014. Packing $1.2 billion in cash and equivalents on its balance sheet also comes in handy. Groupon may have been ludicrously priced when it went public at $20 a couple of years ago, but now it's trading at more than 50% off -- the kind of discount that usually draws Groupon users.

Allied Nevada Gold (NYSEMKT:ANVGQ ) -- $6.39 With precious-metal prices heading higher, it's time to consider having some exposure to the mining industry. Allied Nevada is a gold and silver miner that's on a roll, even before we consider the recent uptick in selling prices.

Allied closed out last year with sales of gold and silver up 59% and 23%, respectively. It sold 858,073 ounces of silver and a record 181,941 ounces of gold by lowering its mining costs per ounce during the period. It expects to continue to ramp up production this year on a cost-effective basis, and when you consider that prices have been inching higher this year, we should see Allied Nevada Gold's profitability explode.

Frontier Communications (NASDAQ:FTR ) -- $4.99 Chasing high yields is hazardous in the realm of low-priced stocks, but there seems to be some stability to Frontier's 8% yield.

Yes, it's a telecom toiling away in underserved rural markets, and these days a lot of people are kissing their landlines goodbye. However, Frontier has done a good job of replacing that revenue with higher-paying broadband accounts.

Revenue in its latest quarter didn't impress, dipping slightly to $1.18 billion. However, its adjusted EPS of $0.07 was ahead of both what it posted last year and what analysts were expecting this time around. Improving profitability is one way to keep those hefty quarterly dividend checks coming.

JetBlue (NASDAQ:JBLU ) -- $8.68 You have to go all the way back to 2007 to find the last time this low-cost airline was trading in the double digits. Investors have historically been bludgeoned for buying into the airlines industry, but this is actually a good time to fly in to a sector where consolidation and an improving global economy have been firming up airfares.

Analysts see JetBlue's revenue and EPS climbing 10% and 35%, respectively, this year. Priced at a reasonable 12 times this year's projected profitability, JetBlue offers a compelling play on one of the few air carriers that generally get rave reviews from customers for its on-board amenities.

Sirius XM Radio (NASDAQ:SIRI ) -- $3.44 The only game in town when it comes to satellite radio was the biggest winner of this month's column five years ago, but it still offers plenty of upside now that it won't be taken over by its majority stakeholder.

Sirius XM has been growing its subscriber rolls and milking more revenue from each listener. These may be challenging times with so many free or nearly free wireless alternatives, but Sirius XM's unmatched content and lucrative relationships with all of the leading automakers can't be dismissed. With improving margins and clear paths to expand its offerings, Sirius XM should continue to beat the market through the next five years.

Five for the road These five stocks aren't trading in the single digits by accident. If I'm right about the catalysts, though, they may not be trading in the single digits for too much longer.

Finding promising stocks while they're still cutting their baby teeth is at the heart of the Rule Breakers newsletter that I write for. You can check it out for free this month with a 30-day trial subscription. There are roughly a half dozen active stock recommendations in the growth stock research service trading for less than $10 at the moment. Check those out, and I'll be back with more on the third Monday of next month.

Six more stocks to buy now They said it couldn't be done. But David Gardner has proved them wrong time and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, one of his favorite stocks recently became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his six carefully chosen picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Rick Munarriz owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford and Sirius XM Radio. Pruebe cualquiera de nuestros servicios de boletín Foolish gratis durante 30 días. Tontos no todos pueden tener las mismas opiniones, pero todos creemos que teniendo en cuenta una amplia gama de ideas nos hace mejores inversores. Motley Fool tiene una política de divulgación.

Stock-option tally to top $5.2 billion

How much funny money was handed out via stock-options backdating?

The tally is still being reckoned, but so far it totals about $5.2 billion, according to revised financial reports filed by 60 companies caught up in the scandal.

"The $5.2 billion figure is going to get a lot higher," said Todd Fernandez. a senior research analyst with investment advisory firm Glass Lewis & Co. in San Francisco, which issued a report this week summarizing public information on companies affected by backdating.

That figure is based only on the 60 companies that have announced a specific charge they will take to rectify backdating. Another 24 companies have said they will have to restate their earnings, which implies they will also take a charge, Fernandez said. And with at least 152 companies caught up in the options-backdating scandal, it is likely that still more may have to take charges.

Options give a recipient the right to buy stock in the future at today's price, called the exercise price. Backdating means changing the grant date to an earlier time when the stock was trading for less, thus giving the recipient a better bargain on the stock. Such grants are called "in the money" options and are supposed to be accounted for as a compensation expense.

When companies take charges because of backdating, they calculate the difference in the stock price between the actual grant date and the backdated date. For example, if a company granted its chief executive officer 100,000 shares of stock on April 1, when it was trading at $25 per share, but backdated it to Feb. 1, when it was trading at $20 per share, it must take a charge of $5 (the difference in the price) times 100,000 (the number of shares granted), or $500,000.

The reason the charges are mounting so high is simply the sheer number of options involved, Fernandez said.

"When you have a company such as Broadcom that allegedly backdated the vast majority of the options given to all employees over a several-year period, you're talking about potentially hundreds of thousands of options," he said. "These were high-flying stocks back in the late 1990s. That's why the numbers get so high."

Another big number related to backdating that Glass Lewis produced this week is $5.1 billion. That's the collective decline in market capitalization for those 152 companies the day after each announced its exposure to backdating problems. Glass Lewis has not calculated whether the stocks stayed down or rebounded after the first-day drops, nor has it adjusted for other world events, such as the price of oil, or company events, such as earnings reports, that may have skewed the stock prices.

Glass Lewis' breakdown of companies in the scandal shows that at least 43 have headquarters in Silicon Valley or San Francisco. That's not surprising because stock options were a popular form of compensation in the valley the late 1990s and early 2000s -- the period when backdating evidently flourished.

The analysis also shows that 44 executives and directors at 24 companies have been fired or resigned over backdating.

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Options are the right to exercise a contract or undertake a business activity. Financial options (as well as their underlying assets) are usually traded on exchanges. Real options involve assets or business opportunities often unique to a business, and decisions to undertake these types of projects are normally considered to be capital budgeting decisions (see Real Options Valuation ).

Here we look at financial options that are traded in financial markets. These options are very much like futures; however, future contracts require both parties to hold up their end of the deal - options do not. Options give one party the right, but n ot the obligation . to buy or sell a given quantity of an asset ("underlying asset") on (or perhaps before) a given date, at a price agree upon today.

Call Option: A call option gives the holder of the option the right, but not the obligation, to buy a given quantity of some asset at some time in the future, at a price agreed upon today.

Put Option: A put option gives the holder the right, but not the obligation, to sell a given quantity of an asset at some time in the future, at a price agreed upon today.

Styles of Options

European Options: European options are options that can be exercised only at the expiry date.

American Options: American-style options are options that can be exercised up until and including the expiry date.

Asian Options: Asian options, or average value options, are a more complex option where the payoff is determined by the average price of the underlying asset over a set period of time.

LEAPS: Long-term equity anticipation securities are options with an expiration date usually over one year.

Exercising the Option: Performing the contract by using the option to buy or sell the underlying asset.

Strike Price or Exercise Price: The specified price written in the option contract that is agreed upon before at which the holder can buy or sell the underlying asset.

Expiry Date: Self explanatory. This is the maturity date of the option. Some options can only be exercised at the expiry date, some can be exercised any time up until the expiry date.

In-the-money: If the exercise price is less than the market price of the underlying asset, a call option is considered to be "in-the-money" (and vica versa for a put option).

At-the-money: If the exercise price is equal to the market price of the underlying asset, both a call and put option are considered "at-the-money."

Out-of-the-money: If the exercise price is more than the market price of the underlying asset, a call option is considered "out-of-the-money" (and vica versa for a put option).

Categories within Options

The Black-Scholes Model is an option pricing model based on the intuition behind the delta-hedging strategy. The discovery of the Black-Scholes model legitimized the trading of derivatives and has contributed significantly to their increased popularity.

Delta hedging is a binomial option pricing model that looks at the delta hedging strategies used by many major financial institutions to build portfolios and price options.

In order to decide what type of securities should be purchased as part of a trading strategy, investors look at the payoffs that buying and selling different options will give them.

Convertible bonds or convertible debentures are bonds that have an option to be converted into a fixed number of common shares of the issuing company up until the date of maturity of the bond.

Warrants are like options in that they give the holder the right but not the obligation to purchase an underlying asset. In this case, warrants give their holders the right to purchase a fixed number of shares of common stock directly from the issuing company at a fixed exercise price up until the expiry date.

Because options confer rights, but not obligations, to the party that holds the option, this party is willing to pay an

In a risk-neutral wold, there exists the special case where the expected rate of return on any asset is simply the risk-free rate. This is because investors do not demand any additional return for additional risk. We use this special case for building a risk-neutral binomial option pricing model.

Executive compensation packages are typically made up of a mixture of components that include a base salary, benefits, long-term compensation, annual bonuses, retirement contributions, stock, and call options on the company's stock. Stock options can, and often do, make up the largest portion of an executive compensation package.

Please put together the following information moving Peoplesoft to Oracle Financial Modules and merger both application with Williams ACMP. Develop a consolidated ACMP-Williams Finance integration Roadmap and implementation. 1) High Level Requirement 2) Initial Solution 3) Conflict Area 4) Resolve Conflict 5) Any suggest

1. Which of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. segundo. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. do. An NPV profile graph is desi

1. The exercise price on a call option is $30 and the price of the underlying stock is $35. The option will expire in 35 days. The option is currently selling for $5.75. a. Calculate the option's exercise value? segundo. Calculate the value of the premium over and above the exercise value? Why is an investor willing to

Problem 1 A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value of this Call Option? What is the Time Value of the Option? Problem 2 The Exercise (Strike) Price on ABC Com

Can someone, please help me with this question. Estoy muy confundido. Vineyard Air, a small business with one twin engine airplane that shuttles people from Boston to Martha's Vineyard, learns from reading in the industry trade magazine that the Federal Aviation Administration (FAA) has proposed a regulation change. En lugar de

Question 1 Mr. Buck buys a condominium for $196,000. The following costs are associated with this purchase and due at closing. 20% Down payment is required. Loan Fee (1 point). Appraisal Fee $375 Title Insurance

A stock has a spot price of $35. Its May options are about to expire. One of its puts is worth $5 and one of its calls is worth $5. The exercise price of the put must be ___A__ and the exercise price of the call must be ___B__. (please show work for A & B)

Your client is a professional corporation that employs three older highly compensated accountants and two younger non-highly compensated office workers. The employer wants to adopt a qualified retirement plan that will maximize tax-deferred retirement savings for the accountants, as well as providing adequate benefits for all e

On Jan 1 Yellow Car Company issued 15-year, $50,000,000 face value, 4% bonds, at par value. Each $1,000 bond is convertible into 20 shares of Yellow Car common stock. The bonds were not converted in the current year. Yellow Car's net income in the current year was $8,680,000, and its tax rate was 30%. The company had 2,650

You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 9.8 percent. Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent. What is the portfolio weight of stock A? I am not sure how to do this problem.

2Calculate a table of interest rates based on the following information: •The pure interest rate is 2.5%. •Inflation expectations for year 1 = 2%, year 2 =4%, years 3-5 =5%. •The default risk is .1% for year one and increases by .1% over each year. •Liquidity premium is 0 for year 1 and increases by .15% each year.

If a stock is selling for $33 and you expect the price not to fluctuate, at what stock price would the buyer of a straddle profit if a call option at $35 sells for $3 and the put option at $35 sells for $4?

How many call options? I don't know if my calculations/formulas are correct. por favor avise. an investor owns 1,000 shares of stock but anticipates its price may decline. To reduce the risk of loss, how many call options must be sold if the hedge ratio is 0.7? A. 700 B 721 C 1029 D 1429 My answer was as follows: Numb

Sepracor Inc, a drug company reported the following information. The company prepares the financial statement in accordance with GAAP. Current Liabilities. $554,114 Convertible subordinated debt. 648,020 Total liabilities. 1,228,313 S

(Part 1) explain how a short position can be protected with options; use examples (Part 2) comment on how leverage works in purchasing call options.

Can you show me how to calculate this? "I need to decide the best course of action for the use of the stock option contracts such as long calls and long puts. The stock is currently trading at $37." In order to make the decision on the best course of action, two tables of calculations are needed: 1. One table for calculat

The stock price of KLM is currently at $30 per share. Assume that over 3 months, it can either go up by 20% or down by 20% and that interest rates are at 6% p. a. A friend of yours owns 5,000 shares of KLM that is held in trust and which he cannot sell for another six months. As he is looking to put a down payment on a home he wa

Financial Analysts, an investment firm, manages stock portfolios. The firm is considering investing in two stocks for a particular client. The client has a total of $60,000 to invest. Oil Alaska shares cost $30 per share. Southwest Petroleum shares cost $40 per share. Oil Alaska returns $6 per share per year and Southwest Petrol

6) There are two stocks in the market, stock A and stock B. The price of stock A today is $75. The price of stock A next year will be $63 if the economy is in a recession, $83 if the economy is normal, and $96 if the economy is expanding. The probabilities of recession, normal times, and expansion are .2. 6, and .2 respectively

"Stocks and Market Equilibrium" Please respond to the following: Discuss the non-rational factors that may have a role in the valuation of stocks and stock market equilibrium. Provide specific examples.

1. Which of the following statements is CORRECT? a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock. segundo. Two firms with the same expected dividend and growth rates must also have the same stock price. do. It is appropriate to use the constant growth model to estimate a st

Many organizations encourage employees to purchase company stock. How can a company promote stock ownership? What payback is there for the company when employees become shareholders?

(Stock - Option Plan) Berg company adopted a stock - option plan on November 30, 2011, that provided that 70,000 shares of $5 par value be designated as a available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30,2012. On January 2,2012,

What are the variables that impact the pricing of options?

11.3 You have learned about a number of ways of reducing risk, specifically hedging, insuring, and diversifying. In the table below, place an X in the cell for the technique being used to reduce risk. For each of the following below, identify if it is a strategy for hedging, insuring, or diversifying? 1. Placing an advance orde

1. A tax exempt money market fund has an annual return of 3.82 percent. What is your equivalent taxable rate if you are in a 32 percent marginal tax bracket? 2. You purchased 500 shares of SLG, Inc. stock at a price of $40.20 a share. You then purchased put options on your shares with a strike price of $47.50 and an option p

Make a Power Point with details about the differences between using futures contracts and options contracts in order to reduce risk. - Are there any advantages to using one of the instruments over the other - Is one of these more effective than the other? - Are the costs of each different? - Calculate how many call option

Write a memo that talks about the differences in buying a call option, selling a call option, buying a put option, and selling a put option. Please give an example of a business scenario that would be appropriate to use in each of the contracts (put and a call contract). If one were to choose to use the forward market and were

Below is recent monthly stock return data for Exxon Mobil (XOM) and Microsoft (MSFT). Using a spreadsheet and its functions, compute the average, variance, standard deviation, and correlation between the returns for these stocks. What does the correlation between the returns imply for a portfolio containing both stocks? MES

Incorporate the effect of the employee stock option (ESO) plan into the common equity valuation for Bank of America. Consider both the forecast ESO grants and outstanding ESOs. Perform your valuation in Excel; use appropriate formulas and equations.

MPhil, Madurai Kamaraj University

MCom, Annamalai University

IATA, International Air Transport Association

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RSI Alert: Infinity Pharmaceuticals Inc (INFI) Now Oversold Friday, April 25, 12:26 PM ET, by Market News Video Staff Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy.

Commit To Buy Infinity Pharmaceuticals At $8, Earn 16.9% Using Options Thursday, July 3, 11:49 AM ET, by Market News Video Staff Investors considering a purchase of Infinity Pharmaceuticals Inc (INFI) stock, but cautious about paying the.

Relative Strength Alert For Infinity Pharmaceuticals Thursday, July 31, 12:55 PM ET, by Market News Video Staff Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy.

Interesting INFI Put And Call Options For August 16th Monday, August 4, 10:51 AM ET, by Market News Video Staff Investors in Infinity Pharmaceuticals Inc (INFI) saw new options become available this week, for the.

Infinity Pharmaceuticals Stock Sees Short Interest Decrease By 11.6% Tuesday, August 12, 3:01 PM ET, by Market News Video Staff The most recent short interest data has been released by the NASDAQ for the 07/31/2014.

Commit To Buy Infinity Pharmaceuticals At $5, Earn 22.4% Annualized Using Options

By Market News Video Staff, Wednesday, February 3, 11:51 AM ET

Play Video: How To Sell A PUT

Investors eyeing a purchase of Infinity Pharmaceuticals Inc (NASDAQ:INFI ) stock, but cautious about paying the going market price of $5.80/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the July put at the $5 strike, which has a bid at the time of this writing of 50 cents. Collecting that bid as the premium represents a 10% return against the $5 commitment, or a 22.4% annualized rate of return (at Stock Options Channel we call this the YieldBoost ).

Start slideshow: Top YieldBoost Puts of the S&P 500 »

Selling a put does not give an investor access to INFI's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $5 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked ). So unless Infinity Pharmaceuticals Inc sees its shares decline 14.7% and the contract is exercised (resulting in a cost basis of $4.50 per share before broker commissions, subtracting the 50 cents from $5), the only upside to the put seller is from collecting that premium for the 22.4% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Infinity Pharmaceuticals Inc, and highlighting in green where the $5 strike is located relative to that history:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the July put at the $5 strike for the 22.4% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Infinity Pharmaceuticals Inc (considering the last 252 trading day closing values as well as today's price of $5.80) to be 62%. For other put options contract ideas at the various different available expirations, visit the INFI Stock Options page of StockOptionsChannel. com.

In mid-afternoon trading on Wednesday, the put volume among S&P 500 components was 1.21M contracts, with call volume at 1.38M, for a put:call ratio of 0.87 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers. Find out which 15 call and put options traders are talking about today.

Top Six Most Viewed Stories This Week @ Market News Video :

This Article's Word Cloud: INFI Infinity Options Pharmaceuticals Stock YieldBoost about among annualized benefit buyers call cents compared contract exercised from going history market month only options other owning premium price rate ratio represents return seller selling share shares stock strike that there this today trading trailing twelve upside volatility where which with would

Short Stock

Initial $5.00/share and below: greater of $2.50/share or 100%

Initial above $5.00/share: greater of $5.00/share or 50%

Maintenance $5.00/share and below: greater of $2.50/share or 100%

Maintenance $5.00/share and above: The maintenance margin requirement for short stock above $5 is based on a comparison of the stock position’s value to the absolute value of all marginable stocks in the account. This includes long and short stock.

The market values and margin rates used to compute the initial and maintenance margin scenarios utilize OptionsHouse house standards. Higher margin rates may be utilized when calculating these scenarios.

The amount of money you can borrow on margin toward the purchase of securities is typically limited to 50 percent of the value of marginable securities in your account. However, it is prudent to borrow less to minimize risk.

Once you borrow on margin, you are required to maintain a certain amount of equity in your account, depending on the securities you hold. Typically, the equity maintenance requirement is at least 30% of the total account value, but it can be higher for certain securities or accounts.

Margin loans may be established by our clearing firm, Apex Clearing Corporation (“Apex”), in its sole discretion regardless of the amount of collateral delivered to Apex, and Apex may change such minimum and maximum amounts from time to time without notice to our customers.

In the interest of ensuring the continued safety of our clients, Apex may, without notice, modify certain margin policies to adjust for volatility in financial markets. The changes will promote reduction of leverage in client portfolios and help ensure that clients’ accounts are appropriately capitalized.

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Top 5 Tech Stocks Under $5

Published on August 25, 2014 |

As computer technology continues to advance at a breakneck pace, demand of computer components and networks grows as well. These five computer technology stocks are not only poised to benefit from these trends, but are cheap from a price perspective and have huge upside potential too.

So if you are looking for some small cap picks in the technology world, consider these ‘buy’ ranked stocks. They have all seen positive estimate revisions as of late and could be the top five tech stocks under $5/share:

Telecommunication Systems was founded in 1987 and has been publicly traded since the early 2000’s and was hit hard in the tech bust, but has been making a positive comeback in the last couple years. The company operates in two segments, government and commercial. The government segment designs, furnishes, installs, and operates wireless communication systems with clients such as the U. S. department of defense.

The commercial segment enables 9-1-1 calls routing through cellular, voice over internet protocol, and next generation technology. The company operates in the U. S, Europe, Latin America, and Asia. The stock is currently trading at $3.04 per share and is up about 31.60% for the year.

Revenue was reported at $86.2 million Adjusted net income was $3.1 million or $0.05 per diluted share, up 41% from $2.2 million or $0.04 per diluted share in the first quarter of 2014, and compares favorably to an adjusted net loss of $690,000 or $(0.01) in the second quarter of 2013.

Grew volume and pipeline in NextGen 9-1-1 deployment, software and managed services contracts.

Doubled contract ceiling to $6.6 million for DoD's Art of Exploitation cyber training and support and was engaged by E-volve Technology Systems to enable delivery of TCS professional services to the U. S. Air Force Cyber Operations Training Program, with a total TCS contract value of $3.3 million.

Issued 12 U. S. and foreign patents bringing the company's patent portfolio to 361 patents issued in the U. S. and abroad, with more than 300 patent applications pending and 37 monetization projects underway at various stages of execution.

"We entered 2014 with the commitment that 2013 was the floor on our company's operating results, and the second quarter represents another step of steady improvement," said Maurice B. Tose, TCS chairman and CEO. "As the adverse impact of government budget turbulence has abated and we continue to manage company costs, we are focusing on higher EBITDA and other operating metrics.”

Telecommunication Systems is generating about $345 million for the past year and has a market value of $181.03 million with a P/S (ttm) ratio of .52. The forward P/E (fye December 2015) is 12.20 with a PEG ratio (5 yr expected) at .82. These numbers gives a good indication that the stock is a value stock where the market may not be currently accounting for its potential growth in the price of the stock.

The company has beat earnings estimates over the past year by an average 88.89% and all analysts in our coverage universe have upgraded their earnings estimate for the current year. We currently have the communication company with a Zacks Rank #1 (strong buy), and rank It in the top 37% of all industries.

Planar Systems, Inc. together with its subsidiaries, develops, manufactures, and markets electronic display products and systems. Planar Systems, Inc. provides its products to retailers, educational institutions, government agencies, businesses, utilities and energy firms, and home theater enthusiasts under the Planar, Clarity, and Runco brands primarily in North America, Europe, and Asia.

The company was founded in 1983 and is headquartered in Beaverton, Oregon. The company has been public since the mid 1990’s and has been struggling ever since, but recently has been making major changes and is up about 67.46% for the year, trading at $4.46 per share.

Planar Systems recorded sales of $43.9 million and GAAP income per share of $0.03 in its third fiscal quarter. Sales of digital signage products totaled $21.4 million in the third fiscal quarter of 2014, a 53 percent increase over the same period a year ago. Total revenue increased 17 percent compared to the third quarter of fiscal 2013. The Company’s consolidated gross profit margin, as a percentage of sales (on a non-GAAP basis), was 24.4 percent in the third quarter of 2014, up from 21.7 percent in the third quarter of 2013.

Quarterly sales of digital signage products increased 53 percent to $21.4 million, compared to the third fiscal quarter of 2013.

Non-GAAP EBITDA totaled $1.6 million (see reconciliation table), resulting in $4.4 million in non-GAAP EBITDA fiscal year to-date.

Rolled out the Clarity Matrix Video Wall Calculator, a first-of-its-kind, free online tool that makes it easier, faster and more accurate to design and install video walls.

Advanced the adoption of Ultra HD with the introduction of four new 4K displays: Planar UltraRes 98”, Planar EP-Series 58” and 65”, and Planar IX-Series 28” UHD displays.

“Our third quarter results came in above our expectations for both revenue and profits, bolstered by strong growth in sales of our strategic focus area of digital signage products,” said Gerry Perkel, Planar’s president and chief executive officer. “As a result of the strong performance in the third quarter, coupled with a favorable outlook for the fourth quarter, we are increasing our estimates for revenue and non-GAAP EPS for the full fiscal year.”

Looking forward, the Company currently expects to see continued strong revenue for digital signage and custom C&I products in the fourth fiscal quarter of 2014, and therefore anticipates revenue in the range of $48 million to $50 million and non-GAAP income per share of $0.08 to $0.10. As a result, the company has raised its estimates for the full fiscal year 2014, and currently expects revenue in the range of $173.4 million to $175.4 million and non-GAAP income per share of $0.21 to $0.23.

Planar Systems generated about $171.09 million in the past year and has a market value of about $97.80 million with a P/S (ttm) of about .54. The forward P/E (fye Sep 2015) is 15.39 and has a PEG (5 yr expected) at 1.01. Looking at these numbers, the market seems to be accounting better for growth in the price of the stock, and is still considered to be a bargain given the forward P/E ratio.

The company has beat earnings estimates in the past year with an average surprise of 262.5% and in the past 60 days, 100% of our analysts have upgraded their earnings estimates. We currently have the company at a Zacks Rank #1 (strong buy) and in the top 6% of all industries.

Semiconductor Manufacturing International Corporation, an investment holding company, is primarily engaged in the computer-aided design, manufacturing, testing, packaging, and trading of integrated circuits and other semiconductor services. It also designs and manufactures semiconductor masks. In addition, the company is engaged in the construction, operation, and management of living quarters, schools, and supermarkets.

It operates principally in the United States, Europe, and the Asia Pacific. The company was founded in 2000 and is headquartered in Shanghai, China. The stock is relatively new and has been public since 2004 and has seen a net return of 82.10% in the last five years. The stock is currently trading at $4.64 per share and YTD is up 18.48%.

In the company’s 2Q14, they reported $511.3 million with an increase of 13.4% quarter over quarter mainly due to an increase in wafer shipments in 2Q14. Gross profit was $143.1 million in 2Q14, an increase of 48.8% quarter over quarter from $96.1 million in the first quarter and gross margin was 28% in 2Q14, up about 21.3% in the last quarter due to an increase in fab utilization.

Third Quarter 2014 Guidance

According to the company’s 8-K, Revenue is expected to increase 1% to 5% quarter over quarter and gross margin is expected to range from 24% to 26%. One of the main growth drivers for 2015 will be 28nm chips and the company is on track to have production ramp up in 2015. The second quarter recovery ended with strong financials and profitability for SMIC. Fiscal year 2015 is looking optimistic as they prepare for growth on 8-inch and 28nm.

This semiconductor company generated revenue of $1.99 billion in the last year and has a market value of 3.23 billion with a P/S ratio of 1.64. Trailing P/E (ttm) is 18.52 and forward PEG ratio (5 yr expected) is 1.20. These numbers indicate that the relative value of the stock price is similar to the other companies in the industry, but is different by having their own potential growth accounted in its price more efficiently than the other stocks.

The company has beaten earnings estimates in the past year with an average surprise of 94.45% and has an EPS consensus estimate of $0.06 for the current quarter. We currently have the stock at a Zacks rank #2 (buy) and rank the company in the top 32% of all industries.

ChyronHego Corporation provides software and hardware products and solutions and provides production, custom development, timing and data, technical, support, and training services. ChyronHego Corporation markets its products and systems to broadcast, production, and post-production facilities, as well as multimedia outlets, such as Web, mobile, and print companies. The company has been publicly traded since 2004 and is up 144% in the past two years, and is currently trading at $2.48 per share.

Revenues for the second quarter of 2014 increased 37% to $14.7 million as compared to $10.7 million in the second quarter of 2013. This $4.0 million increase was primarily driven by the contribution of services from the 2013 merger with Hego, which included a sale of tracking systems to a European Soccer League.

Net income for the second quarter of 2014 was $2.9 million, or $0.08 per basic and diluted share, as compared to a net loss of $2.1 million, or $(0.09) per basic and diluted share, in the second quarter of 2013.

President and CEO Johan Apel commented, “We are very excited to show our first profitable quarter since Q2 2011. Our efforts in both keeping costs under control and driving revenue growth are bearing fruit. We are expecting growth in revenues to continue in the coming quarters. In terms of revenues, we are ahead of plan in both the U. S. and Europe and we have a positive outlook regarding the development of these markets. Our customers are investing with us and they appreciate our efforts to create the most complete offering within broadcast graphics.”

ChyronHego generated annual revenue of $56 million with a market value of $91.40 million with a P/S ratio of 1.70. Forward P/E (fye Dec 2015) is 17.79 indicating good value for the stock given projected EPS. The company has beaten earnings estimates for the past year with an average surprise of 3.75% and a majority of analysts have upgrade their earnings estimates for the current year.

We currently have the company with a Zacks rank #1 (strong buy) and is #1 ranked of all industries. This company has a very optimistic outlook for future growth so investors should be in the lookout for news regarding this recently merged company.

AXT, Inc. together with its subsidiaries, designs, develops, manufactures, and distributes compound and single element semiconductor substrates. AXT, Inc. together with its subsidiaries, designs, develops, manufactures, and distributes compound and single element semiconductor substrates. The company also provides semi-conducting substrates made from gallium arsenide that have applications in light emitting diodes, lasers, and optical couplers.

AXT, Inc. sells its products through direct sales force in the United States and China, as well as through independent sales representatives in Europe and other parts of Asia. The company was formerly known as American Xtal Technology, Inc. and changed its name to AXT, Inc. in July 2000. AXT, Inc. was founded in 1986 and is headquartered in Fremont, California. The company has been publicly traded since the late 1990’s and is up about 37.57% in the past five years and is currently trading at $2.44 per share.

Revenue for the second quarter of 2014 was $21.4 million compared with $19.3 million in the first quarter of 2014. Total gallium arsenide (GaAs) substrate revenue was $11.3 million for the second quarter of 2014, compared with $8.5 million in the first quarter of 2014.

Indium phosphide (InP) substrate revenue was $3.0 million for the second quarter of 2014, compared with $2.2 million in the first quarter of 2014. Germanium (Ge) substrate revenue was $1.7 million for the second quarter of 2014, compared with $3.2 million in the first quarter of 2014. Raw materials sales were $5.4 million for the second quarter of 2014, consistent with $5.4 million in the first quarter of 2014.

“Q2 was a positive quarter for AXT,” said Morris Young, chief executive officer. “Through a combination of higher revenues, positive sales mix, other income and the first full quarter of benefit from our cost-savings measures, we achieved profitability ahead of our plan. In addition, with continued focus on cash management, we drove improvement in our balance sheet, growing our cash position and reducing inventory.”

“While the business environment remains challenging, during the second quarter we experienced stronger demand in both our semi-insulating and semi-conducting gallium arsenide substrates as well as continued strength in indium phosphide. Looking forward, we remain cautiously optimistic about our opportunities to drive further growth in our business.”

The company generated revenue (ttm) of $79.92 million with a market value of $79.05 million and a P/S (ttm) ratio of 1.01. The forward P/E (fye Dec 2015) is 122.00 and the PEG ratio (5 yr expected) is – 3.02 indicating that in the next year, the stock will be more pricey relative to the other stocks, but in the next 5 years, the current value of the stock is extremely undervalued given its 5 year projected growth rate.

Overall, the stock is still a value stock, but we will have to see in the future where this company goes with its exciting line of products in the pipeline. The company has beaten earnings estimates by an average surprise of 53.96% over the past year and in the last 60 days, 100% of analysts have upgraded their earnings estimates for the current quarter and year. We currently have the stock as a Zacks Rank #1 (strong buy) and is in the top 32% of all industries.

While all these stocks are relatively cheap from a price per share perspective, investors should look carefully at what each company has to offer and see if they are a good fit for a high risk portion of a portfolio. All of these stocks could be volatile, but given the recent earnings estimate revisions, could be potential outperformers in the weeks ahead for investors willing to take the plunge on these high risk, but possibly high reward, stocks trading under $5/share.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Zacks News for ( TSYS, PLNR, SMI, CHYR, AXTI )

Rambus Up to Strong Buy: Should it Be in Your Portfolio?

New Strong Sell Stocks for March 8th

Atmel Launches High Performing 8-bit Microcontrollers

Skyworks Shows Promise with Deep Customer Engagements

Skyworks Beats on Q1 Earnings as Revenues Rise Sharply

Others News for ( TSYS, PLNR, SMI, CHYR, AXTI )

TSYS Appoints Pamela Joseph President and COO

TSYS Announces First-Quarter 2016 Dividend

TSYS Again Recognized as a World's Most Ethical Company in the Ethisphere Institute's 2016 List

Saturn Minerals Begins Completions Test at Bannock Creek

TSYS and Ethoca Empower Card Issuers and Merchants to Combat Fraud

Zacks Releases 7 Best Stocks for April, 2016

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This strategy will help you avoid the ignominy of having your portfolio’s keel ripped out from beneath you – and it will also help you achieve real growth when everyone around you is foundering.

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Penny Stock Picks: 5 Under $5

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Making the right penny stock picks can score investors triple-digit gains in a matter of weeks – or days.

Chelsea Therapeutics International Ltd (Nasdaq: CHTP) gained as much as 120% Jan. 15 when it got drug approval from an FDA advisory panel. That brings the drug one step closer to FDA approval.

Look at BJ's Restaurants Inc. (Nasdaq: BJRI ). It traded as low as $1.50 per share in 2000, climbed over $5.00 per share in 2002, and now trades around $29. That's a 14-year gain of 1,833%.

The gains don't come without a rocky ride. As we explained in What Are Penny Stocks?. some penny stocks are volatile, illiquid, or vulnerable to scams.

But the right penny stock picks can lead to big gains in short time frames.

Following are five penny stock picks worth a look today.

Penny Stocks Picks to Consider in 2014

Chelsea Therapeutics International Ltd (Nasdaq: CHTP ) is a 10-year-old development stage biopharmaceutical company headquartered in Charlotte, NC. Shares soared as much as 120% on heavy volume Jan. 15 after a panel of federal experts recommended the approval of its most advanced candidate, Northera. A blood pressure treatment designed to prevent dizziness and fainting in Parkinson's disease patients, the advisory group concluded the drug is effective enough to warrant regulatory approval. The outside panel's endorsement came with the condition the drug only be approved for short-term use in a defined group of patients. The FDA will make a decision on Northera on Feb. 14. In addition to Northera, CHTP also has a portfolio of potential therapies for the treatment of rheumatoid arthritis. These treatments may also be suitable for the treatment of other autoimmune disorders. Over the last year, the stock has traded as low $0.76 and as high as $5.78. Shares were last changing hands at $4.76 and are up 7.33% so far this year.

Plug Power Inc . (Nasdaq: PLUG) is an alternative energy technology provider that engages in the design, development, commercialization, and manufacturing of fuel cell systems for the worldwide industrial off-road markets. The Latham, N. Y.-headquartered company, founded in 1997, sells its products to businesses, government agencies, and commercial consumers. PLUG has revolutionized the material handling industry with cost-effective power solutions proven to increase productivity, lower operation costs, and reduce carbon footprints. Its GenDrive fuel cell has proven to be a superior alternative to lead acid batteries for electric lift trucks in the $20 billion global handling market. News in early January that PLUG inked a deal with FedEx Corp. (NYSE: FDX ) to develop hydrogen fuel cell extenders for 20 FedEx electric trucks, sent shares surging 68% to a 52-week high of $4.90. Institutions own 12% and the average daily trading volume is 19.51 million. PLUG is up 124% this year.

4 Undervalued Stocks Trading Under $5 With Bullish Options Sentiment

Jul. 15, 2011 11:20 AM

One way to check the market’s sentiment for a stock is by looking at the stock’s put/call ratio, or the ratio of put options relative to call options. Because a put option is a bet that a stock’s price will fall (and a call option is the opposite bet), increases in the put/call ratio are bearish, while decreases are bullish.

We searched a universe of potentially undervalued stocks, those trading under $5 with a PEG under 1. From this list, we screened for those that have seen significant decreases in their put/call ratio over the last two weeks, indicating a bullish shift in market sentiment.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here. List sorted by decrease in put/call ratio.

1. Mitel Networks Corp. (NASDAQ:MITL ): Communication Equipment Industry. Market cap of $216.44M. Price at $4.03. PEG at 0.19. Put/call ratio has decreased 46.67% over the last 10 trading days (from 0.15 to 0.08). The stock is currently stuck in a downtrend, trading 7.72% below its SMA20, 16.26% below its SMA50, and 26.8% below its SMA200. The stock has performed poorly over the last month, losing 14.68%.

2. Xinyuan Real Estate Co. Ltd. (NYSE:XIN ): Residential Construction Industry. Market cap of $159.18M. Price at $2.04. PEG at 0.21. Put/call ratio has decreased 13.70% over the last 10 trading days (from 1.46 to 1.26). It's been a rough couple of days for the stock, losing 6.33% over the last week.

3. ReneSola Ltd. (NYSE:SOL ): Semiconductor Industry. Market cap of $417.75M. Price at $4.56. PEG at 0.12. Put/call ratio has decreased 9.68% over the last 10 trading days (from 0.62 to 0.56). This is a risky stock that is significantly more volatile than the overall market (beta = 2.94). The stock is currently stuck in a downtrend, trading 7.73% below its SMA20, 27.63% below its SMA50, and 51.14% below its SMA200. The stock has lost 35.26% over the last year.

4. Origin Agritech Limited (NASDAQ:SEED ): Farm Products Industry. Market cap of $107.77M. Price at $4.40. PEG at 0.72. Put/call ratio has decreased 2.74% over the last 10 trading days (from 0.73 to 0.71). This is a risky stock that is significantly more volatile than the overall market (beta = 2.36). The stock has lost 43.66% over the last year.

Options data sourced from Schaeffer’s; all other data sourced from Finviz.

Divulgación: No tengo posiciones en ninguna de las acciones mencionadas, y no planeo iniciar ninguna posición dentro de las próximas 72 horas.

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Oversold Conditions For Sigma Designs, Inc. (SIGM) Wednesday, March 6, 4:36 PM ET, by Market News Video Staff Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy.

January 2014 Options Now Available For Sigma Designs, Inc. (SIGM) Monday, May 20, 2:21 PM ET, by Market News Video Staff Investors in Sigma Designs, Inc. (SIGM) saw new options become available today, for the January.

Commit To Purchase Sigma Designs At $5, Earn 13.9% Annualized Using Options Thursday, October 17, 11:40 AM ET, by Market News Video Staff Investors considering a purchase of Sigma Designs, Inc. (SIGM) stock, but cautious about paying the.

Oversold Conditions For Sigma Designs, Inc. (SIGM) Thursday, December 12, 12:16 PM ET, by Market News Video Staff Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy.

Commit To Buy Sigma Designs At $5, Earn 23.2% Annualized Using Options Wednesday, March 12, 11:54 AM ET, by Market News Video Staff Investors considering a purchase of Sigma Designs, Inc. (SIGM) shares, but cautious about paying the.

Commit To Buy Sigma Designs At $5, Earn 23.6% Annualized Using Options

By Market News Video Staff, Wednesday, January 27, 11:44 AM ET

Play Video: How To Sell A PUT

Investors eyeing a purchase of Sigma Designs, Inc. (NASDAQ:SIGM ) stock, but cautious about paying the going market price of $6.14/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the July put at the $5 strike, which has a bid at the time of this writing of 55 cents. Collecting that bid as the premium represents a 11% return against the $5 commitment, or a 23.6% annualized rate of return (at Stock Options Channel we call this the YieldBoost ).

Start slideshow: Top YieldBoost Puts of the S&P 500 »

Selling a put does not give an investor access to SIGM's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $5 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked ). So unless Sigma Designs, Inc. sees its shares fall 19% and the contract is exercised (resulting in a cost basis of $4.45 per share before broker commissions, subtracting the 55 cents from $5), the only upside to the put seller is from collecting that premium for the 23.6% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Sigma Designs, Inc. and highlighting in green where the $5 strike is located relative to that history:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the July put at the $5 strike for the 23.6% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Sigma Designs, Inc. (considering the last 252 trading day closing values as well as today's price of $6.14) to be 70%. For other put options contract ideas at the various different available expirations, visit the SIGM Stock Options page of StockOptionsChannel. com.

In mid-afternoon trading on Wednesday, the put volume among S&P 500 components was 953,751 contracts, with call volume at 1.20M, for a put:call ratio of 0.79 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers. Find out which 15 call and put options traders are talking about today.

Top Six Most Viewed Stories This Week @ Market News Video :

This Article's Word Cloud: Designs Options SIGM Sigma Stock YieldBoost about among annualized benefit buyers call cents compared contract exercised from going history market month only options other owning premium price rate ratio represents return seller selling share shares stock strike that there this today trading trailing twelve upside volatility where which with would

While for the most part Wall Street tends to keep away from stocks priced in the single digits, sometimes the best opportunities, for aggressive investors, lie there. Typically, stocks priced under $5 are not margin-able, and they are rarely on the top picks at the major firms we cover. Nevertheless, they can offer significant upside and are priced low enough that smaller investors can own a larger number of shares.

We scanned our 24/7 Wall St. research data base for stocks priced under $5 with a Buy or Outperform rating, and the potential for large gains to the target price established by the firm with the research coverage. Here are five stocks priced under $5 with big upside potential.

FuelCell Energy Inc. (NASDAQ: FCEL) spiked up huge in the early spring of 2014, but it has battled against sellers and short-sellers since. The company is a global leader in providing ultra-clean baseload distributed generation to utilities, industrial operations, universities, municipal water treatment facilities, government installations and other customers around the world. Fuel Cell’s power plants have generated more than 3 billion kilowatt hours of ultra-clean power using a variety of fuels, including renewable biogas from wastewater treatment and food processing, as well as clean natural gas.

Cowen has an Outperform rating on the stock, with a $3 price target. The Thomson/First Call consensus price target is $2.88. The stock ended trading on Friday at $1.12.

ALSO READ: 3 Biotech Stocks With Upcoming Data That Could Be Huge

GasStar Exploration Inc. (NYSEMKT: GST) is an energy stock that includes the legendary T. Boone Pickens among its fans. He has purchased almost 200,000 shares of the stock and may be looking to buy more. GasStar is a Houston-based independent exploration and production company engaged in the exploration, development and production of natural gas and oil in the United States.

Wunderlich has a Buy rating and a $5 target on the stock. The consensus price target is just lower at $4.85. Shares were trading at $2.34 on Friday’s close.

MeetMe Inc. (NASDAQ: MEET) is the leading social network for meeting new people in the United States, and the public market leader for social discovery. MeetMe makes it easy to discover new people to chat with on mobile devices. With approximately 80% of traffic coming from mobile and more than a million total daily active users, MeetMe is fast becoming the social gathering place for the mobile generation.

Wunderlich puts a Buy rating on the stock, with a large $4.50 price target. The consensus target is $3.83, and the stock ended the week at $1.57.

Navios Maritime Holdings Inc. (NYSE: NM) is a global, vertically integrated seaborne shipping and logistics company focused on the transport and transshipment of drybulk commodities, including iron ore, coal and grain. The company’s fleet consists of 66 vessels, totaling 6.3 million dead-weight tons. It operates in North America, Europe, Asia, South America and internationally. The company is based in Monte Carlo, Monaco.

Stifel has the stock rated at Buy, with a huge $11.50 price target. The consensus estimate is a hefty $9.25. Shares were trading on Friday’s close at $3.96.

SFX Entertainment Inc. (NASDAQ: SFXE) is the largest global producer of live events and digital entertainment content focused exclusively on electronic music culture and other world-class festivals. It is also a stock that insiders of have buying a ton of recently, which is a very positive change for the better, as the stock was down huge in trading last year. Since going public in the fall of 2013, shares have dropped a gigantic 70%.

Stifel likes this stock, rating it at Buy, and have a massive $12 target. The consensus target is up there as well, at $10.25. Shares closed on Friday at $3.40.

ALSO READ: After Earnings, Which Big Bank Stock Is Cheapest?

Despite the big potential in these stocks, they are only suitable for very aggressive trading accounts. In many cases, stocks trading under $5 do so for a reason, so it makes sense to take a very close look before investing.

Mensaje de navegación

The Fun Math Behind Alphabet’s $5 Billion Stock Buyback

The company formerly known as Google now calls itself Alphabet Inc. For fun, however, it still likes playing with numbers.

Consider the math behind Alphabet’s nearly $5.1 billion stock-repurchase plan, announced Thursday .

Alphabet’s buyback math: The square root of 26 (letters of the Alphabet) = 5.09901951359. Multiply that by $1 bln = the buyback amount in $.

Yes, the jesters at Google took the square root of the number of letters in the alphabet — get it, the Alphabet? — to come up with the base. The first clue came in the press release. where it company announced its plan to spend a quite precise amount on the stock (bolding mine):

The board of directors of Alphabet authorized the company to repurchase up to $5,099,019,513.59 of its Class C capital stock, commencing in the fourth quarter of 2015. The repurchase is expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.

RBC Capital’s Mark Mahaney drew the short straw to ask the first questions during Alphabet’s conference call with analysts. Among important questions that no doubt matter greatly to investors, he asked about the formula. (Not just that, he said he was googling the buyback number to come up with the formula and realized it involved the square root of 26.)

Alphabet financial chief Ruth Porat gave Mr. Mahaney a gold star for deciphering the code.

But she stressed that the board has diligently evaluated the company’s growth opportunities while staying disciplined with its budgeting process. That’s how it came up with the framework around the $5 billion. Then, presumably, came the noodling around to find a fun formula.

It’s not the first time Google has played around with formulas to make decisions about its finances — or even its name.

The name Google is a play on googol, which is the number 1 followed by a hundred zeroes. When it first filed to go public. it said it planned to raise $ 2,718,281,828, a billion times the value of “e,” an important mathematical concept in calculus.

Nearly a year later, it said it was going to sell 14.2 million shares of stock. Well, not exactly 14.2 million, but 14,159,265, the numbers that follow the decimal in pi. And when the company made a move to buy Nortel Network patents, one of its bids was actually “pi” — around $3.14 billion. (Its other bids were plays on numbers, too; Google lost the bid.)

For the latest news and analysis, follow @wsjd .

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Good answers, but also consider this.

If you buy 100 $15 strike call options contracts that's 10,000 shares of AA you'd "control". At a cost of $5, you'd spend $50,000 in premium and if the stock went from $15 to $20 and stayed there, you'd break even (not including commission costs)at expiration as the option would have $5 intrinsic value and no time value (as you'd be at expiration).

So you need a 33% climb in the underlying stock over the life of the option just to break even. (might be either a good deal depending on the stock in question or for a low vol name / short time frame even less likely)

Far better to spread the position and sell the $20 strike. If the $20 strike could be sold for $2, you could reduce the premium down to $30K and only need the stock to reach $18 to break even, with max profit at $20 and above, making a 66% Return on Risk if it reaches $20 per share (Make $2 for every $3 you risked) Less premium to lose if you're wrong, lower break even point and asks less of the stock.

Leverage risk, not reward. Apologese if that's teaching to suck eggs but worth mentioning if you're new to options.

More Answers Below. preguntas relacionadas

If I have one call contract, can I exercise it to buy 100 stocks?

Is it true that you can avoid the wash rule by selling shares of stock, and buying back that same stock within 30 days through an option call?

Stock Options: Why do CALL options have strike prices below the current market price? Doesnt that mean you are "in the money"? and shouldnt you automatically just profit?

Just as Nifty stocks with p/e ratios below 14 indicates buying and above 21 is for selling, are there also other stocks with such data and trading ranges for them?

How do I close out calls when I don't have enough cash to buy them and no activity at the strike price that I bought?

Are the buying and selling prices of stocks the same?

The answer depends on how much time is left until expiration. Typically you will be able to sell them at intrinsic value (which is $15) + some time premium. However, very close to expiration perhaps a few days before and almost certainly on the day of, the likely market for this call will be quoted around intrinsic value. Say 14.75/15.25. The reason for this is that the options market makers to not want to pay intrinsic value because there are costs and risks involved with executing the trade profitably.

169 Views • D. Mas is a Most Viewed Writer in Options Trading .

So you purchase 100 Alcoa Calls at $5 each with Strike price of $15. And now Alcoa is at $30.

Basically Option price = Intrinsic + Extrinsic. And intrinsic for a call is stock price - call strike price. So in your case intrinsic = $30 - $15 = $15.

Extrinsic value depends on several factors, the main one being time left from expiration and change in volatility. And depending on the time left to expiration and increased volatility, the intrinsic value can be high resulting in a much higher total call price. So even is assuming the intrinsic value is close to zero, you will get a minimum of $15 per call.

Unless, there is a dividend component that is out standing to the tune of $1 or more per share, which can reduce the value of your call.

preguntas relacionadas

Employee Stock Options. What is the best way to interpret the put/call indicator in relation to the s&p 500 and the USD?

What is a good rule for determining the strike price to sell a put option?

When is a good time to buy or sell options call and put in the Indian stock market?

Let's say stock XYZ is at $0.18 and I decide to buy it at $2.00 and the trade goes through, does that mean that the price of XYZ will jump to $2.00?

Employee Stock Options. What's the difference between strike price and street price?

Employee Stock Options. Are there any minimalistic ways of determining a strike price when there is no external funding?

Stock Trading. I believe it's called a collar. I would like to find the right hedge strategy when selling an option spread and it starts going against you. Which stock option strategy offers a guaranteed profit?

Housing Prices. What is the largest instance of home depreciation in history?

Falling Oil Prices (2014–16). Why are fracking companies' stock prices falling?

Suppose I sell a call. The stock then goes up 1% per day until expiry. With perfect delta hedge and no transaction costs, will my p&l be the option premium?

Employee Stock Options. How is strike price calculated within a company?

Falling Oil Prices (2014–16). How can I identify oil and gas stocks that are under-valued and that will benefit the most when oil prices bounce back?

Market Timing. Who would be interested in buying stocks when it's price is peaking and everyone is trying to sell it?

Falling Oil Prices (2014–16). How do falling oil prices globally impact US stock markets?

Why is Alcoa's stock up almost 50% despite aluminium price being negative in 2014?

Stock Market. How does change in a share price with respect to its moving averages signal a buy or sell?

Stock Market. On the stock price chart of one year, if current prices are under the curve of 200 SMA (simple moving average), does it indicate buying time or selling time?

Stock Market. If no one sells or buys a particular stock, considering this hypothetical case will the stock price will increase if the company makes a profit ?

How much stock do you think Apple is buying back at these prices (below $100)?

Stock Market. What are some good Indian shares in range of Rs.100-200 to buy for a period of 1 year?

What's the Best $5 Energy Stock to Buy?

Source: Company SEC filings and author's calculations. * Enterprise value includes outstanding preferred stock.

We can make plenty of observations from the above chart as several numbers really jump out. Quicksilver really stands out for how much debt the company has on its balance sheet not just when compared to its peers but in terms of its total enterprise value. That alone might not make it the best stock to buy, as too much debt adds to a company's risk. That's why it's important to see how much debt adds to the overall enterprise value of the companies on this list. Abraxas has the least amount of leverage on the list while Quicksilver and Halcon have taken on more leverage.

These leverage ratios factor into the reasons why these stocks are trading in the $5 per share range -- the market hates companies that have too much debt. One other thing that I will point out is that both SandRidge and Magnum Hunter have more reasonable debt to enterprise values though both do have preferred shares which could count as debt. The bottom line is that when looking at a company's value, it's best to look deeper than just its stock price before you buy.

Source: SandRidge Energy

Looking at the enterprise value for an energy company provides a more accurate picture of what investors are really paying for the company as a whole. That's because from here we can then take a look at how a company is trading against its EBITDA, which is a good proxy for its potential cash-generating ability. It also gives you an idea of what a potential acquirer might be willing to pay for the company in question. By dividing its enterprise value into its trailing-12-month EBITDA we get a ratio which paints a clearer picture than a price to earnings ratio, which can be deceiving because many of these companies don't have any earnings:

Source: Company SEC filings and author's calculations. * Magnum Hunter TTM EBITA as of last filed 10-Qs.

Here again we can make some distinct observations. When looking at SandRidge and Halcon, both stocks are trading around $5 per share, but the best stock to buy is clearly SandRidge if you are looking to buy a cheap stock. That's even after taking into account the fact that SandRidge recently sold its Permian Basin assets which has inflated its trailing-12-month EBITDA a little bit (pro forma the EV/EBITDA ratio is closer to five times). Even with that adjustment SandRidge is trading well below these peers.

Final Foolish thoughts The numbers are pretty clear, if you are looking to buy a cheap stock, the best of this bunch to buy is SandRidge Energy. That opinion doesn't take into consideration how fast a company is growing its EBITDA, nor does it account for any value of hidden assets like undeveloped reserves. Think of this as a good starting point and a reminder that a stock's value has nothing to do with its price.

The next step for investors is to drill down even deeper SandRidge Energy and see if there is another reason why shares appear to be so cheap. We know that shares of SandRidge plummeted when natural gas prices plunged but this is a different company now as its focusing on growing its liquids production which has its future looking optimistic. To learn more about the future of this emerging oil and gas junior check out The Motley Fool's premium research report detailing SandRidge's game plan and what to expect from the company going forward. To get started, simply click here now !

Fool contributor Matt DiLallo owns shares of SandRidge Energy. Matt DiLallo has the following options: Short Sep 2013 $5 Puts on SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned. Pruebe cualquiera de nuestros servicios de boletín Foolish gratis durante 30 días. Tontos no todos pueden tener las mismas opiniones, pero todos creemos que teniendo en cuenta una amplia gama de ideas nos hace mejores inversores. Motley Fool tiene una política de divulgación.

Notice of Grant of Stock Options - $6.29

Document Id. 950

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Notify your employees that they have been granted stock options under a stock option plan with this downloadable Notice of Grant of Stock Options form.

The Notice form sets out:

the number and class of option shares granted to the employee,

the earliest and latest dates by which the options can or must be exercised,

the vesting requirements,

the option price per share.

This Notice of Grant of Stock Options is generic (not country specific) and is fully editable so it can be easily customized for your company's needs.

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strike price of a six-month call $100

market price of the call $ 6

strike price of a six-month put $100

market price of the put $ 3

finish the following sentences (fill in the blanks).

a) Which option is “in” the money? unesdoc. unesco. org unesdoc. unesco. org

b) The time premium paid for the call is _________.

c) If an investor writes a put, the amount received is _________.

d) The maximum the seller of the put can lose is _________.

e) The maximum amount a short seller (of the stock) can profit is _________.

At the expiration of the options (i. e. after six months have elapsed), the price

of the stock is $95.

f) The profit (loss) from shorting the stock is _________.

g) The profit (loss) from selling the put is _________.

h) The profit (loss) from writing the call naked is _________.

i) The profit (loss) from buying the call is _________.

j) At expiration, the call option _________.

ANSWERS for question 1a through j:

2. Given the following information,

price of a stock $62

strike price of a six-month call $60

market price of the call $ 6

strike price of a six-month put $60

market price of the put $ 2

Finish the following sentences.

a) The intrinsic value of the put is _________.

b) If an investor constructs a covered call, the amount invested (cash out) is _________.

c) The most the buyer of the put can lose is _________.

d) The maximum the buyer of the call can gain is _________.

e) The maximum amount the seller of the call naked can lose is _________.

At the expiration of the options (i. e. after six months have elapsed), the price

of the stock is $79.

f) The profit (loss) from buying the stock is _________.

g) The profit (loss) from writing the call covered is _________.

h) The profit (loss) from buying the put is _________.

i) At expiration, the time premium paid for the call is _________.

ANSWERS for question 2a through i:

3. Given the following information,

price of a stock $52

quarterly dividend paid by the stock $ 1

strike price of a six-month call $50

market price of the call $ 5

strike price of a six-month put $50

market price of the put $ 3

finish the following sentences.

a) The intrinsic value of the call is _________.

b) The time premium paid for the put is _________.

c) If an investor constructs a naked call, the cash out or cash in is _________.

d) The most the buyer of the call can lose is _________.

e) The maximum amount the buyer of the stock can lose is _________.

At the expiration of the options (i. e. after six months have elapsed), the price of the

f) The cash dividend received during the six months by the holder of the call is _________.

g) The profit (loss) from selling the call covered is _________.

h) The profit (loss) from writing the put is _________.

i) The profit (loss) from shorting the stock six months earlier is _________.

j) At expiration, the time premium paid for the put is _________ while the time premium for the call is _________.

ANSWERS for question 3a through j:

4. A three-month call option is the right to buy stock at $20. Currently the stock is selling

for $22 and the call is selling for $5. You are considering buying 100 shares of the stock

($2,200) or one call option ($500).

a) If the price of the stock rises to $29 within three months, what would be the profits

or losses on each position? What would be the percentage gains or losses?

b) If the price of the stock declines to $18 within three months, what would be the

profits or losses on each position? What would be the percentage gains or losses?

c) If the price of the stock remained stable at $22, what would be the percentage gains

or losses at the expiration of the call option?

ANSWERS for question 4a through c:

a) $400 for the option, $700 for the stock, 80% for the option, 31.8% for the stock.

b) -$500 option, -$400 stock, -100% option, -18% stock.

c) -$300 option, 0 stock.

5. A particular call is the option to buy stock at $25. It expires in six months and currently

sells for $4 when the price of the stock is $26.

a) What is the intrinsic value of the call? What is the time premium paid for the

b) What will the value of this call be after six months if the price of the stock is $20?

c) If the price of the stock rises to $40 at the expiration date of the call, what is the

percentage increase in the value of the call?

d) If an individual buys the stock and sells this call, what is the cash outflow (i. e. net

cost) and what will the profit on the position be after six months if the price of the

stock is $10? $15? $20? $25? $26? $30? $40?

e) If an individual sells this call naked, what will the profit or loss be on the position

after six months if the price of the stock is $20? $26? $40?

ANSWERS for question 5a through e:

c) Call would be $15 at expiration, a 275% gain.

d) Cash outflow is -$2200 on purchasing the stock and selling the (covered) call.

-If the stock is at $10, $1600 would be lost on the stock, the call would expire, with a $400 gain.

-If the stock is at $15, $1100 would be lost on the stock, the call would expire, with a $400 gain.

-If the stock is at $20, $600 would be lost on the stock, the call would expire, with a $400 gain.

-If the stock is at $25, $100 would be lost on the stock, the call would expire, with a $400 gain.

- If the stock is at $26, $0 would be gained or lost on the stock, the call would be worth $100, minus the $400 that it cost, for a total loss of $300.

-If the stock is at $30, the call would assign. You bought the stock for $26 and had to deliver it for $25; that would be a $100 loss on the stock and you would keep the $400 that you received from selling the call for a total gain of $300.

-If the stock is at $40, the call would assign. You bought the stock for $26 and had to deliver it for $25; that would be a $100 loss on the stock and you would keep the $400 that you received from selling the call for a total gain of $300.

e) If the call option was sold naked and the stock went to $20, the call seller would keep the $400 premium. If the stock went to $26, the call seller would have to deliver the stock at $25 – buy it off of the exchange at $26 ($2600), sell it for $25 ($2500) for a $100 loss and keep the $400 premium for a total gain of $300 on the trade. If the stock went to $40, the call seller would again have an option assignment, requiring him to buy the stock for $40 ($4000) and sell it for $25 ($2500) for a $1500 loss; he would keep the $400 premium that would bring the loss on the trade to $1100.

6. What are the intrinsic values (IV) and time premiums (TP) paid for the following options?

APPLE 30 call is selling for a premium of 7, the stock is currently at $34. [$4 IV, $3 TP]

XYZ, Inc. 35 call is selling for a premium of 2.50, the stock is currently at $34. [$0 IV, $2.50 TP]

XYZ, Inc. 30 put is selling for a premium of 1.25, the stock is currently at $34. [$0 IV, $1.25 TP]

Ford 35 call is selling for a premium of 4.25, the stock is currently at $36. [$1 IV, $3.25 TP]

7. The price of a stock is $51. You can buy a six-month call at $50 for $5 or a six-month

put at $50 for $2.

a) What is the intrinsic value of the call?

b) What is the intrinsic value of the put?

c) What is the time premium paid for the call?

d) What is the time premium paid for the put?

e) If the price of the stock falls, what happens to the value of the put?

f) What is the maximum you could lose by selling the call covered?

g) What is the maximum possible profit if you sell the stock short?

After six months, the price of the stock is $58.

h) What is the value of the call?

i) What is the profit or loss from buying the put?

j) If you had sold the stock short six months earlier, what would your profit or loss be?

k) If you had sold the call covered, what would your profit or loss be?

ANSWERS for problem 7a through k:

Strike Price

Definition: The strike price is defined as the price at which the holder of an options can buy (in the case of a call option ) or sell (in the case of a put option ) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.

Strike Price, Option Premium & Moneyness

When selecting options to buy or sell, for options expiring on the same month, the option's price (aka premium ) and moneyness depends on the option's strike price.

Relationship between Strike Price & Call Option Price

For call options, the higher the strike price, the cheaper the option. The following table lists option premiums typical for near term call options at various strike prices when the underlying stock is trading at $50

Strike Price Intervals

The strike price intervals vary depending on the market price and asset type of the underlying. For lower priced stocks (usually $25 or less), intervals are at 2.5 points. Higher priced stocks have strike price intervals of 5 point (or 10 points for very expensive stocks priced at $200 or more). Index options typically have strike price intervals of 5 or 10 points while futures options generally have strike intervals of around one or two points.

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FX Services granted 15 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

C. $40 million. 8 * 15 =40

The compensation associated with restricted stock under a stock award plan is:

A. The book value of an unrestricted share of the same stock times the number of shares.

B. The estimated fair value of a share of similar stock times the number of shares.

C. Allocated to expense over the service period which usually is the vesting period.

D. The book value of a share of similar stock times the number of shares.

C. Allocated to expense over the service period which usually is the vesting period.

The compensation associated with a share of restricted stock under a stock award plan is:

A. The market price of a share of similar fixed income securities.

B. The market price of an unrestricted share of the same stock.

C. The book value of an unrestricted share of the same stock.

D. The book value of a share of similar stock.

B. The market price of an unrestricted share of the same stock.

On January 1, 2013, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2015, and expire on January 1, 2019. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant.

14. What amount should M recognize as compensation expense for 2013?

D. $150,000. (90,000 × 5 = $450,000; $450,000/3 yrs. = $150,000)

D. $150,000. (90,000 × 5 = $450,000; $450,000/3 yrs. = $150,000)

If unexpected turnover in 2014 caused the company to estimate that 10% of the options would be forfeited, what amount should M recognize as compensation expense for 2014?

D. $150,000. (90,000 × 5 = $450,000; $450,000 × 90% = $405,000 × 2/3 = $270,000; $270,000 - 150,000 = $120,000)

C. $120,000.(90,000 × 5 = $450,000; $450,000 × 90% = $405,000 × 2/3 = $270,000; $270,000 - 150,000 = $120,000)

Under its executive stock option plan, N Corporation granted options on January 1, 2013, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives?

B. $20 million. 4 * 15 = 60. 60/3 = 20

On January 1, 2013, Oliver Foods issued stock options for 40,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Oliver Foods' stock price increases by 5% in four years. Oliver Foods initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next four years?

C. $50,000. If an award contains a market condition such as the stock price reaching a specified level, then no special accounting is required. The fair value estimate of the share option ($5) already implicitly reflects market conditions due to the nature of share option pricing models. So, Oliver recognizes compensation expense regardless of when, if ever, the market condition is met. The estimate of the total compensation would be: 40,000 × $5 = $200,000

One-fourth of that amount, or $50,000, will be recorded in each of the four years.

On January 1, 2013, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company's common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2015, by the grantees still in the employ of the company. No options were terminated during 2013, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was $31 per share at the date of the grant. G Corp. used the Binomial pricing model and estimated the fair value of each of the options at $10. What amount should G charge to compensation expense for the year ended December 31, 2013?

C. $384,000. Total compensation is $800,000 (80,000 options × estimated fair value of $10 each) times 96% = $768,000 divided by 2-year service period = $384,000 per year.

Under its executive stock option plan, W Corporation granted options on January 1, 2013, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options are exercised on April 2, 2016, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised?

B. $270 million. 4 * 15 = 60. $315 + 15 - 60 = $270 Note: The market price at exercise is irrelevant.

On January 1, 2013, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2014, after the employee completed two years of service. The option was exercised on January 10, 2015. The market prices of D's stock were as follows: January 1, 2013, $30; December 31, 2014, $50; and January 10, 2015, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2013, D should recognize compensation expense of:

B. $24,000. The total compensation is $48,000, the option model price of $8 each times the number of options, 6,000. Since the service period is two years, the compensation expense for 2013 is $24,000 ($48,000/2 years).

Under its executive stock option plan, M Corporation granted options on January 1, 2013, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated; however, unexpected turnover during 2014 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2014?

B. $18 million. The $60 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $20 million in 2013. The company should adjust the cumulative amount of compensation expense recorded to date in the year the estimate changes. (60 .95 2/30)-20

Under its executive stock option plan, Z Corporation granted options on January 1, 2013, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options expired in 2019 without being exercised. By what amount will Z's shareholder's equity be increased?

A. $60 million. 4*15

On January 1, 2013, Black Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2014, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2014?

A. $200,000 decrease.

B. $200,000 increase.

C. $400,000 increase.

C. $400,000 increase.

In 2013, the estimate of the total compensation would be: 200,000 × $6 = $1,200,000

One-third of that amount, or $400,000, will be recorded in 2013. In 2014, the new estimate of the total compensation would change to zero. In that case, Black would reverse the $400,000 expensed in 2013 because no compensation can be recognized for options that don't vest due to performance targets not being met, and that's the new expectation. So, earnings are increased (reduction in compensation expense) by that amount.

On January 1, 2013, Blue Inc. issued stock options for 200,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Blue initially estimates that it is not probable the goal will be achieved, but in 2014, after one year, Blue estimates that it is probable that divisional revenue will increase by 6% by the end of 2015. Ignoring taxes, what is the effect on earnings in 2014?

D. $800,000. In 2014, the revised estimate of the total compensation would change from zero to 200,000 × $6 = $1,200,000. Blue would reflect the cumulative effect on compensation in 2014 earnings and record compensation thereafter:

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2013, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date—$10 per share. Options vest on January 1, 2017. They cannot be exercised before that date and will expire on December 31, 2019. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax.

32. Wilson's compensation expense in 2013 for these stock options was:

B. $200 million. The computation is as follows:

Estimated value of the options at January 1, 2013:

Compensation fair value is spread over the four-year vesting period at $200 million/year.

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2013, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date—$10 per share. Options vest on January 1, 2017. They cannot be exercised before that date and will expire on December 31, 2019. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax. On March 1, 2017, when the market price of Wilson's stock was $14 per share, 3 million of the options were exercised. The journal entry to record this would include:

A. A debit to paid-in capital—stock options for $42 million.

B. A credit to paid-in capital—excess of par for $255 million.

C. A credit to common stock for $75 million.

D. All of these are correct. The computation is as follows:

B. A credit to paid-in capital—excess of par for $255 million.

Cash: 3 million options × 5 shares/option × $10/share = $150 million Paid-in capital-stock options: 3 million options × $40/option) = $120 million Common stock: 15 million shares × $1 par/share = $15 million Paid-in capital in excess of par (to balance) = $255 million

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2013, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date—$10 per share. Options vest on January 1, 2017. They cannot be exercised before that date and will expire on December 31, 2019. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax. Assume that all compensation expense from the stock options granted by Wilson already has been recorded. Further assume that 200,000 options expire in 2018 without being exercised. The journal entry to record this would include:

A. Debit to paid-in capital—stock options for $8 million.

B. A debit to common stock for $5 million.

C. A debit to paid-in capital—expiration of stock options for $8 million.

D. None of these is correct.

A. Debit to paid-in capital—stock options for $8 million. This is 200,000 options that had been recorded by credits to paid-in capital-stock options for $8 million, i. e. 200,000 options x $40 option. This is reversed at expiration.

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2013, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date—$10 per share. Options vest on January 1, 2017. They cannot be exercised before that date and will expire on December 31, 2019. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax. What would be the total compensation indicated by these options?

C. $8 million. 1,000,000 × $8 = $8,000,000

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2013, options were granted for 60,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2016, and expire December 31, 2017. Each option has a fair value of $1 based on an option pricing model.

37. What is the total compensation cost for this plan?

B. $60,000. 60,000 × $1 = $60,000

Under U. S. GAAP, a deferred tax asset for stock options:

A. Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.

B. Is the portion of the options' intrinsic value earned to date times the tax rate.

C. Is the tax rate times the fair value of all the options.

D. Isn't created if the award is "in the money;" that is, it has intrinsic value.

A. Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.

On December 31, 2012, Albacore Company had 300,000 shares of common stock issued and outstanding. Albacore issued a 10% stock dividend on June 30, 2013. On September 30, 2013, 12,000 shares of common stock were reacquired as treasury stock. What is the appropriate number of shares to be used in the basic earnings per share computation for 2013?

D. 327,000. (300,000 × 1.10) - (12,000 × 3/12) =

When a company's only potential common shares are convertible bonds:

A. Diluted EPS will be greater if the bonds are actually converted than if they are not converted.

B. Diluted EPS will be smaller if the bonds are actually converted than if the bonds are not converted.

C. Diluted EPS will be the same whether or not the bonds are converted.

D. The effect of conversion on diluted EPS cannot be determined without additional information.

C. Diluted EPS will be the same whether or not the bonds are converted.

The adjustment to the weighted-average shares for retired shares is the same as for issuing new shares except:

A. The shares are deducted rather than added.

B. The shares are added rather than deducted.

C. The shares are treated as being acquired at the end of the year.

D. The shares are treated as being acquired at the beginning of the year.

A. The shares are deducted rather than added.

XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend:

A. Will be added to the denominator of the earnings per share fraction for the current year.

B. Will be added to the numerator of the earnings per share fraction for the current year.

C. Will be subtracted from the numerator of the earnings per share fraction for the current year.

D. May not affect earnings per share depending on the declaration date.

D. May not affect earnings per share depending on the declaration date.

Which of the following is a correct statement concerning earnings per share?

A. Earnings per share can never be a negative number.

B. Earnings per share must be reported for all corporations.

C. If a company has an extraordinary loss, at least two EPS amounts must be reported.

D. Reported earnings per share is the result of dividing weighted-average shares by net income.

C. If a company has an extraordinary loss, at least two EPS amounts must be reported.

Basic and diluted earnings per share data is required to be reported:

A. In disclosure notes to the financial statements.

B. Only if it adds to the relevance of the income statement.

C. In the summary section of the annual report.

D. On the face of the income statement.

D. On the face of the income statement.

Which of the following statements is true regarding share appreciation rights (SAR) payable in cash?

A. Any change in estimated total compensation is recorded as a prior adjustment.

B. The total amount of compensation is not known for certain until the date the SAR is exercised.

C. The liability is adjusted only to reflect each additional year of service.

D. None of these is correct.

B. The total amount of compensation is not known for certain until the date the SAR is exercised.

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Ask The Experts

This section lets you communicate with experts at myStockOptions. com. If, after looking at our extensive content and using the interactive tools, you still have questions or seek more guidance, either post your questions in the Discussion Forum on myStockOptions. com (registration is required) or submit them directly to us by using the link at the left. We will try to answer your question privately, and we post selected Q&As anonymously on our home page. Because many questions are submitted every week, we cannot guarantee when or whether we will answer your query.

You can also peruse this archive of past Q&As that we have posted on our home page. For browsing convenience, key concepts the Q&As cover are given in boldface under each answer.

Last year I sold shares from a grant of RSUs for $14,000. This amount appears on the Form 1099-B I received from the brokerage firm. When the stock vested earlier in the year, I recognized W-2 income of $12,000. I was told that the cost basis for the shares I sold is $12,000. Why then is the box for the basis blank on the 1099-B from my broker? Should I ask for a corrected 1099-B?

I am losing my job before my restricted stock vests. I got a cash dividend, received a 1099-DIV, and thus paid federal income tax. I have been told I will be denied ownership of the shares because I was not employed at my company for the entire vesting period. Shouldn't I be entitled to the shares because I received dividends in cash?

I was not authorized to exercise any of my stock options until July 1. I was terminated two months before, on May 1. According to the terms of my stock plan, "the Optionholder may exercise the rights which were available to the Optionholder at the time of such termination only within three months from the date of termination." Aren't stock options "rights which are available" to me? My thinking was that I had until August 1 to exercise the options (three months from my termination date). But the company says I was able to exercise only options that had vested by the time of my termination, and zero options had vested by May 1.

I am planning to leave my job, but I want to get the timing right so that my in-the-money unvested stock options vest before I quit. They will vest in about two weeks. If I give three weeks' notice that I plan to leave, will the stock options still vest? Do the shares stop vesting when I give notice or on the actual date of termination?

My company has offered to exchange underwater options for market-price options. To avoid taking a hit in earnings, the company will wait six months and one day to make the exchange. If the company did not wait, how would I be affected? Would I have ordinary income for the difference between the old and new option prices?

My company terminated my employment in late June, when my position was "eliminated." At the time I had about 5,000 in-the-money stock options that were fully vested. No one informed me of any requirement to take action or of any pending action. I looked up my account yesterday and found that all of my vested options "expired" in late September, 90 days after termination. Was the company or the brokerage firm required to notify me that the vested options were about to expire or that they expired?

I want to make a gift of my company stock and options to a charity related to the September 11 terrorist attacks. I have about 10,000 shares of stock from an NQSO exercise last year and 12,000 vested options from the same grant. The exercise price is $15.50 and the current market price is $65.50. What tax impact will result from making this gift of stock?

I have 80,000 substantially in-the-money options in my company and two Ivy League tuitions to pay. The tuition bills arrive five times a year, with the first payment due in late September. I want to set up a program with my company and broker in which I automatically exercise enough options and sell the stock to pay each tuition bill as it's received, using the net proceeds. Could this prearranged selling plan violate insider-trading laws and my company's blackout rules?

When I exercised 12,000 NQSOs, my proceeds before taxes were about $80,000 -- just enough for my house renovation. However, after federal, state, and Medicare taxes (I've already reached the Social Security income limit), my proceeds were reduced by 40%. So the check from the broker was only $48,000. Can I deduct the state tax that was withheld from my NQSO exercise?

My company has gone through two rounds of layoffs. Fortunately, I still have my job and in-the-money stock options. However, my company has suggested (very strongly) that I take an extra two weeks of summer vacation, unpaid. I have 7,000 options that are about to vest after two more months of employment. How will this unpaid period affect my vesting schedule?

A chunk of my vested options is finally in the money. I estimate a taxable gain of about $44,000. I also still have a few grants of vested underwater options, with the exercise price above the market price by about $10 per share ($15,000 in total). If I exercise all my options, can I offset the gains in the options with the losses (on the underwater options) in order to have a taxable income of only $29,000?

I know that if I have a huge income hit through an NQSO exercise I might have to pay estimated taxes. What about an ISO exercise in which I plan to hold the stock after exercise? I will have a gain of about $200,000, which almost certainly will trigger AMT. Do I need to pay estimated taxes on ISOs when the AMT I owe is much greater than my current salary withholding?

I did a same-day exercise and sale of incentive stock options (ISOs). I received a confirmation of exercise from my company for approximately $10,000. This amount was not listed on the W-2 that I received from my company, even though I made a disqualifying disposition. Where do I report this gain on my tax return, and how will I be taxed?

I did a same-day exercise and sale of incentive stock options (ISOs). The $56,000 spread between the exercise price and the sale price is reported on my W-2 as wages. I also received a Form 1099-B from my broker, showing the sale proceeds. Should I report the transaction for capital-gains purposes even though the gains are zero, and should I worry about the alternative minimum tax (AMT)?

I did a cashless exercise with my NQSOs last year. My employer included the difference between the market price and the exercise price on my W-2, which I will report as ordinary income on my tax return. I also received a brokerage statement (1099-B) showing the value of what was sold. Does this mean I need to show the transaction on Schedule D of my Form 1040 tax return, or can I ignore the broker's statement since there are no gains or losses to report?

I exercised my incentive stock options (ISOs) when the spread at exercise was $10. I watched the stock go far up -- and then down. Currently, the spread is at $5. At least I will make some money if I sell now; but will the resulting tax on ordinary income be greater than the alternative minimum tax (AMT) I would pay if I held the stock?

Earlier this year (prior to the market correction), my company filed for an IPO. In anticipation of this, I exercised a significant number of NQSOs when the fair market value was $2.80 per share (my exercise price was 5 cents per share). At that time, I paid income tax on the spread. Well, the IPO was postponed, and we are raising another round of private funding at $1.50 per share. Is there any way I can have the dollar amount of the income I incurred reduced to reflect a lower spread based on the current value? This would significantly reduce my tax burden.

I am 62 years old and am receiving Social Security. I have stock options from my employer that were issued prior to my retirement. When I exercise my NQSOs, I understand that a W-2 will be issued and the gain will be taxed as ordinary income. Yet the Social Security website (www. ssa. gov) indicates that investments and investment income are not income to be considered against the Social Security annual earnings limit. Therefore, when I exercise my options, what will the impact be on the annual earnings limit?

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The $5 million bet against the S&P 500

Trader on the floor of the New York Stock Exchange.

In a big trade that caught the interest of the options community on Wednesday, one trader placed a massive bearish bet on the SPDR S&P 500 ETF (ticker symbol: SPY). This $5.4 million trade will only pay off if stocks fall more than 3 percent over the next seven sessions.

At about noon ET, a buyer initiated the purchase of 43,830 weekly 195-strike puts expiring on Jan. 23 for $1.23 per share. Given that each options contract controls 100 shares of the ETF, this trader is laying out $5.39 million in total.

In order for this trader to make money, the SPY would need to fall below $193.77 by a week from Friday, a 3 percent decline. Based on an S&P 500 price of 2,000, that would correspond to a drop of about 62 points for the broad market index.

The trade comes as the CBOE Volatility Index is rising, which tells us that investors are paying a greater premium for protection against downward market moves. On Wednesday, the VIX rose as high as 23.34, a four-week high for the so-called "fear index."

For options trader Brian Stutland of Equity Armor Investments, buying near-term puts makes sense now.

"I definitely see why somebody's going to take a shot at a washout, or at least protect their portfolio over the next few days," he said. "The technical setup looks really bad, and I think you're going to see a further flush before Friday."

Posts Tagged ‘Bearish Options Strategies’

Monday, September 14th, 2015

Today I would like to tell you all about the worst “stock” you could have owned for the past 6 years. It has fallen from $6400 to $26 today. I will also tell you how you can take advantage of an unusual current market condition and make an options trade which should make a profit of 66% in the next 6 months. That works out to an annualized gain of 132%. Not bad by any standards. For the next few days, I am also offering you the lowest price ever to become a Terry’s Tips Insider and get a 14-day options tutorial which could forever change your future investment results. It is a half-price back-to-school offer – our complete package for only $39.95. Click here, enter Special Code BTS (or BTSP for Premium Service – $79.95).

This could be the best investment decision you ever make – an investment in yourself.

The Worst “Stock” You Could Have Owned for the Last 6 Years

I have put the word “stock” in quotations because it really isn’t a stock in the normal sense of the word. Rather, it is an Exchange Traded Product (ETP) created by Barclay’s which involves buying and selling futures on VIX (the so-called “Fear Index” which measures option volatility on the S&P 500 tracking stock, SPY). It is a derivative of a derivative of a derivative which almost no one fully understands, apparently even the Nobel Prize winners who carried out Long-Term Capital a few years back.

Even though it is pure gobbledygook for most of us, this ETP trades just like a stock. You can buy it and hope it goes up or sell it short and hope it goes down. Best of all, for options nuts like me, you can trade options on it.

Let’s check out the 6-year record for this ETP (that time period is its entire life):

VXX Historical Chart 2015

It is a little difficult to see what this ETP was trading at when it opened for business on January 30, 2009, but its split-adjusted price seems to be over $6000. (Actually, it’s $6400, exactly what you get by starting at $100 and engineering 3 1-for-4 reverse splits). Friday, it closed at $26.04. That has to be the dog of all dog instruments that you could possible buy over that time period (if you know of a worse one, please let me know).

This ETP started trading on 1/30/09 at $100. Less than 2 years later, on 11/19/10, it had fallen to about $12.50, so Barclays engineered a reverse 1-for-4 split which pushed the price back up to about $50. It then steadily fell in value for another 2 years until it got to about $9 on 10/15/12 and Barclays did the same thing again, temporarily pushing the stock back up to $36. That lasted only 13 months when they had to do it again on 11/18/13 – this time, the stock had fallen to $12.50 once again, and after the reverse split, was trading about $50. Since then, it has done relatively better, only falling in about half over almost a two-year span.

Obviously, this “stock” would have been a great thing to sell short just about any time over the 6-year period (if you were willing to hang on for the long run). There are some problems with selling it short, however. Many brokers can’t find stock to borrow to cover it, so they can’t take the order. And if they do, they charge you some healthy interest for borrowing the stock (I don’t quite understand how they can charge you interest because you have the cash in your account, but they do anyway – I guess it’s a rental fee for borrowing the stock, not truly an interest charge).

Buying puts on it might have been a good idea in many of the months, but put prices are quite expensive because the market expects the “stock” to go down, and it will have to fall quite a way just to cover the cost of the put. I typically don’t like to buy puts or calls all by themselves (about 80% of options people buy are said to expire worthless). If you straight-out buy puts or calls, every day the underlying stock or ETP stays flat, you lose money. That doesn’t sound like a great deal to me. I do like to buy and sell both puts and calls as part of a spread, however. That is another story altogether.

So what else should you know about this ETP? First, it is called VXX. You can find a host of articles written about it (check out Seeking Alpha) which say it is the best thing to buy (for the short term) if you want protection against a market crash. While that might be true, are you really smart enough to find a spot on the 6-year chart when you could have bought it and then figured out the perfect time to sell as well? The great majority of times you would have made your purchase, you would have surely regretted it (unless you were extremely lucky in picking the right day both to buy and sell).

One of the rare times when it would have been a good idea to buy VXX was on August 10, 2015, just over a month ago. It closed at its all-time low on that day, $15.54. If you were smart enough to sell it on September 1st when it closed at $30.76, you could have almost doubled your money. But you have already missed out if you didn’t pull the trigger on that exact day. It has now fallen over 15% in the last two weeks, continuing its long-term trend.

While we can’t get into the precise specifics of how VXX is valued in the market, we can explain roughly how it is constructed. Each day, Barclays buys one-month-out futures on VIX in hopes that the market fears will grow and VIX will move higher. Every day, Barclays sells VIX futures it bought a month ago at the current spot price of VIX. If VIX had moved higher than the month-ago futures price, a profit is made.

The reason why VXX is destined to move lower over time is that over 90% of the time, the price of VIX futures is higher than the spot price of VIX. It is a condition called contango. The average level of contango for VIX is about 5%. That percentage is how much higher the one-month futures are than the current value of VIX, and is a rough approximation of how much VXX should fall each month.

However, every once in a while, the market gets very worried, and contango disappears. The last month has been one of those times. People seem to be concerned that China and the rest of the world is coming on hard times, and our stock markets will be rocked because the Fed is about to raise interest rates. The stock market has taken a big tumble and market volatility has soared. This has caused the current value of VIX to become about 23.8 while the one-month futures of VIX are 22.9. When the futures are less than the spot price of VIX, it is a condition called back-wardation. It only occurs about 10% of the time. Right now, backwardation is in effect, (-3.59%), and it has been for about 3 weeks. This is an exceptionally long time for backwardation to continue to exist.

At some point, investors will come to the realization that the financial world is not about to implode, and that things will pretty much chug along as they have in the past. When that happens, market volatility will fall back to historical levels. For most of the past two or three years, VIX has traded in the 12 – 14 range, about half of where it is right now. When fears subside, as they inevitably will, VIX will fall, the futures will be greater than the current price of VIX, and contango will return. Even more significant, when VIX falls to 12 or 14 and Barclays is selling (for VXX) at that price, VXX will lose out big-time because a month ago, it bought futures at 22.9. So VXX will inevitably continue its downward trend.

So how can you make money on VXX with options? To my way of thinking, today’s situation is a great buying opportunity. I think it is highly likely that volatility (VIX) will not remain at today’s high level much longer. When it falls, VXX will tumble, contango will return, and VXX will face new headwinds going forward once again.

Here is a trade I recommended to Terry’s Tips Insiders last Friday:

“If you believe (as I do) that the overwhelming odds are that VXX will be much lower in 6 months than it is now, you might consider buying a Mar-16 26 call (at the money – VXX closed at $26.04 yesteday) and sell a Mar-16 21 call. You could collect about $2 for this credit spread. In 6 months, if VXX is at any price below $21, both calls would expire worthless and you would enjoy a gain of 66% on your $3 at risk. It seems like a pretty good bet to me.”

This spread is called selling a bearish call credit vertical spread. For each spread you sell, $200 gets put in your account. Your broker will charge you a maintenance requirement of $500 to protect against your maximum loss if VXX closes above $26 on March 18, 2016. Since you collect $200 at the beginning, your actual maximum loss is $300 (this is also your net investment in this spread). There is no interest charged on a maintenance requirement; rather, it is just money in your account that you can’t use to buy other stocks or options.

This may all seem a little confusing if you aren’t up to speed on options trading. Don’t feel like the Lone Ranger – the great majority of investors know little or nothing about options. You can fix that by going back to school and taking the 14-day options tutorial that comes with buying the full Terry’s Tips’ package at the lowest price ever – only $39.95 if you buy before Friday, September 23, 2015.

Lowest Subscription Price Ever: As a back-to-school special, we are offering the lowest subscription price than we have ever offered – our full package, including all the free reports, my White Paper, which explains my favorite option strategies in detail, and shows you exactly how to carry them out on your own, a 14-day options tutorial program which will give you a solid background on option trading, and two months of our weekly newsletter full of tradable option ideas. All this for a one-time fee of $39.95, less than half the cost of the White Paper alone ($79.95).

For this lowest-price-ever $39.95 offer, click here, enter Special Code BTS (or BTSP for Premium Service – $79.95).

Saturday, June 27th, 2015

A subscriber wrote in and asked what he should do if he thought the market would be 6% lower by the end of September. I thought about his question a little bit, and decided to share my thoughts with you, just in case you have similar feelings at some time along the way. Terry

5 Option Strategies if you Think the Market is Headed Lower

We will use the S&P 500 tracking stock, SPY, as a proxy for the market. As I write this, SPY is trading just below $210. If it were to fall by 6% by the end of September (3 months from now), it would be trading about $197 at that time. The prices for the possible investments listed below are slightly more costly than the mid-point between the bid and ask prices for the options or the option spreads, and include the commission cost (calculated at $1.25 per contract, the price that Terry’s Tips subscribers pay at thinkorswim).

# 1. Buy an at-the-money put. One of the most common option purchases is the outright buy of a put option if you feel strongly that the market is crashing. Today, with SPY trading at $210, a September 2015 put option at the 210 strike would cost you $550. If SPY is trading at $197 (as the subscriber believed it would be at the end of September), your put would be worth $1300. You would make a profit of $750, or 136% on your investment.

Sin embargo, comprar un put implica un grado extremadamente alto de riesgo. The stock must fall by $5 ½ (about 2.6%) before you make a nickel of profit. If the market remains flat or goes higher by any amount, you would lose 100% of your investment. Studies have shown that about 80% of all options eventually expire worthless, so by historical measures, there is a very high likelihood that you will lose everything. That doesn’t sound like much of a good investment idea to me, even if you feel strongly about the market’s direction. Es tan fácil conseguirlo incorrecto (sé de la experiencia personal frecuente).

Si usted fuera a comprar un put out-of-the-money (es decir, el precio de ejercicio está por debajo del precio de la acción), la perspectiva es aún peor. A Sept-15 205 put would cost about $400 to buy. While that is less than the $550 you would have to shell out for the at-the-money 210 put, the market still has to fall by a considerable amount, $9 (4.3%) before you make a nickel. In my opinion, you shouldn’t even consider it.

# 2. Buy an in-the-money put. Usted podría considerar la compra de un put que tiene una huelga más alta que el precio de las acciones. Mientras que costará más (aumentando su pérdida potencial si el mercado sube), la acción no necesita caer casi tan lejos antes de que usted consiga en una zona de la ganancia. A Sept-15 215 put would cost you $800, and the stock would only have to fall by $3 (1.4%) before you could start counting some gains. If the market remains flat, your loss would be $300 (38%).

If the stock does manage to fall to $197, your 215 put would be worth $1800 at expiration, and your gain would be $1000, or 125% on your investment. En mi opinión, la compra de un dinero en el dinero no es una buena idea de inversión, aunque, probablemente, es mejor que comprar un dinero en el dinero puesto, y sólo debe considerarse si está fuertemente convencido de que el stock es Dirigido significativamente más bajo.

#3. Buy a vertical put spread. The most popular directional option spread choice is probably a vertical spread. Si usted cree que el mercado está dirigido más bajo, usted compra una puesta y al mismo tiempo, vende una huelga inferior puesto como parte de una extensión. Usted sólo tiene que llegar a la diferencia entre el costo de la poner a comprar y lo que recibe de la venta de una huelga inferior puesto a otra persona. En nuestro ejemplo de SPY, puede comprar un Sept-15 210 poner y vender un Sept-15 200 poner. You would have to pay $300 for this spread. The stock would only have to fall by $3 before you started collecting a profit. If it closed at any price below $200, your spread would have an intrinsic value of $1000 and you would make a profit of $700 (230% on your investment), less commissions.

With this spread, however, if the stock remains flat or rises by any amount, you would lose your entire $300 investment. Ese es un gran costo por equivocarse. But if you believe that the market will fall by 6%, maybe a flat or higher price isn’t in your perceived realm of possible outcomes.

Otro (más conservador) vertical poner propagación sería comprar un dinero en el dinero poner y vender un en el dinero puesto. If you bought a Sept-15 220 put and sold a Sept-15 210 put, your cost would be $600. If the stock closed at any price below $210, your spread would be worth $1000 and your gain ($400) would work out to be about 64% after commissions. The neat thing about this spread is that if the stock remained flat at $210, you would still gain the 64%. If there is an equal chance that a stock will go up, go down, or stay flat, you would have two out of the three possible outcomes covered.

Usted también podría pensar en el compromiso entre los dos anteriores verticales poner spreads y comprar un Sept-15 215 poner y vender un Sept-15 205 poner. It would cost you about $420. Your maximum gain, if the stock ended up at any price below $205, would be $580, or about 135% on your investment. If the stock remains flat at $210, your spread would be worth $500 at expiration, and you would make a small gain over your cost of $420. You would only lose money if the stock were to rise by more than $.80 over the time period.

# 4. Sell a call credit vertical spread. People with a limited understanding of options (which includes a huge majority of American investors) don’t even think about calls when they believe that the market is headed lower. However, you can gain all the advantages of the above put vertical spreads, and more, by trading calls instead of puts if you want to gain when the market falls. When I want to make a directional bet on a lower market, I always use calls rather than puts.

If you would like to replicate the risk-reward numbers of the above compromise vertical put spread, you would buy a Sept-15 215 call and sell a Sept-15 205 call. La llamada de la huelga más alta que usted está comprando es mucho más barata que la llamada de la huelga más baja que usted está vendiendo. You could collect $600 for the spread. The broker would place a $1000 maintenance agreement (no interest charge) on your account (this represents the maximum possible loss on the spread if you had not received any credit when placing it, but in our case, you collected $600 so the maximum possible loss is $400 – that is how much you will have to have in your account to sell this spread). Usually, buying a vertical put spread or selling the same strikes with a credit call vertical spread cost about the same – in this case, the call spread happened to be a better price (an investment of $400 rather than $420).

There are two advantages to selling the call credit spread rather than buying the vertical put spread. First, if you are successful and the stock ends up below $205 as you expect, both the long and short calls will expire worthless. There will be no commission to pay on closing out the positions. You don’t have to do anything other than wait a day for the maintenance requirement to disappear and you get to keep the cash you collected when you sold the spread at the outset.

Second, when you try to sell the vertical put spread for $10 (the intrinsic value if the stock is $205 or lower), you will not be able to get the entire $10 because of the bid-ask price situation. The best you could expect to get is about $9.95 ($995) as a limit order. You could do nothing and let the broker close it out for you – in that case you would get exactly $1000, but most brokers charge a $35 or higher fee for an automatic closing spread transaction. It is usually better to accept the $995 and pay the commission (although it is better to use calls and avoid the commissions altogether).

# 5. Buy a calendar spread. Mis diferenciales favoritos son spreads de calendario, así que me siento obligado a incluirlos como una de las posibilidades. Si usted piensa que el mercado está dirigido más bajo, todo lo que usted necesita hacer es comprar un calendario extendido a un precio de huelga donde usted piensa que la acción terminará para arriba cuando las opciones cortas expiran. In our example, the subscriber believed that the stock would fall to $197 when the September options expired. He could buy an Oct-15 – Sept-15 197 calendar spread (the risk-reward is identical whether you use puts or calls, but I prefer to use calls if you think the market is headed lower because you are closing out an out-of-the-money option which usually has a lower bid-ask range). The cost of this spread would be about $60. Here is the risk profile graph which shows the loss or gain from the spread at the various possible stock prices:

Bearish SPY Risk Profile Graph June 2015

You can see that if you are exactly right and the stock ends up at $197, your gain would be about $320, or over 500% on your investment (by the way, I don’t expect the stock will fall this low, but I just went into the market to see if I could get the spread for $60 or better, and my order executed at $57).

What I like about the calendar spread is that the break-even range is a whopping $20. You can be wrong about your price estimate by almost $10 in either direction and you would make a profit with the spread. Cuanto más cerca se pueda adivinar a dónde va a terminar el stock, mayor será su ganancia potencial. Ahora que realmente he comprado un calendario extendido en la huelga 197, voy a comprar otro calendario extendido en una huelga más alta para que tenga más protección al alza (y estar más en línea con mi pensamiento sobre el probable precio de las acciones en septiembre).

There are indeed an infinite number of option investments you could make if you have a feeling for which way the market is headed. Hemos enumerado 5 de las estrategias más populares si alguien cree que el mercado se dirige más bajo. In future newsletters we will discuss more complicated alternatives such as butterfly spreads and iron condors.

Thursday, May 14th, 2015

This week I came to the conclusion that the market may be in for some trouble over the next few months (or longer). I am not expecting a crash of any sort, but I think it is highly unlikely that we will see a large upward move anytime soon.

Today, I would like to share my thinking on the market’s direction, and talk a little about how you can use calendar spreads to benefit when the market (for most stocks) doesn’t do much of anything (or goes down moderately).

How to Make Gains in a Down Market With Calendar Spreads

For several reasons, the bull market we have enjoyed for the last few years seems to be petering out. First, as Janet Yellen and Robert Shiller, and others, have recently pointed out, the S&P 500 average has a higher P/E, 20.7 now, compared to 19.5 a year ago, or compared to the 16.3 very-long-term average. An elevated P/E can be expected in a world of zero interest rates, but we all know that world will soon change. The question is not “if” rates will rise, but “when.”

Second, market tops and bottoms are usually marked by triple-digit moves in the averages, one day up and the next day down, exactly the pattern we have seen for the past few weeks.

Third, it is May. “Sell in May” is almost a hackneyed mantra by now (and not always the right thing to do), but the advice is soundly supported by the historical patterns.

The market might not tank in the near future, but it seems to me that a big increase is unlikely during this period when we are waiting for the Fed to act.

At Terry’s Tips, we most always create positions that do best if the market is flat or rises moderately. Based on the above thoughts, we plan to take a different tack for a while. We will continue to do well if it remains flat, but we will do better with a moderate drop than we would a moderate rise.

As much as you would like to try, it is impossible to create option positions that make gains no matter what the underlying stock does. The options market is too efficient for such a dream to be possible. But you can stack the odds dramatically in your favor.

If you want to protect against a down market using calendar spreads, all you have to do is buy spreads which have a lower strike price than the underlying stock. When the short-term options you have sold expire, the maximum gain comes when the stock is very close to the strike price. If that strike price is lower than the current price of the stock, that big gain comes after the stock has fallen to that strike price.

If you bought a calendar spread at the market (strike price same as the stock price), you would do best if the underlying stock or ETF remained absolutely flat. You can reduce your risk a bit by buying another spread or two at different strikes. That gives you more than one spot where the big gain comes.

At Terry’s Tips, now that we believe the market is more likely to head lower than it is to rise in the near future, we will own at-the-money calendar spreads, and others which are at lower strike prices. It is possible to create a selection of spreads which will make a gain if the market is flat, rises just a little bit, or falls by more than a little bit, but not a huge amount. Fortunately, there is software that lets you see in advance the gains or losses that will come at various stock prices with the calendar spreads you select (it’s free at thinkorswim and available at other brokers as well, although I have never seen anything as good as thinkorswim offers).

Owning a well-constructed array of stock option positions, especially calendar spreads, allows you to take profits even when the underlying stock doesn’t move higher. Just select some spreads which are at strikes below the current stock price. (It doesn’t matter if you use puts or calls, as counter-intuitive as that seems – with calendar spreads, it is the strike price, not whether you use puts or calls, that determines your gains or losses.)

Wednesday, April 22nd, 2015

One of the great mysteries in the investment world (at least to me, an admitted options nut) is why anyone would buy stock in a company they really like when they could dramatically increase their expected returns with a simple stock options strategy instead. Of course, buying options is a little more complicated and takes a little extra work, but if you could make two or three times (or more) on your investment, wouldn’t that little extra effort be more than worth it? Apparently not, since most people take the lazy way out and just buy the stock. Today I will try to persuade you to give stock options a try. I will show you exactly what I am doing in one of my Terry’s Tips portfolios while trading one of my favorite stocks.

Why Calendar Spreads Are So Much Better Than Buying Stock

I like just about everything about Costco. I like to shop there. I buy wine by the case, paying far less than my local wine store (I am not alone – Costco is the largest retailer of wine in the world, selling several billions of dollars’ worth every year). I like Costco because they treat their employees well, paying them about double what Walmart pays its people. I like shopping at Costco because I know I am never paying more than I should for anything I buy. It seems to me that the other customers like it, too. Everyone seems to be happy while roaming the aisles and enjoying the free samples they offer (I have a skinflint friend who shops at Costco once a week just for the samples – they are his lunch that day).

But most of all, I like the stock (COST). It has been very nice to me over the years, and I have consistently made a far greater return using options than I would have if I had just gone out and bought the stock.

I recently set up an actual brokerage account to trade COST options for the educational benefit of Terry’s Tips paying subscribers. I put $5000 in the account. Today, it is worth $6800. I started out buying calendar spreads, some at at-the-money strike prices and others at higher strike prices (using calls). I currently own October 2015 calls at the 145 and 150 strike prices (the stock is trading about $146.50), and I am short (having sold to someone else) May-15 calls at the 145, 147, and 150 strike prices. These calls will expire in 23 days, on May 15, 2015. (Technically, the 147 calls I am short are with a diagonal spread rather than a calendar spread because the long side is at the 145 strike. With calendar spreads, the long and short sides are at the same strike price.)

Here is the risk profile graph for my positions. It shows how much money I will make (or lose) at the various possible prices where COST might be on May 15th when the short options expire:

COST Risk Profile Graph April 2015

In the lower right-hand corner, the P/L Day number shows the expected gain or loss if the stock stays flat ($148.54), or is $3 higher, or lower, than the current price. If the stock stays absolutely flat, I should make about $976, or about 14% on the $6800 I have invested.

I could have bought 46 shares of the stock with $6800 instead of owning these options. If the stock doesn’t go up any in the next 23 days, I would not gain a penny. But the options will make a profit of about $976.

If the stock falls $2 by May 15, I would lose $92 with my stock investment, and my options would make a gain of $19. I am still better off owning the options. Only if the stock falls more than $2 ½ dollars over those three weeks would I be worse off with the options positions. But I like this stock. I think it is headed higher. That’s why I bought COST in the first place.

If I am right, and the stock goes up by $3, I would make $138 if I owned 46 shares of the stock, or I would make $1,700 with my options positions. That’s more than 10 times as much as I would make by owning the stock.

Can you understand why I am confused why anyone would buy stock rather than trading the options when they find a stock they really like? It just doesn’t make any sense to me.

Of course, when the options I have sold are set to expire in 23 days, I need to do something. I will need to buy back the options that are in the money (at a strike which is lower than the stock price), and sell new options (collecting even more money) in a further-out month, presumably June. The lazy guys who just bought the stock instead of owning stock are lucky in this regard – they don’t have to do anything. But if the stock had stayed flat or risen moderately over those three weeks, I know that I am way ahead of the stock-owners every time.

While stock owners sit around and do nothing, my job on May 15 will be to roll over the short calls to the next month (and use the cash that is generated to buy new spreads to increase future returns even more). I show my subscribers exactly what and how to make those trades each month (in both the COST portfolio and 9 other portfolios which use different underlying stocks). Hopefully, eventually, they won’t need me any longer, but they will have discovered how to use stock options to dramatically increase their investment returns on their own.

Tuesday, April 14th, 2015

This week I would like to share an option spread idea which will cost you only $20 to try (plus commission). Of course, it you like the idea, you could buy a hundred or more of them like I did, or you could just get your options toe wet at a cost of a decent lunch (skip lunch and take a walk instead – it could improve both your physical and financial health).

The bet requires you to take a stab at what the price of oil might do in the next few weeks. Your odds of winning are surely better than placing a bet on a fantasy baseball team, and it could be as much fun. Read on.

$20 Spread Investment Idea – a Bet on Oil

I continue to investigate investment opportunities in USO, both because there is a large Implied Volatility (IV) advantage to calendar spreads (i. e. longer-term options that you buy are “cheaper” than the shorter-term options that you are selling) and because of the ongoing discussion about which way oil prices are headed (with several investment banks (e. g. Goldman Sachs, Barclays, Citi) telling their clients that oil is headed far lower), and on the other side, other analysts are saying oil is headed higher and hedge funds are covering their shorts. The Iran nuclear deal, if successful and sanctions are lifted, could lower oil prices by $15 according to industry experts, and every rumor concerning how negotiations are going moves USO in one direction or the other.

Right now, the price of oil is about $59 a barrel (and West Texas Crude is about $5 less). The price of USO moves roughly in tandem with this price, changing about $1 for every $2 in the change in the barrel price of oil.

We should know something about the Iran deal by the end of June, but its impact on oil prices is likely to occur later (it seems like sanctions will be gradually reduced over time). The current price of USO has been edging higher in spite of unprecedented supplies, and the possibility of Iran flooding the market even more. My best guess is that USO might be trading around $20 in June compared to its current $18.80.

That is just my guess. You may have an entirely different idea of where the price of oil might be headed. When trading calendar spreads, you want to select a strike price where you believe the stock will be trading when the short options expire. If you are lucky to be near that strike, those options you sold to someone else will expire worthless (or nearly so) and there will be more time premium in the long options you hold that exists for any other option in that time series.

Yesterday, I bought USO Jul-15 – Jun-15 20 calendar spreads (using calls) and paid only $.20 ($20) per spread. If I am lucky enough for USO to be right at $20 when the June options expire, the July calls should be trading about $.80 and I would make about 3 ½ times on my money after commissions. If I missed by a dollar (i. e. USO is at $19 or $21), I should double my money. If I missed by $2 in either direction, I would about break even. More than $2 away from $20, I will probably lose money, but my initial cost was only $20, so how bad can it be?

It seems like a low-cost play that might be fun. I also bought these same spreads at the 19 strike (paying $.21) to hedge my bet a bit. If I triple my money on either of the bets, I will be an overall winner. You may want to bet on lower oil prices in June and buy spreads at a lower strike.

Another way to play this would be to exit early as long as a profit can be assured. If at any time after a month from now, if USO is trading about where it is now, the calendar spread could be sold for about $.30 or more (a Jun-15 – May-20 calendar could be sold for a natural $.32 today). If USO were trading nearer to $20, that spread could be sold for $.37 (which would result in a 40% profit after commissions on the spread that I am suggesting).

With a spread costing as little as this, commissions become important. Terry’s Tips paying subscribers pay $1.25 per option at thinkorswim, even if only one option is bought or sold. A calendar spread (one long option, one short one) results in a $2.50 per spread commission charge. This means that you will incur a total commission of $5 on a spread cost of $20 counting both putting it on and closing it out (unless the short options expire worthless and you don’t have to buy them back – if this happens, your total commission cost would be $3.75 per spread).

Monday, April 7th, 2014

I like to trade calendar spreads. Right now my favorite underlying to use is SVXY, a volatility-related ETP which is essentially the inverse of VXX, another ETP which moves step-in-step with volatility (VIX). Many people buy VXX as a hedge against a market crash when they are fearful (volatility, and VXX. skyrockets when a crash occurs), but when the market is stable or moves higher, VXX inevitably moves lower. In fact, since it was created in 2009, VXX has been just about the biggest dog in the entire stock market world. On three occasions they have had to make 1 – 4 reverse splits just to keep the stock price high enough to matter.

Since VXX is such a dog, I like SVXY which is its inverse. I expect it will move higher most of the time (it enjoys substantial tailwinds because of something called contango, but that is a topic for another time). I concentrate in buying calendar spreads on SVXY (buying Jun-14 options and selling weekly options) at strikes which are higher than the current stock price. Most of these calendar spreads are in puts, and that seems a little weird because I expect that the stock will usually move higher, and puts are what you buy when you expect the stock will fall. That is the topic of today’s idea of the week.

Using Puts vs. Calls for Calendar Spreads

It is important to understand that the risk profile of a calendar spread is identical regardless of whether puts or calls are used. The strike price (rather than the choice of puts or calls) determines whether a spread is bearish or bullish. A calendar spread at a strike price below the stock price is a bearish because the maximum gain is made if the stock falls exactly to the strike price, and a calendar spread at a strike price above the stock price is bullish.

When people are generally optimistic about the market, call calendar spreads tend to cost more than put calendar spreads. For most of 2013-14, in spite of a consistently rising market, option buyers have been particularly pessimistic. They have traded many more puts than calls, and put calendar prices have been more expensive.

Right now, at-the-money put calendar spreads cost more than at-the-money call calendar spreads for most underlyings, including SVXY. As long as the underlying pessimism continues, they extra cost of the put spreads might be worth the money because when the about-to-expire short options are bought back and rolled over to the next short-term time period, a larger premium can be collected on that sale. Esto supone, por supuesto, que el pesimismo actual continuará en el futuro.

If you have a portfolio of exclusively calendar spreads (you don’t anticipate moving to diagonal spreads), it is best to use puts at strikes below the stock price and calls for spreads at strikes which are higher than the stock price. If you do the reverse, you will own a bunch of well in-the-money short options, and rolling them over to the next week or month is expensive (in-the-money bid-asked spreads are greater than out-of-the-money bid asked spreads so you can collect more cash when rolling over out-of-the-money short options).

Monday, December 16th, 2013

Every day, I get a Google alert for the words “options trading” so that I can keep up with what others, particularly those with blogs, are saying about options trading. I always wondered why my blogs have never appeared on the list I get each day. Maybe it’s because I don’t use the exact words “option trading” like some of the blogs do.

Here is an example of how one company loaded up their first paragraph with these key words (I have changed a few words so Google doesn’t think I am just copying it) – “Some experts will try to explain the right way to trade options by a number of steps. For example, you may see ‘ Trading Options in 6 Steps’ or ’12 Easy Steps for Trading Options .’ This overly simplistic approach can often send the novice option trading investor down the wrong path and not teach the investor a solid methodology for options trading . (my emphasis)” The key words “options trading” appeared 5 times in 3 sentences. Now that they are in my blog I will see if my blog gets picked up by Google.

Today I would like to share my thoughts on what 2014 might have in store for us, and offer an options strategy designed to capitalize on the year unfolding as I expect.

A “Conservative” Options Strategy for 2014

What’s in store for 2014? Most companies seem to be doing pretty well, although the market’s P/E of 17 is a little higher than the historical average. Warren Buffett recently said that he felt it was fairly valued. Thirteen analysts surveyed by Forbes projected an average 2014 gain of just over 5% while two expected a loss of about 2%, as we discussed a couple of weeks ago. With interest rates so dreadfully low, there are not many places to put your money except in the stock market. CD’s are yielding less than 1%. Bonds are scary to buy because when interest rates inevitably rise, bond prices will collapse. The Fed’s QE program is surely propping up the market, and some tapering will likely to take place in 2014. This week’s market drop was attributed to fears that tapering will come sooner than later.

When all these factors are considered, the best prognosis for 2014 seems to be that there will not be a huge move in the market in either direction. If economic indicators such as employment numbers, corporate profits and consumer spending improve, the market might be pushed higher except that tapering will then become more likely, and that possibility will push the market lower. The two might offset one another.

This kind of a market is ideal for a strategy of multiple calendar spreads, of course, the kind that we advocate at Terry’s Tips. One portfolio I will set up for next year will use a Jan-16 at-the-money straddle as the long side (buying both a put and a call at the 180 strike price). Against those positions we will sell out-of-the-money monthly puts and calls which have a month of remaining life. The straddle will cost about $36 and in one year, will fall to about $24 if the stock doesn’t move very much (if it does move a lot in either direction, the straddle will gain in value and may be worth more than $24 in one year). Since the average monthly decay of the straddle is about $1 per month, that is how much monthly premium needs to be collected to break even on theta. I would like to provide for a greater move on the downside just in case that tapering fears prevail (I do not expect that euphoria will propel the market unusually higher, but tapering fears might push it down quite a bit at some point). By selling puts which are further out of the money, we would enjoy more downside protection.

Here is the risk profile graph for my proposed portfolio with 3 straddles (portfolio value $10,000), selling out-of-the-money January-14 puts and calls. Over most of the curve there is a gain approaching 4% for the first month (a five-week period ending January 19, 2014). Probably a 3% gain would be a better expectation for a typical month. A gain over these 5 weeks should come about if SPY falls by $8 or less or moves higher by $5 or less. This seems like a fairly generous range.

Spy Straddle Risk Profile For 2014

For those of you who are not familiar with these risk profile graphs (generated by thinkorswim’s free software), the P/L Day column shows the gain or loss expected if the stock were to close on January 19, 2014 at the price listed in the Stk Price column, or you can estimate the gain or loss by looking at the graph line over the various possible stock prices. I personally feel comfortable owning SPY positions which will make money each month over such a broad range of possible stock prices, and there is the possibility of changing that break-even range with mid-month adjustments should the market move more than moderately in either direction.

The word “conservative” is usually not used as an adjective in front of “options strategy,” but I believe this is a fair use of the word for this actual portfolio I will carry out at Terry’s Tips for my paying subscribers to follow if they wish (or have trades automatically executed for them in their accounts through the Auto-Trade program at thinkorswim).

There aren’t many ways that you can expect to make 3% a month in today’s market environment. This options strategy might be an exception.

Monday, June 17th, 2013

Last week our string of 12 consecutive winning PEA Plays (Pre-Earnings Announcement) was broken, not because our model guessed wrong on where the stock (LULU) would go after the announcement (down, as it did), but because the CEO announced her retirement and the stock fell almost 20% on that news (the company actually exceeded estimates on earnings, revenues, and guidance but the retirement news overshadowed that good news). Our option positions were set up to handle a 7% drop and still make a gain, but we could not handle a 20% drop.

Interestingly, our loss came about not from our basic diagonal spread (where we would have made money in spite of the huge drop) but from the insurance calendar spreads we placed “just in case we were wrong” about the direction the stock would take. If we had had more faith in our model, we would not have made the insurance purchase, and we would not have suffered a loss.

Our loss on LULU was slightly greater than the average gain we made on the 12 previous PEA Plays, so while it was an unpleasant setback, it was not devastating.

How to Make a Portfolio of Calendar Spreads Either Bearish or Bullish:

At Terry’s Tips, we use an options strategy that consists of owning calendar (aka time) spreads at many different strike prices, both above and below the stock price. A calendar spread is created when you buy an option with a longer lifespan than the short option that you sell against your long position with both options at the same strike price. We also use diagonal spreads which are similar to calendar spreads (except that the strike prices of the long and short sides are different).

We typically start out each week or month with a slightly bullish posture since the market has historically moved higher more times than it has fallen. In option terms, this is called being positive net delta. Starting in May and extending through August, we usually start out with a slightly bearish posture (negative net delta) in deference to the “sell in May” adage.

Any calendar spread makes its maximum gain if the stock ends up on expiration day exactly at the strike price of the calendar spread. As the market moves either up or down, adding new spreads at different strikes is essentially placing a new bet at the new strike price. In other words, you hope the market will move toward that strike.

If the market moves higher, we add new calendar spreads at a strike which is higher than the stock price (and vice versa if the market moves lower). New spreads at strikes higher than the stock price are bullish bets and new spreads at strikes below the stock price are bearish bets.

It does not make any difference whether puts or calls are used for a calendar spread – the risk profile is identical for both. The key variable for calendar spreads is the strike price rather than whether puts or calls. In spite of that truth, we prefer to use puts when buying calendar spreads at strikes below the stock price and calls when buying calendar spreads at strikes above the stock price because it is easier to trade out of out-of-the-money options when the short options expire.

If the market moves higher when we are positive net delta, we should make gains because of our positive delta condition (in addition to decay gains that should take place regardless of what the market does). If the market moves lower when we are positive net delta, we would lose portfolio value because of the bullish delta condition, but some or all of these losses would be offset by the daily gains we enjoy from theta (the net daily decay of all the options).

Another variable affects calendar spread portfolio values. Option prices (VIX) may rise or fall in general. VIX typically falls with a rising market and moves higher when the market tanks. While not as important as the net delta value, lower VIX levels tend to depress calendar spread portfolio values (and rising VIX levels tend to improve calendar spread portfolio values).

Once again, trading options is more complicated than trading stock, but can be considerably more interesting, challenging, and ultimately profitable than the simple purchase of stock or mutual funds.

Tuesday, March 12th, 2013

A lot of our discussion lately has focused on pre-earnings-announcement strategies (we call them PEA Play s). This has been brought about by lower option prices (VIX) than we have seen since 2007, a full six years ago. With option prices this low it has been difficult to depend on collecting premium as our primary source of income with our basic option strategies.

But the earnings season has now quieted down and will not start up again for several weeks, so we will return to discussing more conventional option issues.

Using Puts vs. Calls for Calendar Spreads

It is important to understand that the risk profile of a calendar spread is identical regardless of whether puts or calls are used. The strike price (rather than the choice of puts or calls) determines whether a spread is bearish or bullish. A calendar spread at a strike price below the stock price is a bearish because the maximum gain is made if the stock falls exactly to the strike price, and a calendar spread at a strike price above the stock price is bullish.

When people are generally optimistic about the market, call calendar spreads tend to cost more than put calendar spreads. For most of 2012 and into 2013, in spite of a consistently rising market, option buyers have been particularly pessimistic. They have traded many more puts than calls, and put calendar prices have been more expensive.

Right now, at-the-money put calendar spreads cost more than at-the-money call calendar spreads. As long as the underlying pessimism continues, they extra cost of the put spreads might be worth the money because when the about-to-expire short options are bought back and rolled over to the next short-term time period, a larger premium can be collected on that sale. Esto supone, por supuesto, que el pesimismo actual continuará en el futuro.

If you have a portfolio of exclusively calendar spreads (you don’t anticipate moving to diagonal spreads), it is best to use puts at strikes below the stock price and calls for spreads at strikes which are higher than the stock price. If you do the reverse, you will own a bunch of well in-the-money short options, and rolling them over to the next week or month is expensive (in-the-money bid-asked spreads are greater than out-of-the-money bid asked spreads so you can collect more cash when rolling over out-of-the-money short options).

The choice of using puts or calls for a calendar spread is most relevant when considering at-the-money spreads. When buying at-the-money calendar spreads, the least expensive choice (puts or calls) should usually be made. An exception to this rule comes when one of the quarterly SPY dividends is about to come due. On the day the dividend is payable (always on expiration Friday), the stock is expected to fall by the amount of the dividend (usually about $.60). Since the market anticipates this drop in the stock (and knowing the specific day that the stock will fall), put prices are generally bid higher in the weeks before that dividend date.

The bottom line is that put calendar spreads are preferable to call calendar spreads for at-the-money strikes (or even at strikes slightly higher than the stock price) coming into a SPY dividend date. Even though the put spreads cost more, the Weekly options that can be sold for enough extra to cover the higher cost. You do not want to own SPY call calendar spreads which might become in the money on the third Friday of March, June, September, or December because you will have to buy them back on Thursday to avoid paying the dividend, and you may not want to make that purchase to keep your entire portfolio balanced.

Wednesday, January 2nd, 2013

Three weeks ago I wrote an article about how to play the unusual stock action pattern of Apple (AAPL). & # 8211; Play Apple Volatility With A Unique Weekly Options Strategy

For some unclear reason (most likely options-related, at least to my way of thinking), AAPL tends to fall on Fridays, often quite dramatically, and to move higher on Mondays.

At that time, I suggested that buying at-the-money puts Thursday near the close (or shortly after the open on Friday) would often result in extraordinary gains if you sold the puts near the close on Friday. For the past three weeks, this pattern has continued in spades.

The stock fell on Friday in those three weeks by $19.90, $2.40, and $5.47. Since at at-the-money put with a single day of remaining life would cost about $4, your average gain over these three weeks works out to more than 150% per week. During these three weeks, greater gains were possible by buying the puts before the close on Thursday rather than after the open on Friday (in the prior 12-week test, the stock often opened up a bit higher on Friday, suggesting that might be a better entry point).

The results for Mondays were not as dramatic, but still quite impressive. Of course, buying an at-the-money call either Friday near the close or near the open on Monday would cost closer to $10 because there would be five trading days remaining rather than only one, so the initial cost of the option would be about double the amount required to buy puts in anticipation of the Friday drop.

Over the last three weeks, on Mondays, AAPL has moved higher by $9.04, $.84, and $22.58. Substantial gains would have come your way in two of the three weeks with probably a break-even in the week when the stock budged up only $.84.

Will this Friday-Monday pattern continue? No one knows, for sure. My experience is that trading patterns identified by back-testing do not always hold up going forward. But somehow this one seems different. Until the pattern is broken, at least buying puts near the close on Thursday seems like a good bet. Even if you lose the entire bet on occasion, there have been so many Fridays when the drop has been substantial, over time, the returns could have been extraordinary.

At heart, I am not an option buyer. I prefer collecting decay from selling short-term options (using longer-term options as collateral rather than stock). But for many months now, the daily and weekly fluctuations in AAPL have been considerably higher than the implied volatilities of the options would suggest. As long as this pattern persists, buying AAPL options rather than selling them seems be in order, especially when there us some reason to believe that buying a put or call (rather than a straddle or strangle) gives you an edge. The Friday-Monday phenomenon might just be the edge you need.

Making 36% — A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Averigüe por qué el Dr. Allen cree que la Estrategia 10K es menos riesgosa que poseer acciones o fondos mutuos, y por qué es especialmente apropiado para su IRA.

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

thinkorswim, Division of TD AMERITRADE, Inc. and Terry’s Tips are separate, unaffiliated companies and are not responsible for each other's services and products.

©Copyright 2001-2016 Terry's Tips Stock Options Trading Blog Terry's Tips, Inc. dba Terry's Tips

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Sonic CEO Sells $5.5 Million in Stock

MF Global granted Corzine $5.4 million in stock options

MF Global Holdings awarded former Chief Executive Officer Jon Corzine about $8.5 million in compensation last year, including almost $5.4 million of stock options in the bankrupt brokerage firm.

Corzine’s pay of about $3.1 million included a bonus of $1.3 million, according to a filing by MF Global in U. S. Bankruptcy Court in Manhattan. Stock options in bankrupt companies are almost always worthless.

Corzine, a former co-chief executive officer of Goldman Sachs, worked at MF Global for 20 months before quitting amid regulatory probes after it filed for bankruptcy and brokerage customers’ accounts were frozen. The parent company is trying to trace $1 billion that vanished into its brokerage, lawyer Brett Miller told a judge Friday. The brokerage, MF Global Inc. is liquidating separately to try to repay customers estimated to be out $1.6 billion. Corzine has said he doesn’t know where the missing money is.

Corzine, who helped run Goldman Sachs from 1994 to 1999, sought to transform MF Global into a midsize investment bank after arriving there in March 2010. He increased the firm’s risk and used its own money to trade, including investments in European sovereign debt. Corzine was in line for $12.1 million in severance and prorated bonus and benefits payments if he left for "good reason" or was fired "without cause," according to an MF Global proxy statement filed last year.

MF Global granted Corzine $5.4 million in stock options

Pregunta

Berg Company adopted a stock-option plan on November 30, 2013, that provided that 73,200 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $10 a share. The market price was $12 a share on November 30, 2014.

On January 2, 2014, options to purchase 27,580 shares were granted to president Tom Winter -16,900 for services to be rendered in 2014 and 10,680 for services to be rendered in 2015. Also on that date, options to purchase 11,780 shares were granted to vice president Michelle Bennett -5,890 for services to be rendered in 2014 and 5,890 for services to be rendered in 2015. The market price of the stock was $14 a share on January 2, 2014. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $5 per option.

In 2015, neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market price of the stock was $8 a share on December 31, 2015, when the options for 2014 services lapsed.

On December 31, 2016, both president Winter and vice president Bennett exercised their options for 10,680 and 5,890 shares, respectively, when the market price was $16 a share.

Prepare the necessary journal entries in 2013 when the stock-option plan was adopted, in 2014 when options were granted, in 2015 when options lapsed, and in 2016 when options were exercised.

Want an answer?

15. Other Option Positions

An investor purchased 100 shares of STC stock at $88 and also purchased an STC June 85 put at 1. What is the investor's breakeven point?

84

86

87

89

D. The investor will profit if the value of his stock rises. He would break even at a price of $89 ($88 cost of stock plus $1 premium paid for the put). If the price of the stock declines, the investor has the right to exercise the put thus selling his stock at the 85 strike price. This will limit the customer's loss in the event of a steep decline in the stock. (15-4)

Mr. Jones purchases 100 shares of IBM at $116 per share and writes an IBM June 115 call option at 5.

Mr. Jones' breakeven point is:

110

111

120

121

B. The writer of a covered call will have a breakeven point equal to the purchase price of the stock (116) less the premium received (5). Therefore, his breakeven point is $111 ($116 - $5 = $111). (15-2)

Mr. Jones is long 100 shares of DMF at 40. He writes a 50 call fora premium of 2. What is the maximum gain he can sustain by the time the option expires?

$1,200. Since the investor buys the shares at 40 and writes calls against the stock for 2, the breakeven is 38. If the stock goes above 50, the investor will be exercised. Therefore, the maximum gain is from 38 to 50, or 12 per share, $1,200 per contract.

Someone who wishes to hedge a portfolio of preferred stocks would buy:

Yield-based option calls

Yield-based option puts

Interest-rate option calls

Interest-rate option puts

I and III

I and IV

II and III

II and IV

In which of the following strategies would the investor want the spread to widen?

Buy 1 RST May 30 put; write 1 RST May 25 put.

Write 1 RST Apr 45 put; buy 1 RST Apr 55 put.

Buy 1 RST Nov 65 put; write 1 RST Nov 75 put.

Buy 1 RST Jan 40 call; write 1 RST Jan 30 call.

An investor wants a debit spread to widen (choices I and II). As the difference between premiums increases, so does potential profit because the investor may sell the option with the higher premium and buy back the option with the lower premium. With credit spreads, investors profit if the spread between the premiums narrows.

An investor's account shows the following:

Which of the following positions would best allow an investor to take advantage of a significant appreciation in DEF stock?

A debit DEF call spread

A credit DEF put spread

Long a DEF straddle

Short a DEF straddle

C. The long straddle offers an investor the ability to realize unlimited gains since the client is long a call option. The gains are determined by the amount the stock appreciates. While a debit call spread is bullish, the gain is limited to the difference between the strike price on the long call and the strike price on the short call.

The credit put spread is also bullish, but the gain is limited to the net premium received. The short straddle exposes an investor to unlimited risk. (15-13)

Which of the following options strategies could be used by an investor who is bearish on a stock?

Debit call spread.

Debit put spread.

Long call.

Long combination straddle.

II IV) A debit put spread is a bearish strategy that could realize a profit (the difference between the strike prices minus the premium paid for the spread) if the stock price fell. A long combination, which consists of both a long call and a long put, is both bullish and bearish and could also yield a profit if the stock price fell as the result of the long put. However, both a debit call spread and a long call are bullish strategies and would not be used if one is bearish on the stock.

One of your clients anticipates a significant decline in XYZ stock. The client would like to establish a position to take advantage of this, but not expose himself to significant risk. Which of the following actions would best satisfy your client's needs?

Short XYZ stock

Purchase an XYZ put

Purchase an XYZ straddle

Establish an XYZ debit put spread

B. A long put would allow your client to realize a gain determined by the amount the stock falls below the option's strike price, less the premium. The investor is only at risk for the amount paid for the put, i. e. the premium.

In selling XYZ short, an investor exposes himself to unlimited risk. When purchasing a straddle, the investor pays a premium greater than when purchasing only one put on the stock.

While the debit put spread is bearish, the gain is limited to the difference between the strike price on the long put and the strike price on the short put, less the net premium. (14

Which of the following positions would best allow an investor to take advantage of a significant appreciation in DEF stock?

A debit DEF call spread

A credit DEF put spread

Long a DEF straddle

Short a DEF straddle

C. The long straddle offers an investor the ability to realize unlimited gains since the client is long a call option. The gains are determined by the amount the stock appreciates. While a debit call spread is bullish, the gain is limited to the difference between the strike price on the long call and the strike price on the short call.

The credit put spread is also bullish, but the gain is limited to the net premium received. The short straddle exposes an investor to unlimited risk. (15-13)

Reports have been released discussing the instability of the Japanese economy. Imports from the U. S. have been decreasing. The rate of inflation in the U. S. has dropped and the GDP has increased. Given this information, what investment strategy would be most appropriate?

Buy Japanese yen calls

Buy Japanese yen puts

Buy Japanese yen straddles

Buy U. S. dollar calls

B. Given this information it appears the value of the Japanese yen is decreasing while at the same time the value of the U. S. dollar is strengthening. Since options on the U. S. dollar are not available, the only viable choice would be to purchase Japanese yen puts.

A Japanese manufacturer sells recorders to a U. S. retailing firm. The manufacturer is to receive $1 million (U. S. dollars) in 90 days. How can he best protect himself against a decline in the dollar?

D) Because he is receiving U. S. dollars, his risk is that the U. S. dollar will go down in value against the Japanese yen. If the dollar goes down against the yen, the yen will rise. Therefore, to protect his risk against a rising yen, he should buy yen calls. The yen calls will increase in value if the yen rises.

In which of the following strategies would the investor want the spread to widen?

Buy 1 RST May 30 put; write 1 RST May 25 put.

Write 1 RST Apr 45 put; buy 1 RST Apr 55 put.

Buy 1 RST Nov 65 put; write 1 RST Nov 75 put.

Buy 1 RST Jan 40 call; write 1 RST Jan 30 call.

An investor wants a debit spread to widen (choices I and II). As the difference between premiums increases, so does potential profit because the investor may sell the option with the higher premium and buy back the option with the lower premium. With credit spreads, investors profit if the spread between the premiums narrows.

A stock index call option is exercised. The writer must:

Deliver cash

Deliver the underlying index

Purchase the underlying index

Close out his position

A. When an index option is exercised, the writer must pay the buyer the in-the-money amount of the option in cash

A buyer of a call option would have:

Limited risk

Protection against a short position

A leveraged position

I and II only

I and III only

II and III only

I, II, and III

D. Buying a call option provides leverage since you control 100 shares of stock for a relatively small cost (the premium). The risk is limited to the premium since that is the maximum potential loss. If an investor is short stock, he would risk a loss if the market price of the stock increased. Buying a call would provide protection against this situation since he could buy stock at a set price by exercising the call. (15-5, 14-12

In May, a customer sells an ABC July 40 listed call for a $6 premium and buys an ABC October 40 listed call for a $10 premium.

The customer has created a:

Vertical Spread

Diagonal Spread

Horizontal Spread

Straddle

C. The customer has created a horizontal, time, or calendar spread, which is the term used when option contracts of the same class with the same strike price but with different expirations are bought and sold. (15-22)

A customer is long an ABC Apr 40 call and is also short an ABC Jul 40 call. Which of the following best describe his position?

Bullish.

Bearish.

Calendar spread. 4. Vertical spread.

II III) The July call will have a higher premium than the April call because it has more time value. Since the customer is selling the call with the higher premium, he is counting on the July call to go unexercised, which would allow him to keep the premium as a profit. That means the market value of the underlying security must either stay the same or decline. This customer's position is therefore bearish. Since the options expire in different months, the trade is a calendar spread.

If an investor sells 1 AMF Apr 50 put for 2.50 and buys 1 AMF May 60 put for 7.75, the investor has profit when

the spread narrows.

the spread widens.

both puts are exercised.

both puts expire.

The correct answer was: II and III.

The investor created a debit spread, which is profitable when both sides are exercised or the spread widens. Conversely, credit spreads are profitable when both sides expire or the spread narrows.

A customer sells XYZ short at $40 and sells one XYZ October 40 put at 5. What would the customer's profit or loss per share be if the put is exercised when the market value of the stock is $35, and the stock received pursuant to that exercise is used to cover the short stock position?

$10 profit

$5 profit

0

$5 loss

B. If the put is exercised when the market price is less than $40, the stock acquired by the writer will be used to close out the short position. There is no profit or loss on the short sale (sell short at $40 and cover at $40). The entire profit is the premium income of $5. The seller of a put who sells short can never profit by more than the premium when the short sale price and the strike price are the same. (15

In April, a customer sold short 100 shares of QRS stock at $50 and simultaneously wrote 1 QRS Jan 50 put for a premium of $7. If the January put is exercised when the market value of QRS is 43 and the stock acquired is used to cover the short stock position, what is the customer's profit or loss per share?

The correct answer was: $7 gain.

Because the stock is purchased on exercise of the short put for $50 and is used to cover the $50 short sale, the investor incurs no gain or loss on the stock. The customer keeps the $700 collected in premiums for a profit of $7 per share.

Reference: 4.3.4 in the License Exam Manual.

Which of the following positions would NOT have unlimited gain potential?

Long 1 ABC Jun 60 call and long 1 ABC Jun 60 put

Long 1 ABC Jun 60 call and long 1 XYZ Jun 60 put

Long 100 ABC at 50 and short 1 ABC Jun 60 call

Long 100 ABC at 50 and short 1 ABC Jun 40 put

C. Choice (c) is an example of a covered call. If the market price rises above 60 per share, the long stock position will be called away at 60 and the gain will be capped at the-10 point difference between the purchase price (50) and strike price (60) plus the call option premium (which is not given). For choice (a) and (b) there is unlimited gain potential if ABC rises in value. For choice (d) there will be unlimited gain potential if ABC rises, as the put would expire and the stock still has upside potential.

Customers would have unlimited risk if they were:

Long 1 ABC Jan 50 put

Short 1 ABC Jan 50 put

Short 1 ABC Jan 50 put and short 100 shares of ABC stock

Short 1 ABC Jan 50 put and long 100 shares of ABC stock

An individual who is short stock has unlimited risk as there is no limit to how high the price may rise. The only protection offered by the short put would be the premium received. (15-7, 13-14)

An investor writes a Treasury bond call option contract. He would be considered covered by a deposit of:

A basket of bonds

Specific T-bonds

One hundred shares of the underlying security

The required margin

B. A treasury bond call option writer would be considered covered only if the specific underlying T-bonds are deposited. (15-47, 16

Which of the following statements is TRUE in relation to the buyer of a call option?

The investor has limited risk.

The investor has a limited potential profit.

The investor is entitled to all dividends paid on the underlying stock.

The investor must exercise the option if the underlying stock goes up.

A. A purchaser of a call option would have limited risk with the potential for unlimited profit. The risk is the possibility of losing the entire premium (cost of the option). The owner of the call option is not an equity owner of the stock unless and until the option is exercised. (14-12)

A customer sells a Brunswick April 20 straddle and receives a premium of $800. The put side of the straddle expires unexercised but the call is exercised. The customer is uncovered on the call and must purchase the stock in the market to effect delivery to the buyer of the call. The current market price of Brunswick Corporation is $29. The net result to the customer will be a:

$100 loss

$100 profit

$2,100 profit

$2,100 loss

A. The customer received $800 from the sale of the straddle. The customer is required to buy 100 shares of Brunswick at the current market price of $29 for $2,900. He delivers the stock to the option buyer for the call price of $20, receiving $2,000. The customer sustained a $900 loss from the exercise of the uncovered call option position but received $800 from the sale of the straddle resulting in a net loss of $100. (15

A customer writes an XYZ June 60 straddle for a 5-point premium. At expiration, the market price of XYZ is 50 and the put side is exercised. The customer then sells the stock that was put to him at the current market price. The customer has realized a:

$500 profit

$500 loss

$1,000 profit

$1,000 loss

Término

The customer has received a total of $5 in premiums or $500 for the straddle. The call side of the straddle expires, but the put is exercised. The writer must buy the stock at $60 per share (the exercise price). The stock is then sold at the $50 market price which results in a $1,000 loss ([$60 - $50] x 100 shares). However, since the customer initially received a premium when he wrote the straddle, the loss is only $500 ($1,000 loss from exercising the put - $500 premium). (15-16)

An investor purchases an ABC Jan 40 call @ 4 and sells an ABC April 30 call @ 9. This is an example of a:

Variable hedge

Vertical spread

Horizontal spread

Diagonal spread

D. A spread involves the purchase and sale of the same type of options (calls or puts). If the contracts differ in expiration, it is a horizontal spread. If the contracts differ in exercise (strike) price, it is a vertical spread. If both expiration and exercise price are different, it is a diagonal spread.

In May, a customer sells an ABC July 40 listed call for a $6 premium and buys an ABC October 40 listed call for a $10 premium.

The customer has created a:

Vertical Spread

Diagonal Spread

Horizontal Spread

Straddle

C. The customer has created a horizontal, time, or calendar spread, which is the term used when option contracts of the same class with the same strike price but with different expirations are bought and sold. (15-22)

Chicago Board Options Exchange Volatility Index (VIX)

measure of implied volatility of s&p 500 index and is a weighted blend of prices for a range of options on the s&p 500 index; aka Fear Index bc represents one measure of market's expectation of volatility over next 30 day period; used to help measure markets expectations of volatility in short term future; market driven

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16 stock options answer - Total compensation expense 50,000.

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Name: Date: Instructor: Course: Intermediate Accounting, 15th Edition by Kieso, Weyga

Options Strategies - Question 1 0.1 out of 0.1 points The.

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 Question 1 0.1 out of 0.1 points The maximum loss a buyer of a stock call option can suffer is equal to Answer Selected Answer: Correct Answer:  Question 2 0.1 out of 0.1 points Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share Answer Selected Answer: Correct Answer:  Question 3 0.1 out of 0.1 points The price that a trader receives from writing a stock option is the Answer Selected Answer:

Correct Answer:  Question 4 0 out of 0.1 points The price that the writer of a stock put option receives for the underlying asset if the option is exercised is the Answer Selected Answer: asset if the option is exercised Correct Answer: Response Feedback: If the option is exercised, the price that the writer of a put option receives for the underlying asset is the the stock is sold via the stock market.  Question 5 0.1 out of 0.1 points You write one RIO February 70 put for a premium of $5. Ignoring transactions costs, what is the breakeven price of this position? Answer Selected Answer: Correct Answer:  Question 6 0 out of 0.1 points A call option on a stock is said to be out of the money if

Answer Selected Answer: Correct Answer: Response Feedback: When the exercise price is higher than the stock price, the call option holder will find it cheaper to buy the underlying stock from the stock market than paying the exercise price for the stock. Hence the option

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5.5 Homework Practice Problems

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Twitter A $5 Stock?

It’s been a long year for Twitter Inc (NYSE: TWTR ) shareholders, and the stock has started off 2016 by plummeting to new all-time lows. Unfortunately, Global Equities Research’s Trip Chowdhry predicts that the worst is not over for the battered social media giant.

“The capital markets cannot support existing Junk, as they have to make space for some new Total Junk, that is waiting, like SnapChat and Pinterest . The fair value of TWTR is about 1x Revenues, which we think, when all is said and done, TWTR may be a $5 stock,” Chowdhry said in an email to clients.

In addition to Twitter, he names several other “Total Junk” stocks in the email, including GoPro Inc (NASDAQ: GPRO ), Fitbit Inc (NYSE: FIT ), Groupon Inc (NASDAQ: GRPN ), Zynga Inc (NASDAQ: ZNGA ), Etsy Inc (NASDAQ: ETSY ), Pure Storage Inc (NYSE: PSTG ) and Box Inc (NYSE: BOX ).

Now that interest rates have started rising, Chowdhry believes that the money behind these “faddish” stocks will dry up and many will struggle to generate growth in the new environment.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for TWTR

Shares of stock are given to owners of corporations as evidence of their ownership interests. The ownership of common shares allows common stockholders to vote for the board of directors, receive dividends, and receive assets when the corporations go out of business. The sale of common stock to owners is a source of resources for a corporation. In return for the common shares, the corporation receives resources from the buyer, who becomes an owner.

For example, assume a corporation issues 10,000 shares of common stock and receives cash of $5 per share on July 1. Show the effects on the company's resources and sources of resources.

Sources of Borrowed Resources

Sources of Owner Invested Resources

Sources of Management Generated Resources

+ $50,000 common stock

The company's resources (assets) increase by $50,000 when it receives cash from owners. This increase in resources is the reason the company issued the stock. The company now has $50,000 more it can use. The company's sources of resources (stockholders' equity) also increase by $50,000 because the owners have a right to the $50,000. If the company went out of business immediately and still had $50,000 after paying all creditors, the owners would receive the $50,000.

As a result of securities regulations designed to protect investors, the accounting for stock is not quite as straightforward as in the above illustration. Many corporations assign a par value to all shares of common stock. In some states, the par value of all common stock issued must remain in the company until all creditors have been paid. As a result, the accounting for issuing common stock splits the effects on stockholders' equity into two parts: (1) the par value of the common stock issued and (2) the excess of the cash received over the par value of the common stock issued. For example, if the par value of the 10,000 shares of common stock issued in the above example had been $2 per share, the effects on the company's resources and sources of resources would have been as follows.

Sources of Borrowed Resources

Sources of Owner Invested Resources

Sources of Management Generated Resources

+ $20,000 common stock

+ $30,000 additional paid-in capital, common stock

It is important to note that the company's resources increased by $50,000, the cash received from owners. The increase in stockholders' equity was split into two pieces. The par value of the stock increased the common stock account by $20,000 (10,000 shares x $2 par value per share). Additional paid-in capital, common stock increased by $30,000 ($50,000 total cash received - $20,000 par value of stock issued).

Remembering that assets increase with debits and that debits must equal credits, prepare the journal entry to record the issuance of the 10,000 shares of common stock.

By far the most important point in the above discussion is that corporations obtain resources when they issue common stock. The fact that the par value of shares issued is recorded in the common stock account is a tradition that continues today. For those companies issuing stock without par values (called no par stock), the full amount received is recorded as a debit to cash and an equal credit to common stock.

** You now have the background to do text exercises 12.1, 12.2, 12.3, 12.4, 12.5, and 12.6.

A second major class of stockholders owns preferred stock. Owners of preferred stock have specific rights (or preferences) over those of common stockholders. For example, preferred stockholders have a right to receive dividends before common stockholders. Usually, when a company goes out of business, preferred stockholders also have a right to receive their share of the company's assets before any assets are distributed to common stockholders. In return for preferred shares, the corporation receives resources from the buyer, who becomes an owner.

For example, assume a corporation issues 1,000 shares of $10 par preferred stock and receives cash of $12 per share on July 1. Show the effects on the company's resources and sources of resources.

Sources of Borrowed Resources

Sources of Owner Invested Resources

Sources of Management Generated Resources

+ $10,000 preferred stock

+ $2,000 additional paid-in capital, preferred stock

The company's resources (assets) increase by $12,000 when it receives cash from owners. This increase in resources is the reason the company issued the stock. The company now has $12,000 more it can use. The company's sources of resources (stockholders' equity) also increase by $12,000 because owners have a right to the $12,000. Similar to the accounting for common stock, the accounting for the issuance of preferred stock splits the effects on stockholders' equity into two parts: (1) the par value of the preferred stock issued and (2) the excess of the cash received over the par value of the preferred stock issued. In the case above, the par value of the preferred stock increased the preferred stock account by $10,000 (1,000 shares x $10 par value per share). Additional paid-in capital, preferred stock increased by $2,000 ($12,000 total cash received - $10,000 par value of stock issued).

Remembering that assets increase with debits and that debits must equal credits, prepare the journal entry to record the issuance of the 1,000 shares of preferred stock.

Final Rule: Rule 701 – Exempt Offerings Pursuant to Compensatory Arrangements

SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 230 [Release No. 33-7645; File No. S7-5-98] RIN 3235-AH21

RULE 701 – EXEMPT OFFERINGS PURSUANT TO COMPENSATORY ARRANGEMENTS

AGENCY . Securities and Exchange Commission.

ACTION . Final Rule.

SUMMARY . The Securities and Exchange Commission ("we" or "Commission") is adopting amendments to Rule 701 under the Securities Act of 1933, which provides an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. These amendments make Rule 701 more useful and eliminate unnecessary restrictions. We are removing the $5 million aggregate offering price ceiling and setting the maximum amount of securities that may be sold in a 12-month period to a more appropriate, flexible limit related to the size of the issuer. The amendments also require specific disclosure from issuers that sell more than $5 million worth of securities in a 12-month period, and harmonize the definition of consultant and advisor to the one contained in Form S-8, the short-form registration statement form for the offer and sale of employee benefit plan securities.

EFFECTIVE DATE . April 7, 1999.

FOR FURTHER INFORMATION CONTACT . Richard K. Wulff (202-942-2950), Office of Small Business, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N. W. Washington, D. C. 20549.

SUPPLEMENTARY INFORMATION . We are adopting amendments to Rule 701 1 under the Securities Act of 1933 ("Securities Act"). 2

I. Executive Summary and Background

In 1988, we adopted Rule 701 under the Securities Act 3 to allow private companies to sell securities to their employees without the need to file a registration statement, as public companies do. The rule provides an exemption from the registration requirements of the Securities Act for offers and sales of securities under certain compensatory benefit plans or written agreements relating to compensation. The exemptive scope covers securities offered or sold under a plan or agreement between a non-reporting ("private") company (or its parents or majority-owned subsidiaries) and the company's employees, officers, directors, partners, trustees, consultants and advisors.

When we adopted the rule, we determined that it would be an unreasonable burden to require these private companies, many of which are small businesses, to incur the expenses and disclosure obligations of public companies when their only public securities sales were to employees. Further, these sales are for compensatory and incentive purposes, rather than for capital-raising. To accommodate these companies, we used the maximum extent of the authority we had at that time under Section 3(b) of the Securities Act 4 to exempt offers and sales of up to $5 million per year.

Currently, the amount of securities subject to outstanding offers in reliance on Rule 701, plus the amount of securities offered or sold under the rule in the preceding 12 months, may not exceed the greatest of $500,000, or an amount determined under one of two different formulas. One formula limits the amount to 15% of the issuer's total assets measured at the end of the issuer's last fiscal year. The other formula restricts the amount to no more than 15% of the outstanding securities of the class being offered. Regardless of the formula elected, Rule 701 restricts the aggregate offering price of securities subject to outstanding offers and the amount sold in the preceding 12 months to no more than $5 million.

Over the years, our staff has monitored the use of the rule. The staff concluded that the rule has been popular for both small businesses and larger private companies. However, the $5 million limit appears to have become unnecessarily restrictive in light of inflation, the increased popularity of equity ownership as a retention and incentive device for employees, and the growth of deferred compensation plans.

In October 1996, Congress enacted the National Securities Markets Improvement Act of 1996 ("NSMIA"), 5 which, for the first time, gave us the authority to provide exemptive relief in excess of $5 million for transactions such as these. The legislative history of NSMIA stated specifically that we should use this new authority to lift the $5 million ceiling on Rule 701. 6 In February 1998, we proposed a number of revisions to increase the flexibility and usefulness of Rule 701, as well as to simplify and clarify the rule. 7

Today, we announce revisions to the rule that: (1) remove the $5 million aggregate offering price ceiling and, instead, set the maximum amount of securities that may be sold in a year at the greatest of: – $1 million (rather than the current $500,000);

– 15% of the issuer's total assets; o

– 15% of the outstanding securities of that class; (2) require the issuer to provide specific disclosure to each purchaser of securities if more than $5 million worth of securities are to be sold;

(3) do not count offers for purposes of calculating the available exempted amounts; 8

(4) harmonize the definition of consultants and advisors permitted to use the exemption to the narrower definition of Form S-8; 9

(5) amend Rule 701 to codify current and more flexible interpretations; y

(6) simplify the rule by recasting it in plain English. Together, these changes will add greater flexibility for companies to compensate their employees with securities and, at the same time, will provide that essential information be delivered to employees in appropriate situations and in a timely manner. The vast majority of commenters on the Rule 701 Proposing Release supported the proposed amendments, particularly lifting the $5 million aggregate offering price ceiling and removing offers from the ceiling calculation. A number of commenters, however, expressed concerns about the proposed disclosure requirements, particularly as they relate to foreign private issuers.

We have considered these comments and believe that we have struck an appropriate balance between the needs of employee-investors and the needs of non-reporting companies. In particular, we have decided to impose the disclosure requirements only on sales above $5 million, instead of on all Rule 701 sales, as proposed. These revisions to Rule 701 are being adopted pursuant to the exemptive authority provided to the Commission under Section 28 of the Securities Act. 10

II. Amendments to Rule 701

The amendments to Rule 701 have been adopted in most respects as proposed, with the exceptions discussed below. The changes to the rule are not retroactive. Offers and sales made in reliance on Rule 701 before the effective date will continue to be valid if they met the conditions of the rule before its revision. 11 The principal changes are in the areas of exemptive limits, disclosure, and the treatment of consultants and advisors, as discussed in detail below. In addition, we are adopting a number of clarifying and simplifying provisions, including the following:

expanding the scope of the rule to exempt sales to employees of majority-owned subsidiaries of the issuer's parent ( i. e. . brother-sister subsidiaries);

providing: (1) that a private, wholly-owned subsidiary can use its parent's assets, whether or not the parent is a public company, in making the 15% of assets calculation so long as the parent fully and unconditionally guarantees the obligations of the subsidiary issued under the rule (if the guarantee does not exceed 15% of the parent's assets), such as in the case of many deferred compensation arrangements; and (2) an exemption for the parent's guarantee;

clarifying that sales to former employees may be completed under the rule if those persons were employees when the securities initially were offered; 12

specifying the manner of considering employee/consultant services in calculating the aggregate sales limit; y

facilitating tax and estate planning by permitting the rule to be available for option exercises by family members of employees who acquire Rule 701 securities from the employee through a gift or a domestic relations order. 13

A. Exemptive Limits

As proposed, we are removing the $5 million aggregate offering price ceiling and raising the current $500,000 level that can be sold in a year to $1 million. 14 Also as proposed, the revised rule no longer limits the dollar amount of securities offered to employees. Instead, issuers will make calculations based solely on actual sales or amounts to be sold (as with options) in a 12-month period. Changing the focus from offers to sales will make it easier for issuers to determine the exempt amount of securities transactions, while continuing to assure that the transactions are not so large as to trigger the need for registration. We believe that these changes, in combination with the other changes adopted, will provide issuers the flexibility they need, without creating opportunities for abuse.

With respect to equity incentives such as restricted stock and compensatory stock purchases, the calculations will be made as of the transaction date. Deferred compensation and similar plans will make measurements based upon the date of an irrevocable election to defer compensation. With respect to options, calculations will be made as of the date of the option's grant, without regard to whether the option is currently exercisable or "vested." We make this change for option calculations in response to comments emphasizing the difficulty in keeping track of outstanding options, when they become exercisable and when they might be exercised. 15 We believe that this method of determining the available exemption should make no difference from an investor protection point of view since the 12-month limit will still apply. However, this change will greatly simplify the issuer's oversight of outstanding offers and perhaps benefit more employees and others who may participate in the compensatory arrangements. The rule makes it clear that calculations with respect to options should be based on the exercise price, since the purpose is to measure the securities that will be sold under the exemption. dieciséis

Rule 701 provides that the calculation of the exempt amount should account for the value of both consultant and employee services. 17 A number of the commenters misunderstood this provision. The point of the revision is to clarify that compensatory arrangements should not be valued at "zero" or treated as a gift. Even when the employee or consultant is not required to pay additional consideration for the securities being issued, these securities typically would have some intrinsic worth, such as book value or a multiple of book value. The value of services exchanged for securities issued must be measured by reference to the value of the securities issued rather than the employee's salary or consultant's invoice. The rule as revised makes this clear.

B. Disclosure to Persons Covered by Rule 701

We were concerned that eliminating the $5 million ceiling could result in some very large offerings of securities without the protections of registration, even though made pursuant to compensatory arrangements. We therefore proposed to impose a specific disclosure requirement on all transactions under the exemption. We solicited comment on whether some dollar amount of transactions might not require specified disclosure, for example, $1 million. In response to comment, and our consideration of reasonable alternatives, we have decided to require no specified disclosure requirement for sales up to $5 million. This formulation apparently has worked well to date. We do not believe the exemption has been misused for fraudulent purposes in its current format. We agree with the commenters that the additional burdens related to mandatory financial and risk disclosure for these limited offerings are unnecessary.

On the other hand, the revised rule provides no aggregate offering price ceiling and thus substantial amounts of securities exceeding $5 million may be issued by large private companies. Indeed, a number of commenters with this profile urged the Commission to remove the ceiling quickly so that they can enjoy sooner the benefits of the exemption for their compensatory arrangements. These commenters appear to be comfortable with a greater disclosure requirement as the tradeoff for greater use of the exemptive rule. Moreover, we believe that many of these companies already have prepared the type of disclosure required in their normal course of business, either for using other exemptions, such as Regulation D, 18 or for other purposes. As a result, the disclosure requirement generally would be less burdensome for them. If these companies do not want to disclose the requisite information to their employees and others, they may continue to follow the current provisions of the rule and keep the amount sold below $5 million in a 12-month period. In that case, they would continue to provide only the disclosure needed to satisfy the antifraud provisions of the law. 19

We would have investor protection concerns if we removed the $5 million ceiling without imposing specific disclosure requirements, as discussed below. In contrast, we believe that disclosure requirements are not needed for offerings below the $5 million threshold at this time. We have not witnessed abuse below this threshold, and therefore the burden of preparing and disseminating the new disclosure does not justify the potential benefits to employee-investors.

Where the formula permits sales in excess of $5 million during a 12-month period, and the issuer chooses to take advantage of this increased amount, the new disclosure should be provided to all investors before sale. This requirement will obligate issuers to provide disclosure to all investors if the issuer believes that sales will exceed the $5 million threshold in the coming 12-month period. If disclosure has not been provided to all investors before sale, the issuer will lose the exemption for the entire offering when sales exceed the $5 million threshold.

The disclosure requirements are adopted as proposed. The required disclosure consists of:

a copy of the compensatory benefit plan or contract; 20

a copy of the summary plan description required by the Employee Retirement Income Security Act of 1974 ("ERISA") 21 or, if the plan is not subject to ERISA, a summary of the plan's material terms;

risk factors associated with investment in the securities under the plan or agreement; y

the financial statements required in an offering statement on Form 1-A 22 under Regulation A. 23

The type and amount of disclosure needed in a compensatory securities transaction differs from that needed in a capital-raising transaction. In a bona fide compensatory arrangement, the issuer is concerned primarily with compensating the employee-investor rather than maximizing its proceeds from the sale. Because the compensated individual has some business relationship, perhaps extending over a long period of time, with the securities issuer, that person will have acquired some, and in many cases, a substantial amount of knowledge about the enterprise. The amount and type of disclosure required for this person is not the same as for the typical investor with no particular connection with the issuer. The current standards of financial statement disclosure contained in Regulation A should satisfy our concerns for a level of disclosure that will provide basic protections in a compensatory transaction but may not be available as a result of ordinary employment or business dealings. 24 The standard is well established and may be very familiar to private issuers, since these financial statements and risk factor disclosure requirements are used not only in Regulation A, but also in the private placement exemptions contained in Regulation D. 25

Compliance with the minimum disclosure standards for Rule 701 may not necessarily meet the antifraud standards of the securities law. 26 The disclosure required will depend upon the facts and circumstances. 27

Some commenters expressed concern that requiring a private issuer to deliver disclosure documents, particularly financial statements, to employee-investors could result in serious harm to the company if the information were to come into possession of its competitors. In view of the substantial amounts of securities that may now be issued under Rule 701, we believe that a minimal level of disclosure consisting of risk factors and Regulation A unaudited financial statements is essential to meet even the lower level of information needed to inform compensatory-type investors such as employees and consultants. Private issuers can use certain mechanisms, such as confidentiality agreements, to protect competitive information. Alternatively, an issuer could elect to stay below the $5 million threshold to avoid these disclosure obligations.

C. Foreign Private Issuers

In the Rule 701 Proposing Release, we especially sought comment on how foreign private issuers 28 should be treated under Rule 701, given that more and more U. S. persons are employed by foreign companies. Many foreign private issuers with substantial amounts of securities held by U. S. persons provide only "home country reports" and do not prepare financial statements with a reconciliation to U. S. generally accepted accounting principles ("GAAP") because of the Rule 12g3-2(b) exemption from the registration requirements of the Exchange Act. 29 This exemption is available even though the number of U. S. holders may exceed 500 and total company assets exceed $10 million, which ordinarily would trigger the Exchange Act reporting requirements.

We solicited comment on whether non-reporting foreign private issuers should be subject to some annual ceiling, such as $10 million. Without a limit, the new calculation formula could result in the sale of large amounts of securities to many employees without such companies ever being required to register under the Securities Act or the Exchange Act. Commenters objected to a limit, noting that foreign private issuers typically undertake broad-based offerings to their U. S. employees for legitimate compensatory reasons and in order to treat all of their employees alike regardless of their location. Many commenters expressed the view that any tightening of the exemption for foreign private issuers would simply result in securities-based incentives not being offered to the U. S. employees of foreign issuers.

We have determined not to impose any annual ceiling on foreign private issuers, given the compensatory nature of Rule 701 offerings and the detrimental effect that such a rule could have on the compensation packages of U. S. employees. Instead, non-reporting foreign private issuers will be required to provide the same disclosure as non-reporting domestic issuers if sales under Rule 701 exceed $5 million in a 12-month period. 30 Imposing this obligation on all issuers is the price for removal of the $5 million offering limit.

We do not believe that any additional modification needs to be made at this time for foreign private issuers because they will be subject to the same disclosure requirements as domestic issuers. When, and if, we accept international accounting standards or guidelines for filing and reporting purposes, we would amend Rule 701 to allow these standards to satisfy the rule's financial statement disclosure obligations for foreign private issuers. For issuers making smaller offerings, the foreign companies may continue to follow the rule as they have in the past, which means that "home country" reports may be used, as necessary, to satisfy the antifraud standards. However, larger companies that cross the $5 million barrier will have to provide the disclosure required under Regulation A, which includes unaudited financial statements.

Where financial statements prepared in accordance with U. S. GAAP are not provided, a reconciliation to such principles must be attached. 31 The provisions of Regulation A suggest that a reconciliation is permitted only for Canadian companies. This is because Canadian companies are the only foreign issuers eligible to use that exemption. In contrast, any foreign issuer is eligible to use Rule 701, but if it exceeds the $5 million amount it must provide financial statements as required by Regulation A. If U. S. GAAP financials are not available, the financials provided must be reconciled to U. S. GAAP. Although there are costs involved in preparing the reconciliation and a number of the commenters objected to the notion of preparing a reconciliation to U. S. GAAP, we believe that the minimal level of disclosure for these compensatory transactions is the Regulation A financial statements, which must be reconciled to U. S. GAAP. Foreign private issuers that do not wish to provide the disclosure specified may elect to keep their Rule 701 sales below the $5 million threshold for disclosure, the same as for domestic issuers.

D. Consultants and Advisors

Like regular employees, consultants and advisors are eligible to receive securities under the Rule 701 exemption. Similarly, where the issuer is a reporting company, consultants and advisors may receive securities in a transaction registered on Form S-8. 32 Currently, the staff interprets the scope of eligible consultants and advisors differently for purposes of Rule 701 and Form S-8. The staff has interpreted Rule 701 to permit participation by a broader range of consultants and advisors, even though the words are identical in both Rule 701 and Form S-8.

At the same time we proposed changes to Rule 701, we proposed changes to Form S-8 to limit further the scope of eligible consultants and advisors. 33 In many cases, the Form has been misused by registering shares for issuance to consultants and advisors who do not have sufficient connection and familiarity with the company. In some cases, these persons are receiving the securities for capital-raising, rather than compensatory, purposes and engage in public distributions of the company's securities. 34

In the Rule 701 Proposing Release, we asked how consultants and advisers participate in compensatory arrangements and whether we should restrict their participation. We also asked whether Rule 701 and Form S-8 should be harmonized in their treatment of these persons. We are concerned that persons who would misuse exemptions will develop new methods to abuse deregulatory safe harbors, even as we are taking steps to close down other avenues for abuse.

We have determined that the flexible definition of "consultants and advisors," particularly in the context of registered offerings on Form S-8, has led to abuse. We are concerned that Rule 701 could be similarly abused if we make changes only to Form S-8, even though Rule 701 securities, unlike Form S-8 securities, are restricted. 35 We are therefore adopting a definition of the term "consultants and advisors" in Rule 701 that will harmonize with the new definition in Form S-8, 36 and narrow the scope of eligible consultants and advisors.

As revised, securities promoters clearly will be excluded from the scope of persons eligible to participate under the exemption. Independent agents, 37 franchisees and salespersons who do not have an employment relationship with the issuer no longer will be within the scope of "consultant or advisor." 38 A person in a de facto employment relationship with the issuer, such as a non-employee providing services that traditionally are performed by an employee, 39 with compensation paid for those services being the primary source of the person's earned income, would qualify as an eligible person under the exemption. 40 Other persons displaying significant characteristics of "employment," such as the professional advisor providing bookkeeping services, computer programming advice, or other valuable professional services may qualify as eligible consultants or advisors, depending upon the particular facts and circumstances. 41 Our staff will continue to handle questions about "consultant or advisor" status on a case-by-case basis through its interpretive letter process, but the terms will be interpreted in the same manner for both Rule 701 and Form S-8.

E. Other Revisions

Because it has become increasingly commonplace to sell stock of a private subsidiary to employees of a parent or affiliate subsidiary, and because these transactions retain the envisioned compensatory character, we have implemented our proposal to expand exemption coverage to sales to employees of majority-owned subsidiaries of the issuer's parent ( i. e. . brother-sister subsidiaries). 42

We also have adopted our proposal that Rule 701 should be available for sales, such as option exercises, by family donees of compensatory securities and transferees who receive these securities in divorce proceedings. Rule 701 is now available for immediate family members who have acquired such securities through a gift or a domestic relations order. For this purpose "family member" is defined as in Form S-8 to include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the employee's household (other than a tenant or employee), a trust in which these persons have more than a fifty percent beneficial interest, a foundation in which these persons (or the employee) control the management of assets, and any other entity in which these persons (or the employee) own more than fifty percent of the voting interests. This provision is consistent with the treatment of transferable securities under Form S-8. 43

III. Cost-Benefit Analysis

As an aid in the evaluation of the costs and benefits of our original proposals, which were deregulatory in nature, we requested the views and other supporting information of the public. We received no comments in response to this request. Nonetheless, we believe that the rule as revised provides substantial benefits that justify any costs involved. A major feature of the exemption is its regulatory flexibility. Thus, benefits it offers include maintaining the existing exemption for small companies, expanding the availability of the exemption by applying otherwise established disclosure requirements, and permitting companies to preserve cash by using stock for compensatory purposes. The amended rule as a whole provides regulatory relief for companies, even larger ones, although relief with the fewest conditions continues to be for small issuers and others that decide to maintain their offerings below the $5 million ceiling.

For every issuer, the minimum available exemptive amount has been increased from $500,000 to $1 million. This doubling of exemption should be particularly attractive to smaller companies that are unable to utilize the formulas effectively. In addition, we have decided not to require specified disclosure requirements, including financial statements, for sales up to $5 million. Further, we determined not to reinstitute a filing requirement such as Form 701 to report when the exemption is used.

On the other hand, the revised rule provides no aggregate offering price ceiling and thus substantial amounts of securities exceeding $5 million may be issued by large private companies. If these companies do not want to disclose the requisite information to their employees and others, they may continue to follow the current provisions of the rule and keep the amount sold below $5 million in a 12-month period. In that case, they would not have to provide the specified disclosure.

The ability to reward and retain employees with a company's securities will permit companies to keep valuable employees without having to use other methods to compensate them, such as borrowing money or selling securities. Because the rule may encourage companies to offer incentives to their employees and others, for example through deferred compensation arrangements, and also facilitates interfamily donative transfers, it may provide benefits from the perspective of tax and estate planning as well.

We have concluded that the rule amendments will not result in a major increase in costs or prices for consumers or individual industries, or significant adverse effects on competition, employment, investment, productivity, innovation or small business. We believe that persons who will rely on the rule will not have significantly increased costs. In fact, since the current version of the rule is essentially retained for offerings under the former $5 million ceiling, there should be no change in the costs of compliance for issuers that have historically used the exemption and continue to keep their offerings under $5 million. For issuers that are large enough to go above the $5 million threshold and therefore are required to provide specified disclosure, any additional costs may not be significant. Some of the commenters fitting this profile stated that they either already provide or have the required information readily available for their employees and other persons.

Some issuers, however, will face costs in availing themselves of the increased benefits of the rule – primarily those who decide to issue more than $5 million worth of securities in the 12-month period. It is worth noting, however, that these increased costs would be borne voluntarily. Issuers can perform their own cost-benefit analysis to decide whether to do an offering in excess of $5 million under the rule. Currently, issuers do not have the option to make an offering exceeding $5 million under Rule 701. Even in these cases, the costs of using Rule 701 may be lower than the costs of using another exemption or registering the sales. Such costs may include "in-house" preparation of disclosure documents, hiring of attorneys and accountants, and delivery and printing costs. Nonetheless, because there may be more securities sales to more investors, we believe that mandatory disclosure is necessary for investor protection.

The change to the "consultants and advisors" definition, which is necessary to counteract abuses we have found with some "compensatory" arrangements, will impact use of the Rule 701 exemption and perhaps disadvantage some issuers in their ability to effectively use the provision. However, the staff will continue to consider interpretive requests of the term, including reconsideration of some of the letters we are overturning today.

IV. Exemptive Authority Findings

We find that exempting transactions by nonreporting companies pursuant to compensatory benefit plans and written compensatory contracts from Section 5 of the Securities Act is appropriate in the public interest and is consistent with the protection of investors. We make these findings based on the reasons that we describe in this release. In particular, we have determined that Rule 701 has successfully allowed small businesses to compensate their employees with securities. The amendments will permit smaller businesses to issue up to $1 million in securities to their employees, an increase from the current $500,000 limit, without regard to the company's size. The amendments also will permit larger private companies to issue more than $5 million, subject to the established financial statement requirements of Regulation A and provision of risk factor disclosure. Our use of exemptive authority will allow more companies and more investors to benefit from this rule.

The rule is specifically designed not to raise capital. The ability to reward and retain employees with a company's securities should aid companies by providing a mechanism to keep valuable employees without having to use other methods to compensate them, such as borrowing money or selling securities. Finally, Rule 701 provides private companies with some of the benefits public companies have under Form S-8.

Furthermore, we have not found instances of abuse of Rule 701, nor have we become aware of investor complaints. Rather, investors have enjoyed the benefits of being compensated with the securities of the company for which they are employed or provide services. Therefore, we have found that Rule 701 has been consistent with investor protection in the past. We realize, however, that the exemption will lead to a greater volume of sales to a larger number of investors. We believe that requiring disclosure for these larger offerings will help assure that the use of our exemptive authority in this context is consistent with the protection of investors.

V. Summary of Final Regulatory Flexibility Analysis

In accordance with 5 U. S.C. § 604, we have prepared a Final Regulatory Flexibility Analysis ("FRFA") regarding the proposed amendments.

The analysis notes that the amendments to Rule 701 are a result of: (1) concerns expressed to us by practitioners; (2) feedback that the current dollar limitations unduly constrain the ability of many eligible issuers to use Rule 701; and (3) the specific Congressional mandate expressed in the legislative history of NSMIA. The purpose of the revisions is to remove unnecessary constraints. We have determined that the amendments will not impair investor protection.

As the FRFA describes, from mid-1988 through mid-1993, 1,069 companies filed 1,294 Forms 701 indicating aggregate sales of about $2.28 billion. On an annual basis, an average of 214 companies reported $456 million of sales on approximately 260 Forms 701. Based on an analysis of a sample of these filings, the Commission's Office of Economic Analysis estimates that 14% of the filings were made by small businesses. More current information is not available because Form 701 has not been a required submission since 1993.

The revisions should permit greater use of the exemption by small and large non-reporting issuers alike. The minimum amount that any issuer can raise under the exemption has been raised from $500,000 to $1 million. Greater availability of the exemption for employee benefit, deferred compensation and other plans, as well as to facilitate family donative transfers, should aid in tax and estate planning. We expect, therefore, that more companies will use the rule and that the value of securities sold under the exemption will be larger than it was in the 1988-1993 period. Accordingly, for purposes of estimating the amendments' economic impact, we estimate that 300 companies per year will make sales pursuant to Rule 701 and that 42 (14%) of those companies will be small businesses.

The amendments do not impose any new recordkeeping requirements or require reporting of additional information. Nonetheless, there is an impact, especially for larger private companies that choose to offer compensatory arrangements in excess of the current $5 million ceiling, as those companies will need to prepare specified disclosure and provide it to their participating employees. Because a number of commenters told us that this information is commonly maintained by this class of issuer (generally not small entities) in order to satisfy requirements for securities issuance exemptions (such as for private placements), loans and other purposes such as regulatory and internal ones, the amendments will not increase reporting, recordkeeping or compliance burdens, and may reduce those burdens for some companies.

As discussed more fully in the FRFA, several possible significant alternatives to the amendments were considered to minimize effects on small entities. These included establishing different compliance or reporting requirements for small entities, exempting them from all or part of the proposed requirements, or requiring them to provide different disclosure, such as all Form 1-A items or the full disclosure requirements of Form SB-1 or SB-2. In fact, the rule as adopted is changed from our initial proposal, which would have required all entities to provide certain disclosure. As adopted, only issuers selling more than $5 million during a 12-month period will be required to provide disclosure. The FRFA also indicates that no current federal rules duplicate, overlap, or conflict with the proposed rule amendments.

We encouraged written comments on any aspect of the Initial Regulatory Flexibility Analysis, but received no specific comments in response to our request. In particular, we sought comment on: (1) the number of small entities that would be affected by the proposed rule amendments; and (2) the determination that the proposed rule amendments would not increase (and in some cases may reduce) reporting, recordkeeping and other compliance requirements for small entities. For purposes of making determinations required by the Small Business Regulatory Enforcement Fairness Act of 1996 ("SBREFA"), 44 we also requested data regarding the potential impact of the proposed amendments on the economy on an annual basis. We received no comments in response to this request either. A copy of the Final Regulatory Flexibility Act Analysis may be obtained from Twanna M. Young, Office of Small Business, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N. W. Washington, D. C. 20549.

VI. Paperwork Reduction Act

Our staff consulted with the Office of Management and Budget ("OMB") and submitted the proposals for review in accordance with the Paperwork Reduction Act of 1995 ("the Act"). 45 The title to the affected information collection is: "Rule 701." The specific information that must be included is explained in the rule itself, and relates to the issuer and other information that may be associated with investment in securities under the plan or agreement. The information is needed by prospective purchasers to make informed investment decisions.

The proposed amendments will increase the flexibility and utility of Rule 701 for private companies using securities to compensate their employees.

The collection of information in Rule 701 will be required in order for companies to use the rule for sales of their securities to their employees and other persons covered by the rule. The likely respondents to the rule are companies that previously used the rule, but were being constrained by its limits, and companies that could not use the rule at all because of its limits. While we cannot predict the number of respondents that may use expanded Rule 701, there were 1,294 Form 701 filings during the period from mid-1988 through mid-1993, when persons relying upon the exemption were required to file reports with us concerning their use of the exemption. On the basis of these historical filings under Rule 701, we estimate that approximately 300 companies each year will rely on the exemption. The estimated burden for responding to the collection of information in Rule 701 will not increase for most companies due to the current disclosure requirements in Rule 701, but may increase slightly for other companies who may not be currently providing risk factors and Regulation A financial statements to employee-purchasers. We estimate that the burden hours per respondent each year will be two. Therefore, we estimate an aggregate of 600 burden hours per year.

The information collection requirements imposed by Rule 701 are mandatory to the extent that a company elects to use the Rule 701 exemption. The information will be disclosed to third parties or the public. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a current valid OMB control number.

We received no comments in response to our request for comment regarding the information collection obligation.

VII. Statutory Basis, Text of Amendments and Authority

The amendments to our rules and forms are being adopted pursuant to sections 2, 3(b), 6, 7, 8, 10, 19(a) and 28 of the Securities Act.

List of Subjects

Reporting and recordkeeping requirements, Securities.

For the reasons set out in the preamble, title 17, chapter II of the Code of Federal

Regulations is amended as follows:

Both Committee Reports specifically highlighted the current $5 million limit contained in Rule 701 and sought prompt Commission action to raise that ceiling to "not less than $10 million." H. R. Rep. No. 104-622 at 38; S. Rep. No. 104-293 at 16.

Release No. 33-7511 (February 27, 1998) [63 FR 10785] ("Rule 701 Proposing Release"). We received 33 letters of comment on the proposals. You may inspect and copy the comment letters in our Public Reference Room in File No. S7-5-98. Comments that were submitted electronically are available on our website (http://www. sec. gov).

Note, however, that the rule now requires issuers to count as sales the securities underlying the options at the time of the option grant based upon the exercise price.

17 CFR 239.16b. Form S-8, a simplified form for registering sales to employees, is available only to public companies subject to the reporting requirements of the Securities Exchange Act of 1934 [15 U. S.C. 78a et seq .] ("Exchange Act"). See also the release relating to revisions to Form S-8 we are adopting today, Release No. 33- 7646. ("S-8 Adopting Release").

"The Commission, by rule or regulation, may conditionally or unconditionally exempt any person, security or transaction, or any class or classes of persons, securities or transactions from any provision of this title or any rule or regulation issued under this title to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with protection of investors." 15 U. S.C. 77bb. As more fully described below, we find that the exemption is appropriate in the public interest and is consistent with the protection of investors.

Offers that were being made under the Rule 701 exemption as it used to read may be consummated under those terms. For example, vested options may be exercised in reliance upon the prior version of Rule 701. Options issued in reliance upon the Rule 701 exemption (in contrast to a "no sale" theory) may be exercised in reliance upon the prior version of the rule, whether vested or unvested. See the interpretive letter to Richard M. Leisner (December 21, 1995).

As adopted, the rule also includes former directors, officers, general partners, trustees, consultants and advisors.

This change is consistent with the amendments to Form S-8 adopted today with respect to transferable securities. "Family member" is defined in Rule 701(c)(3) the same way as "family member" in General Instruction A.1(a)(5) of Form S-8 as adopted today in the S-8 Adopting Release.

The revised rule also makes it clear, as proposed, that the calculations of total assets and securities outstanding are measured as of the issuer's most recent balance sheet date, which must be no older than the end of its last fiscal year.

In particular, commenters were concerned that basing calculations on the option exercise date could result in an unanticipated loss of the exemption if too many optionees exercised their options at the same time. Although options are offers of the underlying securities that can be made without limitation and are exempt under the revised rule, using the exercise price at the date of grant simplifies the calculations of the available exemption amount and allows issuers to avoid the administrative difficulties of keeping track of outstanding options.

In the event that exercise prices are later changed or repriced, a recalculation will have to be made under Rule 701.

Trade – Commonly asked Trading Questions About our Stock Market Game

Stock Market Game Questions And Answers

We get tons of questions about our stock market game, so this is where you can find the answers!

If you have technical questions, like how to make a trade or create a contest. check out our virtual trading FAQ. This covers the basics of the basics, and where you can look for more beginners investing information. You can also click here for a list of glossary terms with in-depth explanations, or look in to our Beginners Investing Course to get everything you need to know to start investing on your own in one neat package.

What is a stock?

A stock, at the most basic level, is a piece of a company that you can buy. For more information on the basics, click here .

What is a mutual fund?

A mutual fund is a collection of stocks, bonds, currencies, and other securities that are collected into a large, ‘mutual’ portfolio that you can buy in to. To learn more about mutual funds, click here .

What is an ETF?

An ETF is like a mutual fund, but trades on an exchange like a stock. It usually follows a major index, like the S&P 500. To learn more about ETFs, click here .

What is an Index?

An index is a benchmark that is used to measure the market as a whole, or one particular industry. An index is made up of a collection of stocks. For more information, click here to read about the Dow Jones Industrial Average, or click here to read about the S&P 500 .

What are the NASDAQ and NYSE?

These are “stock exchanges”, or places were stocks are listed for the public to buy and sell.

What are Bid and Ask prices?

When you want to buy or sell a stock, there is not one giant body that will buy or sell at a given price; there are millions of other people that are also looking to buy and sell, and an agreement must be reached. The “bid” and “ask” prices are the differences between the people who currently want to buy “bidders” and people who want to sell “askers”. For more information on bid and ask prices, click here .

What do I need to get started investing on my own?

Very little, you could start today if you wanted! Discount brokerages will open trading accounts with very little initial investment that you can use to buy and sell stocks as you wish, usually charging $5-$10 in commission. However, it is always a good idea to practice before you risk your investment, so we recommend using our free paper trading game to try investing fake money in real US and Canadian stocks and mutual funds before entering the market.

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Since the company is still small, I think you should take into account only three things:

Team: Is it a solid team? Not only the founders, but also first hires will determine a startup's fate. The team is #1.

Product: Does it have traction? Does it solve a real and objective need or is it profiting from a temporary market inefficiency?

Exit: I'm guessing you'd like to profit from your purchasing the stock so potential exits is one of the most important things you should look at. Will the company IPO? Will it be sold? Or is it a lifestyle business (in that it will provide its founders and investors a steady annual income in perpetuity)?

Espero que eso ayude. The bottom line: there isn't an equation for this. You'll have to go with your gut.

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Other Answers

I had a talk with a business angel once, and he told me that the only thing he looks for in a company he's considering to invest in is management. The management needs to be competent, with a vision. The product to him didn't matter much.

Following this advice, you should consider the leader of this company. If you believe in his abilities and willingness to bring this startup to profitability, invest. If you have a doubt, don't.

One key thing to think about is - how much additional capital will the company need to raise? One disadvantage of exercising options when you leave, is that in future investments rounds, you will not be able to participate. So, new investors with preferred stock will be layered on top of you, making your shares of stock less valuable in an acquisition. Also, if there is a down round, where you are diluted heavily, you will just have to deal with it and will have no recourse, other than to sue if you think something nefarious went down.

As an active employee, if you are valued, management may issue new options to you to minimize the impact on you of the above scenarios, and ensure that you remain motivated by your equity to keep working hard.

So, if this is a company that is going to need to raise a lot more money, that would make me think twice.

I think that you simply can't calculate the risk, the company is too small and is a startup, so buy their stock, only if you think that their products and team are good.

When you're reviewing a startup you must put in the foreground the team, everything depend from management and the type of products offered . there isn't, in my opinion, another way to evaluate a startup.

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Emini Dow ($5) Futures and Options

Dow Jones futures ($10) and E-mini Dow futures ($5) provide a way to efficiently gain exposure, with a mid-sized contract, to a key benchmark for the U. S. stock market.

They also enable you to:

Benefit from potentially lower trading costs compared to trading individual stocks or Exchange-Traded Funds (ETFs)

Use a financial tool that accommodates a range of strategies, different market environments and varied objectives

Dow Jones Futures Things to know:

Trading takes place via open outcry during regular trading hours and electronically on the CME Globex platform when the trading floor is closed CME Clearing matches and settles all trades and guarantees counterparty creditworthiness. E-mini Dow ($5) Futures Contract Specifications

Ticker Symbol YM YM= Clearing

Contract Size $5 x Dow Jones Industrial Average ("DJIA")

Tick Size (minimum fluctuation) 1.00 index points=$5.00

Trading Hours All time listed are Central Time CME Globex

(ETH) MON – FRI: 5:00 p. m. previous day – 4:15 p. m.; trading halt from 3:15 p. m. – 3:30 p. m.

Contract Months Four months in the March Quarterly Cycle (Mar, Jun, Sep, Dec)

Last Trade Date/Time

View Calendar CME Globex

Trading can occur up to 8:30 a. m. on the 3rd Friday of the contract month

Daily Price Limits View price limits details

Block Minimum N/A

Ticker Symbol OYMC (Calls) OYMP (Puts) YM= Clearing

Contract Size One E-mini Dow ($5) futures contract

Strike Price Intervals 500-point intervals within ± 50% previous day’s settlement price of the underlying futures 100-point intervals within ± 20% previous day’s settlement price of the underlying futures 50-point intervals within ± 10% previous day’s settlement price of the underlying futures for the two nearest quarterly cycle month options. Exercise prices for serial options shall be identical to the exercise prices that are listed for the March quarterly options on the same underlying futures contract

Tick Size (minimum fluctuation) 1.00=$5.00

Reduced Tick: Option Premium ≤ $4.00, may be traded in $1.00 increments per option contract, i. e. at $1.00, $2.00, $3.00 or $4.00

Trading Hours All time listed are Central Time

CME Globex (Electronic Platform) MON – FRI: 5:00 p. m. previous day – 4:15 p. m.; trading halt from 3:15 p. m. – 3:30 p. m.

View Listings First three consecutive months (2 Serial Months, 1 Quarterly) plus the next three contracts in the March Quarterly Cycle

Strike Listings CME Globex All strike intervals

Last Trade Date/Time

View Calendar CME Globex QUARTERLY: 8:30 a. m. 3rd Friday of the contract month SERIAL: 4:15 p. m. 3rd Friday of the contract month

Exercise Procedure American Style.

Expiration Date Procedure An option can be exercised until 7:00 p. m. on any business day the option is traded. QUARTERLY OPTIONS - Unexercised in-the-money options will be automatically exercised at 7:00 p. m. on the day of determination of the Final Settlement Price. SERIAL OPTIONS - Unexercised in-the-money options will be automatically exercised at 7:00 p. m. on Serial Option expiration day. Settlement at Expiration Option exercise results in a position in the underlying cash-settled Futures contract. Options which are in-the-money on the last day of trading are automatically exercised.

In-the-money QUARTERLY OPTIONS, in the absence of contrary instructions delivered to the Clearing House by 7:00 p. m. on the day of the expiration, are exercised automatically into expiring cash-settled futures, which settle to the SOQ calculated the morning of the 3rd Friday of the contract month. In-the-money SERIAL OPTIONS, in the absence of contrary instructions delivered to the Clearing House by 7:00 p. m. on the day of the expiration, shall be exercised automatically on serial option expiration day.

Daily Price Limits Option trading is not permitted during trading halts due to price limit events. View price limits details.

Block Minimum N/A

Exchange Rule These contracts are listed with, and subject to, the rules and regulations of CBOT.

Understanding the EFRPs Market for Stock Index Futures (PDF)

Equities Monthly Newsletter

FAQ E-mini products

Equities Update

ClearTrade Commodities Contact & Phone Numbers Local: 773-561-9777 / Fax: 773-561-9775

ClearTrade Commodities 5415 N. Sheridan Rd. Suite #5512 Chicago, IL 60640 ClearTrade Inc. is a National Futures Association Member

Options Strike Price

Options Strike Price - Definition

The price at which an options contract allows you to trade the underlying asset at.

Options Strike Price - Introduction

One of the things about options trading that immediately baffle new options traders is the range of strike prices, or also known as Exercise Price, that are available. Everyone new to options trading know that buying call options on stocks going up and buying put options on stocks going down returns a leveraged profit. However, almost all of them are surprised to see that there isn't one call option or put option to buy but a whole range of them listed across many strike prices.

This tutorial shall explore what strike prices are in options trading, the implications of these different strike prices and why strike price intervals are different for different stocks.

Explosive Options Trading Mentor Find Out How My Students Make Over 45% Per Trade, Confidently, Trading Options In The US Market Even In A Recession!

What Exactly are Strike Prices?

Remember that stock options allow you to buy or sell the underlying stock at a fixed price before expiration? Well, Strike Price is that "fixed price". The strike price of an options contract is the price that the underlying asset is agreed to be traded at. For example, a call option with a strike price of $50 allows you to buy the underlying stock at $50 anytime prior to expiration no matter what price that stock is then while a put option with a strike price of $50 allows you to SELL that underlying stock at $50.

Strike prices of QQQQ options

When you read about an option being April$46Call, that $46 in the quote refers to the strike price, not the price of the call option.

Why So Many Strike Prices?

Futures traders starting on options trading usually have the one same complain, "Why can't there be just one call option and one put option for each expiration month just like there is only one futures contract to be bought for each expiration month in futures trading?". Well, the strike price system in options trading is exactly what makes options trading much more versatile than futures trading.

First of all, most of the options strategies. both basic and advanced ones, are made possible only because there are multiple strike prices. Take the popular bullish options strategy, Bull Call Spread. por ejemplo. A Bull Call Spread requires buying call options at a lower strike price and writing call options at a higher strike price in order to reduce capital outlay on a moderately bullish outlook. Such a strategy would not be possible without multiple strike prices.

Secondly, multiple strike prices also allows the options trader to trade according to the expected volatility of the underlying stock, buying more out of the money strike prices if the stock is expected to move strongly or buying more in the money strike prices if the stock is expected to move only very slightly.

If there are no strike prices but simply one call option and one put option for each stock, then what is the "fixed price" that the underlying stock would be traded at if the option is exercised. Even if there is just one strike price for call options and put options for each month, that one strike price would eventually go so much out of the money that it is no longer worth owning in the first place or that it would go so much in the money that eventually, it would lose its leverage and hedging purpose as it would have become far too expensive. How about doing something like a mark to market process in futures trading by moving that one strike price to the market price of the underlying stock at the end of each day? If thats the case, how then would hedgers or traders who want the right to buy or sell the underlying stock at a particular fixed price as a hedge on their stock positions be able to do so if the strike price keeps changing?

It is only by having multiple strike prices that options traders would always be able to find an option to trade that fulfills their investment, trading or hedging purpose.

Implications of Strike Prices

The main implication of strike prices in options trading is that it governs the "Moneyness" of each options contract. Moneyness is the strike price of an option in relation to the price of the underlying stock. This alone governs the nature of how each option is priced and what trading purpose they fulfill. Call options with strike prices above the current stock price are regarded as out of the money and would have no current value when exercised because the stock price is lower than the price the call options allow you to buy it at. However, these call options are excellent speculative positions if you expect a stock to move strongly as they are extremely cheap. Call options with strike prices below the current stock price is regarded as in the money. They are more expensive due to the fact that part of the stock price is already built into the option price, known as the intrinsic value. but they also respond better to small moves in the underlying stock due to a higher delta. As you can see, options with different moneyness due to different strike prices have different trading and pricing characteristics.

Having multiple strike prices also means that options traders can become more and more specific with maximising reward / risk in options trading. Every different strike price increases or decreases the risk in an options strategy gradually such that an options trader trading the same options strategy but with a different risk appetite could choose different strike prices and have the exact level of reward / risk that they want. Indeed, the variability of risk exposure in options trading is one of its main characteristics and made possible only because of multiple strike prices.

Strike Price Intervals

The picture below displays the Options Chains for call options on AAPL and QQQQ. Notice the difference in the interval between their strike prices.

Difference in strike interval between AAPL and QQQQ

Notice that the price difference between the strike prices of AAPL's call options is larger than the price difference between the strike prices of QQQQ's call options. This is know as the Strike Price Interval or simply "Strike Interval". The strike price interval for each optionable stock is decided by the exchange and options traders can only choose between the available strike prices offered. In general, the more expensive the underlying stock is, the larger their expected daily move in terms of dollars and cents (absolute move), the larger their strike interval would be.

There are four commonly used strike price intervals; $1, $2.50, $5 and $10. $1 interval would be used for highly liquid, low priced stocks generally below $50 while $2.50 or $5 are used for stocks between $50 to $150 and $10 strike price interval used for expensive stocks generally above $200. There are currently no strict standard and the exchange reviews and decides on the strike price interval of each optionable stock from time to time in order to adjust policies to better cater to trading needs.

Yes, options exchanges decide on things like strike price interval based on market demand (trader's needs) more than any strict mathematical formula. For instance, if a high priced stock like AAPL is expected to move as much as $10 a day on an average trading day, then it doesn't make any sense offering options at a $1 strike price interval as most of the options would be behaving much the same way, see? Strike price intervals in options trading need to cater to strategic needs. As such, each strike price should reflect a significant short term price achievement in the underlying stock so that each strike price caters to a different investment or trading outlook. This will make sure options that are offered receive significant demand instead of having lots of options floating around with no demand on them. This directly increases liquidity for each options contract in the options trading market while maintaining or enhancing the tactical advantage of options at each strike price.

Continue your journey of discovery. Click Above For Content Index

Top Buys by Directors: Juneau's $498.6K Bet on MCF Wednesday, April 3, 11:51 AM ET, by Market News Video Staff The directors of a company tend to have a unique inside view into the business.

Contango Oil & Gas Co. (MCF) Shares Enter Oversold Territory Friday, May 24, 11:38 AM ET, by Market News Video Staff In trading on Friday, shares of Contango Oil & Gas Co. (MCF) entered into oversold.

Contango Oil & Gas Co. Stock Getting Very Oversold Friday, August 30, 3:51 PM ET, by Market News Video Staff In trading on Friday, shares of Contango Oil & Gas Co. (MCF) entered into oversold.

MCF Makes Bullish Cross Above Critical Moving Average Wednesday, October 16, 11:29 AM ET, by Market News Video Staff In trading on Wednesday, shares of Contango Oil & Gas Co. (MCF) crossed above their.

Contango Oil & Gas Co. Breaks Below 200-Day Moving Average - Notable for MCF Tuesday, May 13, 4:17 PM ET, by Market News Video Staff In trading on Tuesday, shares of Contango Oil & Gas Co. (MCF) crossed below their.

Commit To Purchase Contango Oil & Gas Co. At $5, Earn 21.6% Annualized Using Options

By Energy Stock Channel Staff, Thursday, January 28, 11:45 AM ET

Play Video: How To Sell A PUT

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Investors considering a purchase of Contango Oil & Gas Co. (AMEX:MCF ) stock, but cautious about paying the going market price of $6.12/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the July put at the $5 strike, which has a bid at the time of this writing of 50 cents. Collecting that bid as the premium represents a 10% return against the $5 commitment, or a 21.6% annualized rate of return (at Stock Options Channel we call this the YieldBoost ).

Start slideshow: Top YieldBoost Puts of the S&P 500 »

Selling a put does not give an investor access to MCF's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $5 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked ). So unless Contango Oil & Gas Co. sees its shares decline 17.6% and the contract is exercised (resulting in a cost basis of $4.50 per share before broker commissions, subtracting the 50 cents from $5), the only upside to the put seller is from collecting that premium for the 21.6% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Contango Oil & Gas Co. and highlighting in green where the $5 strike is located relative to that history:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the July put at the $5 strike for the 21.6% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Contango Oil & Gas Co. (considering the last 252 trading day closing values as well as today's price of $6.12) to be 77%. For other put options contract ideas at the various different available expirations, visit the MCF Stock Options page of StockOptionsChannel. com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 1.09M contracts, with call volume at 1.09M, for a put:call ratio of 0.74 so far for the day, which is above normal compared to the long-term median put:call ratio of .65. In other words, if we look at the number of call buyers and then use the long-term median to project the number of put buyers we'd expect to see, we're actually seeing more put buyers than expected out there in options trading so far today. Find out which 15 call and put options traders are talking about today.

This Article's Word Cloud: Contango Options Stock YieldBoost about among annualized benefit buyers call cents considering contract exercised fillColor from going history market median month number only options other owning premium price rate ratio represents return seller selling share shares stock strike that this today trading trailing twelve upside volatility where which with would

Stock Option Leverage

Each option contract is based on 100 shares of stock. So, when a stock option is quoted at $2, buying the option will actually cost the investor $200. If the underlying stock does not move much in price, then the same leverage will apply to any sale and the leverage of the stock option won't come into play and generate big profits.

However, stock options are priced based on two overall components. The first component is the intrinsic value of the stock option. The intrinsic value is defined as the difference between the market price and the strike price of the option.

For example, a call for XYZ with a strike price of $45 has an intrinsic value of $5 when the stock's current price per share is $50.

The second component of an option's price is set based on complex mathematical models and market forces. Though this value can change during an option's life, this is not where the powerful leverage lies.

Intrinsic Value = Big Money

How stock options can make such huge trading profits lies in that ratio where each option is actually a contract for 100 shares of stock.

If a stock is trading at $44 per share and goes to $50 per share, you would make $6 per share if you just bought the stock without using any options. To buy 100 shares, you would have to originally pay $4400. The $6 per share profit on 100 shares equals a $600 profit. Not a bad day.

But, if you bought a stock option with a strike price of $45 for $2, the same stock price movement will result in a much bigger profit. In the beginning, the investor pays just $200 for the call option. At this point, the option's intrinsic value is -1. When the stock price moves to $50 per share, the option's intrinsic value increases to $5. But remember, the call is for 100 shares of stock, so that $5 of intrinsic value is multiplied by 100 resulting in a $500 profit for a $200 investment, or over 200% return!

There is a catch. Stock options come with expiration dates. If they aren't used by then, the expire worthless. In other words, if the stock price does not rise above $45 per share in our example, the option investor loses all $200 or a 100% loss!

But, with lower up-front investments and the potential for huge rewards, a savvy options trader can make a fortune and retire early. Of course, that is easier said than done, so keep reading and learn all the option trading skills and techniques you need before jumping in.

When a put option is assigned, the seller (i. e. option writer) is obligated to buy shares at a fixed price, regardless of where the underlying market is.

Let's take the case of selling naked puts. For example, the stock might be trading at $20, but if the strike price of the option is $45, the option seller must buy the stock from the put holder for $45 per share.

Given this scenario, it's easy to see why an individual investor would probably view selling naked puts as having limited reward and substantial risk. After all, the maximum profit that can be achieved is limited to the premium received from the sale of the options. A fund manager, on the other hand, might view the situation differently.

By selling slightly out of the money puts, one is able to buy the stock at a discount relative to where it currently trades if the stock moves down in price. At the same time, the position would have earned additional income from the premium associated with the options. If the stock advances, naked put writers haven't missed out entirely because they keep the premium collected from the options that expire worthless.

Ejemplo

To truly appreciate this strategy, let's look at the following hypothetical example. Imagine that you want to buy International Business Machines (IBM) but think it is due for a slight correction from its current price, $82.83. By selling the $80 puts at $5.10, you collect $510 ($5.10 x 100 shares) per contract. If the stock drops to $75 and the puts are assigned to you, you will pay $80 for the stock. However, your net cost is really $74.90 per share ($80 strike - $5.10 premium) — a relative bargain compared to buying the stock outright at $82.85!

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25 Stocks Under $5 With Buy Ratings From Top Sell Side Analysts

Looking for low-priced stocks with bullish backing from knowledgeable investors? We ran a screen on micro cap companies or larger ($50 mil+) with strong ratings from top analyst groups.

Specifically, we screened stocks under $5 for “buy” or “overweight” ratings from other reputable analyst groups which include Barclays, Argus, Deutche, Canacord Genuity, Needham and Collin Stewart.

Caution and Reason

Many investors are drawn to low-priced stocks because of the large return potential when share price rises by marginal amounts. For the same reason, investors must be very cautious because a small drop in price means a big decrease. This is why it might be helpful to have the backup of a large investment bank’s analysts. Their full-time job is to analyze companies, so their word is as professional as it gets. They often have personal relationships with the companies they are assigned to, and visit the company to get more accurate figures out their value.

Bargain hunting investors should note that just because a stock is trading at a low price does not necessarily mean it is trading below fair value. Nor does a "buy" or "overweight" rating signal they are bound to rally. Analysts are human, and therefore known to make mistakes. And ratings are not updated all that frequently, so pay attention to the dates that the group issued their rating and consider what events have occurred in the meantime.

Use this list as a starting point for your own analysis.

1. Anthera Pharmaceuticals, Inc (ANTH. Earnings. Analysts. Financials ): A biopharmaceutical company, focuses on developing and commercializing products to treat diseases associated with inflammation. The company's development programs focus on anti-inflammatory therapeutics for cardiovascular diseases, lupus, and other serious diseases. On 11/01/2011, Deutsche Bank had a Buy rating on the stock. On 12/02/2011, Collins Stewart had a Buy rating on the stock. Market cap at $67.25M, most recent closing price at $0.85.

2. Aastrom Biosciences, Inc. (ASTM. Earnings. Analysts. Financials ): Engages in developing autologous cell therapies for the treatment of severe and chronic cardiovascular diseases. Market cap at $77.51M, most recent closing price at $1.82. On 05/22/2012, Needham had a Buy rating on the stock.

3. BioMimetic Therapeutics Inc. (BMTI. Earnings. Analysts. Financials ): Engages in the development and commercialization of regenerative protein therapeutic products primarily used for bone and tissue regeneration, repair and healing of musculoskeletal injuries, and conditions affecting bones, tendons, ligaments, and cartilage. Market cap at $111.47M, most recent closing price at $3.95. On 11/22/2011, Collins Stewart had a Buy rating on the stock.

4. Callidus Software Inc. (CALD. Earnings. Analysts. Financials ): Provides sales performance management (SPM) software and services. Market cap at $149.38M, most recent closing price at $4.31. On 05/25/2012, Oppenheimer had a Outperform rating on the stock.

5. Cerus Corporation (CERS. Earnings. Analysts. Financials ): Engages in the development and commercialization of the INTERCEPT Blood System. Market cap at $179.81M, most recent closing price at $3.28. On 02/29/2012, Robert W. Baird had a Outperform rating on the stock.

6. China Gerui Advanced Materials Group Ltd. (CHOP. Earnings. Analysts. Financials ): Engages in the manufacture and sale of cold-rolled narrow strip steel products in the People's Republic of China. Market cap at $118.37M, most recent closing price at $2.03. On 11/18/2011, Oppenheimer had a Outperform rating on the stock.

7. Curis Inc. (CRIS. Earnings. Analysts. Financials ): Focuses on the research and development of cancer therapeutics. Market cap at $340.77M, most recent closing price at $4.28. On 12/09/2011, Oppenheimer had a Outperform rating on the stock.

8. Cytokinetics, Incorporated (CYTK. Earnings. Analysts. Financials ): Engages in the discovery and development of small molecule therapeutics that modulate muscle function for the potential treatment of serious diseases and medical conditions. Market cap at $105.45M, most recent closing price at $0.79. On 07/02/2012, Needham had a Buy rating on the stock.

9. E-Commerce China Dangdang Inc. (DANG. Earnings. Analysts. Financials ): Operates as a business-to-consumer e-commerce company in the People's Republic of China. Market cap at $393.16M, most recent closing price at $4.92. On 03/27/2012, Oppenheimer had a Outperform rating on the stock.

10. GOL Linhas A (GOL. Earnings. Analysts. Financials ): Operates as a low-cost low-fare airline in Latin America. Market cap at $1.3B, most recent closing price at $4.81. On 11/01/2011, Barclays Capital had a Overweight rating on the stock.

11. Insmed Incorporated (INSM. Earnings. Analysts. Financials ): Focuses on the development of inhaled pharmaceuticals for the site-specific treatment of serious lung diseases. Market cap at $76.6M, most recent closing price at $3.08. On 09/16/2011, Wedbush had a Outperform rating on the stock.

12. Isoftstone Holdings Limited (ISS. Earnings. Analysts. Financials ): Provides various information technology (IT) services and solutions in the Greater China and internationally. Market cap at $276.65M, most recent closing price at $4.92. On 01/10/2012, Oppenheimer had a Outperform rating on the stock.

13. Mitek Systems Inc. (MITK. Earnings. Analysts. Financials ): Develops, sells, and services software solutions related to mobile imaging applications and intelligent recognition software in the United Stats and Internationally. Market cap at $121.05M, most recent closing price at $4.67. On 03/26/2012, Needham had a Buy rating on the stock.

14. Netlist, Inc. (NLST. Earnings. Analysts. Financials ): Together with its subsidiaries, designs, manufactures, and sells intelligent memory subsystems for the datacenter server, high-performance computing, and communications markets primarily in the United States and the People's Republic of China. Market cap at $53.14M, most recent closing price at $1.87. On 11/11/2011, Needham had a Buy rating on the stock.

15. Overland Storage Inc. (OVRL. Earnings. Analysts. Financials ): Provides data management and data protection solutions for backup and recovery systems worldwide. Market cap at $51.06M, most recent closing price at $1.85. On 06/04/2012, Needham had a Buy rating on the stock.

16. Pluristem Therapeutics, Inc. (PSTI. Earnings. Analysts. Financials ): Engages in the research, development, and production of placental-derived adherent stromal cells (ASCs). Market cap at $186M, most recent closing price at $4.15. On 05/22/2012, Needham had a Buy rating on the stock.

17. Raptor Pharmaceuticals Corp. (RPTP. Earnings. Analysts. Financials ): Operates as a biotechnology company in the United States. Market cap at $237.79M, most recent closing price at $4.84. On 09/16/2011, Oppenheimer had a Outperform rating on the stock.

18. ShoreTel, Inc. (SHOR. Earnings. Analysts. Financials ): Provides Internet protocol (IP) telecommunications systems for enterprises in the United States. Market cap at $245.4M, most recent closing price at $4.25. On 10/04/2011, Barclays Capital had a Overweight rating on the stock.

19. Sunesis Pharmaceuticals Inc. (SNSS. Earnings. Analysts. Financials ): Focuses on the development and commercialization of oncology therapeutics for the treatment of solid and hematologic cancers. Market cap at $153.08M, most recent closing price at $3.25. On 03/06/2012, Canaccord Genuity had a Buy rating on the stock.

20. TranS1, Inc. (TSON. Earnings. Analysts. Financials ): Focuses on products that implement its proprietary surgical approach to treat degenerative disc disease and instability affecting the lower lumbar region of the spine. Market cap at $72.54M, most recent closing price at $2.66. On 02/27/2012, Canaccord Genuity had a Buy rating on the stock.

21. Tranzyme, Inc. (TZYM. Earnings. Analysts. Financials ): Focuses on discovering, developing, and commercializing small molecule therapeutics for the treatment of acute and chronic gastrointestinal (GI) motility disorders in the United States and internationally. Market cap at $97.21M, most recent closing price at $3.95. On 08/13/2012, Canaccord Genuity had a Buy rating on the stock.

22. MEMC Electronic Materials Inc. (WFR. Earnings. Analysts. Financials ): Engages in the development, manufacture, and sale of silicon wafers for the semiconductor industry worldwide. Market cap at $646.58M, most recent closing price at $2.80. On 09/16/2011, Deutsche Bank had a Buy rating on the stock. On 12/09/2011, Collins Stewart had a Buy rating on the stock.

23. YM BioSciences Inc. (YMI. Earnings. Analysts. Financials ): Engages in the licensing and commercialization of drug products and technologies primarily for the treatment of cancer or cancer-related conditions worldwide. Market cap at $319.83M, most recent closing price at $2.03. On 03/26/2012, Canaccord Genuity had a Buy rating on the stock.

24. Zynga, Inc. (ZNGA. Earnings. Analysts. Financials ): Develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms. Market cap at $2.28B, most recent closing price at $3.0. On 05/31/2012, Robert W. Baird had a Outperform rating on the stock.

25. Quiksilver Inc. (ZQK. Earnings. Analysts. Financials ): Designs, produces, and distributes branded apparel, footwear, accessories, and related products. Market cap at $483.26M, most recent closing price at $2.92. On 09/02/2011, Robert W. Baird had a Outperform rating on the stock.

Written by Rebecca Lipman. Ratings data sourced from Reuters, all other data sourced from Finviz.

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A corporation is an entity that is legally separate from its owners. When a corporation is formed, it issues capital stock to the owners. Stockholders have limited liability, and ownership in a corporation is readily transferable.

Corporations can have two basic types of stockholders. Common stockholders have the right to do the following:

Vote in the election of directors and establish some company policies

Maintain a proportionate interest in the corporation by purchasing additional stock (called the preemptive right ),

Share in profits when dividends are declared

Share in distribution of assets when the company is liquidated

Thus, of stockholders, common stockholders have the greater risk associated with a company but also enjoy the greater benefits if the company is successful.

Preferred stockholders have some other privileges (discussed later), but in exchange are usually granted only some of the rights that common stockholders have.

Some terms used in the balance sheet related to common stock include the following:

Number of authorized shares refers to the total number of shares that a corporation may issue as stated in its corporate charter.

Number of shares issued refers to the total number of shares that a corporation has actually issued. This cannot be more than the number of authorized shares.

Number of shares outstanding refers to the number of shares issued that stockholders still hold. This number is obtained by subtracting the number of shares repurchased by the corporation that it still holds (called treasury stock ) from the number of shares issued.

Thus, of the three numbers listed, the number of shares authorized is the highest, and the number of shares outstanding is the lowest.

Issuance of Common Stock

Par value is the dollar amount per share established by a corporation's articles of incorporation. Par value has some legal significance and is also referred to as legal capital . Par value has no relation to the market value of common stock. Some companies have no par value. In such instances, stated value (established by the board of directors) is used for accounting purposes. Stated value is treated similarly to par value.

When companies issue stock, the cash (or other assets and/or benefits) received is usually more than the par value. That is, the market value per share sold is higher than par value. The difference between the value of assets or benefits received by the company and the par value is recorded in the account Additional Paid-in Capital, also called Paid-in Capital in Excess of Par.

Example: Adams Company issued 100 shares of $2 par common stock for $10 each. Prepare the journal entry for the transaction.

Note the following: 1. The Land account is debited for the market value of the acquired property. 2. The Common Stock account is credited for the shares issued, at par value. 3. The difference (plug number) is credited to the Additional Paid-in Capital account.

Example: Charles Company obtained a building, and in return issued 1,000 shares of $10 par value common stock. The market price of the common stock was $40 per share. The journal entry for the transaction follows:

Note the following: 1. The building's market value is not known, but the market value of the stock is known. Since the market value of the asset acquired must equal the market value of stock given, the market value for the building must be $40,000 ($40 per share times 1,000 shares). 2. The Common Stock account is credited for the shares issued at par value. 3. The difference (plug number) is credited to the Additional Paid-in Capital account.

Corporations can decide to buy back their stock for a variety of reasons. For example, a corporation might believe that its stock is undervalued and decide to increase demand by buying some of it back. If supply is relatively unchanged and demand increases, the market price of the stock will increase. Alternatively, a corporation might have a significant amount of cash and decide that the best use of cash (that is, the best return on investment) is to buy back its own stock. Other reasons for buying treasury stock include (1) having enough stock to issue for stock option plans and (2) making hostile takeover attempts more difficult.

Treasury stock is not considered an asset but a contra-equity. Thus, if Corporation X buys stock of Corporation Y, the investment will be shown on the balance sheet of Corporation X. However, if Corporation X were to buy back its own stock, it is shown as a reduction from stockholders' equity, not as an asset on the balance sheet.

Two methods are used to account for treasury stock transactions: the cost method and the par value method. The cost method is widely used, and the par value method is used in practice only rarely. Hence, we focus only on the cost method.

Note that no gains or losses from treasury stock transactions are recognized because treasury stock is not considered an asset. Any differences between the price paid and price received for treasury stock is recorded in Additional Paid-in Capital accounts.

Example: On March 1, 2002, Rose Corporation purchased 1,000 shares of treasury stock for $12 per share. It then sold 600 of the treasury shares for $14 per share on June 1, 2002, and the remaining 400 shares for $8 per share on November 1, 2002. The journal entries for the transactions follow:

March 1: Purchase 1,000 shares of treasury stock at $12 per share. This is recorded with a credit to Cash and a debit to Treasury Stock.

Note the following: 1. Cash is debited for the total amount received ($3,200). 2. Since the treasury shares were purchased for $12 per share and are carried at cost, the Treasury Stock account is credited based on the cost of the shares sold, or only $4,800 (400 shares at $12 each). 3. When treasury stock is sold for less than cost, first reduce any existing credit balance in the Additional Paid-in Capital account related to treasury stock. 4. If further reductions are needed (to make debits equal credits), record the additional debits in the Additional Paid-in Capital from Common Stock account.

Preferred stockholders give up some of the rights of common stockholders but acquire one or more benefits (preferences). Usually, they have a preference with respect to dividends. That is, a company must pay the applicable dividend to the preferred stockholders before paying a dividend to common stockholders. In addition, preferred stockholders have priority over common stockholders if the company is liquidated and the stockholders must be repaid their investment.

Corporations need not pay dividends each year. For reasons such as inadequate cash, a company might decide not to pay a dividend in a particular year. When a corporation fails to declare a dividend in any year, dividends continue to accrue to the holders of cumulative preferred stock . That is, the dividends on cumulative preferred stock accumulate even if the corporation declares no dividends. Any dividends not declared (passed) are referred to as dividends in arrears . In contrast, dividends do not accumulate for noncumulative preferred stock .

Preferred stockholders are usually paid a fixed amount. Thus, if a company issues 2,000 shares of 5%, $100 par value preferred stock, the preferred dividend per share each year is $5 (5% of $100). The total preferred dividends paid will be $10,000 ($5 times 2,000 shares).

Sometimes preferred stockholders obtain additional dividends. Participating preferred stock enables the holders to receive, in addition to the normal preferred dividend, any extra dividend available after normal dividends have been paid to preferred and common stockholders.

Convertible preferred stock provides the owner with the option to exchange (that is, convert) the preferred stock into common stock (or some other security) issued by the corporation. The exchange ratio (the number of common shares issued when the preferred stock is converted) is specified in the conversion provisions when the convertible preferred stock is issued. Convertibles are attractive because if the company does well and the common stock price goes up, the holders of the convertible preferred stock can convert the stock and enjoy the benefits of a common stock. However, if the company is not doing well (and the common stock price is not high), the holders of the convertible preferred stock need not convert; they will continue to receive the preferred dividends.

Callable preferred stock provides the company the right to call (that is, buy back) and cancel the preferred stock in the future. The call provision usually includes a premium (thus, the call price is an amount higher than the issue price).

Redeemable preferred stock provides the stockholder the right to redeem (that is, sell back to the company) the preferred stock in the future. The redemption can be either mandatory (at a specified time) or at the option of the preferred stockholder. The redemption option (especially when it is mandatory) makes redeemable preferred stock somewhat similar to a loan because the company can be forced to repay the proceeds from the stock in the future. The Security and Exchange Commission prohibits mandatory redeemable preferred stock from being included as a part of stockholders' equity in the balance sheet. As a result, it is usually shown between the liabilities and stockholders' equity sections in the "mezzanine" sección.

The journal entries when preferred stock is issued are straightforward and are similar to the issuance of common stock. The journal entries for preferred stock dividends are similar to the journal entries required when dividends are declared and paid on common stock and are discussed in detail later.

Conversion of Preferred Stock

When convertible preferred stock is converted, the book value method is used. That is, the market value of the common stock is ignored because gain or loss cannot be recognized on a transaction involving only equity accounts. The journal entries focus only on the book value of the preferred and common stock.

Since the convertible preferred stock no longer exists after a conversion, the Preferred Stock account and the associated Additional Paid-in Capital on Preferred Stock account are debited (when equity accounts are reduced, they are debited). Since new common stock is issued upon conversion, the Common Stock account and the associated Additional Paid-in Capital on Common Stock are credited (when equity accounts are increased, they are credited).

Example: On January 1, 2001, Kent Company issued 200 shares of $100 par convertible preferred stock at $150 per share. Each share of preferred stock is convertible into four shares of $10 par common stock. On December 31, 2002, all shares of preferred stock were converted. Prepare the journal entry for the conversion.

Note the following: 1. Since each $100 par preferred stock was issued for $150, the additional paid-in capital per preferred share is $50. Thus, the total additional paid-in capital associated with the preferred stock is $10,000 ($50 x 200 shares). 2. Each preferred share is convertible into four shares of common stock. Thus, a total of 800 shares of common stock must have been issued upon conversion (200 preferred shares x four common shares per preferred share). 3. Par value of common stock is $10. Hence, the credit to the Common Stock account is $8,000 ($10 per share x 800 shares). 4. The plug number to make debits equal credits is a credit of $22,000 to the Additional Paid-in Capital on Common Stock account.

What if the plug number in this journal entry is a debit? That is, what if each preferred stock is convertible into 16 shares of common stock? In this case, steps 1 and 2 are the same. However, the total number of common stock issued upon conversion is 3,200 (200 shares of preferred stock x 16 shares of common stock per preferred stock). Thus, step 3 now involves a credit of $32,000 ($10 par value x 3,200 shares of common stock). Hence, to make debits equal credits, $2,000 is debited to the Retained Earnings account.

Calling of Preferred Stock

As with conversion of preferred stock, when a company calls a callable preferred stock, no gain or loss is recognized. As noted previously, the call price is usually higher than the issue price. The difference between the issue price and the call price is recorded as a debit to the Retained Earnings account.

On January 1, 2001, Lomas Company issued 200 shares of $100 par callable preferred stock at $120 per share. On December 31, 2002, it calls all shares of preferred stock for $125 per share. Prepare the journal entry for calling of preferred shares.

Preferred Stock (step 1)

Additional Paid-in Capital on Preferred Stock (step 2)

Retained Earnings (step 4)

Note the following: 1. Since 200 shares of preferred stock have been called, the debit to the Preferred Stock account is $20,000 ($100 x 200 shares). 2. Since each $100 par preferred stock was issued for $120, the additional paid-in capital per preferred share is $20. Thus, the total additional paid-in capital associated with the preferred stock is $4,000 ($20 x 200 shares). 3. Each preferred share is called at $125. Thus, the corporation pays total cash of $25,000 ($125 x 200 preferred shares). 4. The plug number to make debits equal credits is a $1,000 debit to the Retained Earnings account.

Sometimes the call price is lower than the issue price. In such cases, the plug number is a credit to the Additional Paid-in Capital account.

Dividends may be viewed as a return of equity to a corporation's owners. Dividends may be paid in cash or property. The board of directors is responsible for issues related to the amount, timing, and types of dividend paid to shareholders.

Three dates are relevant in the context of dividends. The date of declaration is the date the board of directors formally declares that a dividend will be paid to shareholders. The date of record is the date that the board specifies for identifying those stockholders in the corporation's records to receive dividends. The date of payment is the date the dividends are actually paid to the shareholders.

The journal entry on the date of declaration of a dividend is as follows: Debit Retained Earnings Credit Dividend Payable Note that dividends may be declared on both common stock and preferred stock. In such situations, separate credit entries are made for the two types of stock. Thus, the credit entries are to Common Stock Dividend Payable and Preferred Stock Dividend Payable.

No journal entry is required on the date of record.

The journal entry on the date of payment is as follows: Debit Dividend Payable Credit Cash Note that if some property other than cash is given to shareholders, the credit entry is made for the appropriate asset. For example, a corporation might have investments in the securities (stocks or bonds) of other entities that it wishes to dispose of through a dividend paid to the shareholders.

A stock dividend is the distribution of additional shares to the existing shareholders. Such additional shares are made on a proportional basis. For example, if a company declares a 10% stock dividend, a shareholder currently owning 2,000 shares receives an additional 200 shares (0.10 x 2000).

Because each shareholder still has the same proportional ownership of the company and the shareholder has received no other assets, this is an economic non-event for the shareholder. For instance, because a pizza has been cut into 11 slices as opposed to 10 slices does not mean that there is more pizza. Similarly, because a shareholder now has 2,200 shares after the stock dividend as opposed to 2,000 shares before the stock dividend, the shareholder does not have any more (or less) wealth.

The market price per share changes after a stock dividend in the opposite direction. Thus, if a company had 10,000 shares outstanding and the market price was $22 per share, the market value of the company is $220,000. After a 10% stock dividend, 11,000 are shares outstanding. Because nothing else has changed, the overall market value of the company is still $220,000. Hence, the price per share after the stock dividend is $20 ($220,000/11,000 shares).

Accounting for a stock dividend varies depending on its size. If the stock dividend is less than 25%, it is considered a small stock dividend. In such instances, an amount equal to the market value of the new shares issued is transferred from the Retained Earnings account to the Common Stock and the Additional Paid-in Capital (if any) accounts.

If the stock dividend is more than 25%, it is considered a large stock dividend. In such instances, the market value is ignored and the transfer from the Retained Earnings account is at the book value of the shares.

Example: Greig Company has 10,000 shares of $1 par common stock outstanding. The stock's market value was $12 per share when the company declared a 10% stock dividend. Prepare the necessary journal entries.

This is considered a small stock dividend because the dividend is less than 25%. The number of new shares issued is 1,000 (10% of 10,000 shares). The market value of the new shares is $12,000 ($12 per share x 1,000 shares). Thus, the journal entries are as follows:

(a) When the stock dividend is declared, this journal entry is made:

Note that after a stock dividend (large or small), the total amount of stockholders' equity does not change. Only the component amounts within stockholders' equity have changed. Specifically, the Retained Earnings account is reduced but the Common Stock account (and, in the case of small stock dividends, the Additional Paid-in Capital account, if needed) is increased.

Also note that the total number of shares issued and outstanding have increased, but the par value of the stock remains the same as before the dividend.

If the directors of a corporation believe that the market price per share of its stock is too high, they can order a stock split. A stock split involves increasing the number of shares outstanding with a corresponding decrease in the par value. However, just like a stock dividend, this is a non-event as far as the total value of the company is concerned.

Although the number of shares increases by the split factor (the ratio of new shares to the old shares), the market price per share decreases by exactly the same factor. If a corporation has 1,000 shares of $10 par common stock outstanding and decides to order a two-for-one split, where there was previously one share, there are now two shares. Because nothing else has changed, the price per share decreases exactly by one-half after the split. (Just because a pizza is cut into eight slices as opposed to four slices does not mean that the total amount of pizza available has increased. It means only that the number of pizza slices has doubled.)

Thus, stock splits are quite similar to stock dividends. However, there are some differences. First, unlike a stock dividend, a stock split changes the par value of the stock. The new par value equals the old par value divided by the split factor. For example, if a corporation has 1,000 shares of $10 par common stock and decides to order a two-for-one split, it will have 2,000 shares of $5 par common stock after the split. Second, unlike a stock dividend, a stock split does not involve a journal entry. Only a memorandum entry (changing the number of shares and the par value) is required.

A stock option gives the holder the right, but not the obligation, to purchase stock at some time in the future for a set price. The predetermined price is known as the option price or exercise price . An option is valuable if the stock price is expected to increase.

The date when the options are granted is known as the grant date . The date when the option holder becomes eligible to exercise the option (that is, buy the stock at the exercise price) is known as the vesting date . The date when the option holder actually exercises the option (that is, buys the stock) is known as the exercise date .

Example: The current market price of the stock of TechNerd Company is $20 per share. You have the option to buy 100 shares of the company at $20 per share, and the vesting period is three years. You expect the company's stock price to be $45 three years from now. The option is valuable because three years from now, you can buy 100 shares at $20 each and immediately sell them in the market for $45 each if your expectation is correct.

Options have become important in employee compensation, especially in high-tech industries. Some employees make many times more from their stock options than from their regular salaries.

Stock option plans have two broad categories: noncompensatory and compensatory. The main objective of a noncompensatory stock option plan is to enable widespread employee stock ownership of the company rather than to provide additional benefits for only some employees. Such a plan has the following features:

Almost all full-time employees (subject to some requirements) are eligible to participate in the plan.

Employees can purchase the company stock at a discount (usually, between 5 to 15%) from the market price.

Employees decide within a certain time period if they want to participate in the plan.

The objective of a compensatory stock option plan is to provide additional compensation to a select group of employees. Accounting for such plans has been the subject of great controversy in recent years and is discussed in detail later.

Two methods are used to measure the value of stock option plans. The intrinsic value method calculates the value of a stock option based on the exercise price and the current market price. Thus, if the current market price is $25 per share and the option exercise price is $20, the intrinsic value per option is $5.

Most companies set the exercise price of the options at the current market price. For example, in the preceding example, TechNerd Company set the exercise price at $20, which was the market price at that time. This means that the intrinsic value of an option is zero.

However, the option is still considered valuable, because the company's stock price is expected to increase in the future. This fact is recognized by the fair value method . which assigns a value to the option based on various factors, such as the expected increase in stock price, the volatility of the stock price, and the amount of dividends expected to be received before the option is exercised. The fair value of options is determined through complex formulas, and the most widely used method uses the Black-Scholes option pricing formula (details of which are usually covered in finance courses).

Fixed Stock Option Plans

The two types of compensatory stock option plans are (1) fixed stock and (2) performance-based stock. For a fixed stock option plan, details such as the number of options given and the exercise price are set at the date the options are granted. In contrast, for a performance-based stock option plan, the exercise price or the number of shares varies depending on the future performance of the company, or a division, or the individual.

Example of Fixed Stock Option Plan: TechZ company has 300 employees. On January 1, 2002, it adopted a compensatory stock option plan granting each employee the right to purchase 100 shares of $1 par common stock at $20 per share. The vesting period is three years, and the market price on the day the options were granted also was $20. The fair value of each option has been determined using the Black-Scholes method to be $15. Calculate the compensation expense each period.

The total number of options is 30,000 (100 shares x 300 employees). The total value of the options is $450,000 ($15 per option x 30,000 options). Since the vesting period is three years, this total amount is spread over three years, giving $150,000 per year. This is recorded as follows:

In this example, we assumed that all the employees would remain with the corporation until the options are vested. However, almost all companies experience employee turnover. Hence, companies estimate the number of employees who will stay until the options are vested, and only this estimate is used to calculate compensation expense (and the corresponding journal entry). Furthermore, estimates can change over time, so that the compensation expense can change from period to period even if the number of options or the exercise price remain unchanged. Issues associated with turnover estimates are illustrated in Demonstration Problem 3.

Performance-Based Stock Option Plan

For a performance-based stock option plan, the exercise price or the number of shares varies depending on the corporation's future performance. For example, a company might estimate that the number of options per employee will vary depending on future performance as follows.

If the company achieves sales of at least $50 million (but less than $75 million) for the year ending December 31, 2004, each employee will receive 100 options.

If the company achieves sales between $75 million and $100 million for the year ended December 31, 2004, each employee will receive 125 options.

If the company achieves sales more than $100 million for the year ended December 31, 2004, each employee will receive 150 options.

In such instances, the company estimates the expected performance for the third year at the end of the first and second years. Note that by the end of the third year, the actual performance and the actual number of options granted are also known. Based on such expectations, the company calculates the number of options to be granted and the related compensation cost. The important thing to remember is that as expectations are updated, there must be a "catch-up" for compensation expense.

For example, assume that at the end of the first year, the company estimated the total expected value of options to be granted to be $240,000. However, at the end of the second year, the company estimates the total expected value of the options to be granted to be $300,000.

At the end of the first year, the relevant value of options to be recognized is one-third of the estimated total value at that time, or $80,000 (one-third of $240,000). Thus, the Compensation Expense account is debited for $80,000 at the end of the first year.

As of the end of the second year, since two-thirds of the plan period has elapsed, the relevant value of options to be recognized is $200,000 (two-thirds of the revised estimate of the total amount of $300,000). Since the company recognized the option value of only $80,000 in the first year, the amount recognized as compensation expense in the second year is $120,000 ($200,000 - $80,000)

Option Price Behavior

Official OIC Sponsors

Este sitio web analiza las opciones negociadas en bolsa emitidas por The Options Clearing Corporation. Ninguna declaración en este sitio web debe interpretarse como una recomendación para comprar o vender un valor, o para proporcionar asesoramiento de inversión. Las opciones implican riesgo y no son adecuadas para todos los inversores. Antes de comprar o vender una opción, una persona debe recibir una copia de Características y Riesgos de Opciones Estandarizadas. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr. Suite 500 Chicago, IL 60606 (investorservices@theocc. com ).

© 1998-2016 The Options Industry Council - All rights reserved. Consulte nuestra Política de privacidad y nuestro Acuerdo de usuario.

Este sitio web analiza las opciones negociadas en bolsa emitidas por The Options Clearing Corporation. Ninguna declaración en este sitio web debe interpretarse como una recomendación para comprar o vender un valor, o para proporcionar asesoramiento de inversión.

Las opciones implican riesgo y no son adecuadas para todos los inversores. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (PDF). Copies of this document may be obtained from your broker or from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr. Suite 500 Chicago, IL 60606 (options@theocc. com ).

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Choice Trade Review: $5 Trades, $0.99 Options

L ooking at the website design of ChoiceTrade. com, you may be wondering if it can compete with more prevalent online discount brokers like TradeKing and Scottrade. Never judging a book by its cover, if you decide to dig down beneath the surface, you’ll find that ChoiceTrade. com has built a very impressive trading platform and can offer some of the best pricing available today in the online discount brokerage space.

Opening in 2000, ChoiceTrade. com has been relatively quiet in its competition with other emerging online brokers. While endless amounts of advertising continue for E*Trade, TD Ameritrade and many others, ChoiceTrade has decided to sit back and watch. Headquartered in New Jersey, ChoiceTrade. com has finally decided to brand itself, but do they have an offer that can compare to other discount brokers?

ChoiceTrade. com Pricing and Fees

Looking at the basics, ChoiceTrade offers users a flat $5 commission on all stock trades made online. With no requirements to meet and no monthly quota’s to obtain, ChoiceTrade certainly ranks well in this regard. Should you need broker assistance over the phone, there is an additional $25.00 charge, bringing the total cost of the trade to $30.00. Options are also inexpensive, as each contract will run you $0.99, with a minimum purchase price of $8.95 needed to place your order.

If you’ve ever placed a trade on a penny stock or simply bought or sold a very large quantity of shares, then you’re probably familiar with the surcharge that most online discount brokers charge. Generally, if you are trading over 1,000 shares, an additional “per share” fee is charge, usually somewhere between 1% and 2% of the overall value of the trade. ChoiceTrade. com offers their $5 stock trading rate no matter the size of the trade.

One of the drawbacks to selecting ChoiceTrade as your discount broker is the list of fees that can be applied to your account for certain services. Many of the fees that are charged to customers of Choice Trade are charged by other brokers as well, however, fees such as yearly IRA maintenance ($30.00) and outgoing wire transfers ($20.00) can be found elsewhere at no additional charge.

ChoiceTrade. com Customer Service

Receiving four stars by Barron’s each of the last 5 years, ChoiceTrade has a quality customer service department. Help is available through telephone or live chat only during normal business hours and all email inquiries are responded to within a 24 hour period. While there’s no doubt the ChoiceTrade staff is a friendly and helpful bunch, offering extended customer service hours in the near future would be an improvement.

Choice Trade’s Trading Platform and Technology

You can see from the picture below that ChoiceTrade has a lot going on. Unfortunately, in order to take advantage of all the technology that ChoiceTrade has to offer, you are required to pay a monthly subscription fee of $14.95. New customers can take advantage of the first four months for free, as long as your total account equity exceeds $2,000. If you ever drop below this amount, you will automatically be billed $14.95 a month going forward.

There are four available plans to choose from as a ChoiceTrade. com member, all of which carry a few different tools to work with.

No Plan – If trading tools are of little to no importance to you, you are not required to purchase a data feed plan. Your quotes will be delayed and most of the account features will be inaccessible.

Basic Plan – Free for the first four months, $14.95 thereafter, the basic plan offers streaming quotes real time, with the ability to purchase news subscriptions and other services through ChoiceTrade at a discounted rate.

Advanced Plan – $23.95 a month, offers everything the standard plan does, with three additional trading features.

Select Plan with eSignal – $126.00 a month, the select plan provides users dozens of resource materials and services, which are paid for within the plan. The technology is still in “Demo” mode, so you can try the service for 30 days risk-free by filling out a quick 5 field form.

When you consider what ChoiceTrade. com has to offer, it certainly can be an attractive offer to an experienced investor. Offering a flat fee of $5 regardless of the quantity of shares is a nice feature. The website, however, is not for the faint of heart, and the monthly fees required to access all of Choice Trade’s trading tools makes this broker a reasonable alternative for those who trade frequently. For more information or to open a brokerage account, visit Choice Trade’s website.

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Learn how to program drawings, animations, and games using JavaScript & ProcessingJS, or learn how to create webpages with HTML & CSS. You can share whatever you create, explore what others have created and learn from each other!

Learn select topics from computer science - algorithms (how we solve common problems in computer science and measure the efficiency of our solutions), cryptography (how we protect secret information), and information theory (how we encode and compress information).

Only have an hour? Learn the basics of programming, making webpages, or creating databases.

Official SAT Practice

Current SAT (through January 2016)

Download a real, full-length SAT practice test, watch Sal work through real SAT problems, and get even more practice using our interactive exercises.

New SAT (starting March 2016)

Practice all of the skills you’ll need for the new SAT. We also have four official practice exams from College Board. El PSAT de octubre de 2015 está en el estilo del nuevo SAT.

Put and call options

Put Options Profit, Loss, Breakeven

The following is the profit/loss graph at expiration for the put option in the example given on the previous page.

Break-even

The breakeven point is quite easy to calculate for a put option:

Breakeven Stock Price = Put Option Strike Price - Premium Paid

To illustrate, the trader purchased the $47.50 strike price put option for $0.44. Therefore, $47.50 - $0.44 = $47.06. The trader will breakeven, excluding commissions/slippage, if the stock falls to $47.06 by expiration.

Lucro

To calculate profits or losses on a put option use the following simple formula:

Put Option Profit/Loss = Breakeven Point - Stock Price at Expiration

For every dollar the stock price falls once the $47.06 breakeven barrier has been surpassed, there is a dollar for dollar profit for the options contract. So if the stock falls $5.00 to $45.00 by expiration, the owner of the the put option would make $2.06 per share ($47.06 breakeven stock price - $45.00 stock price at expiration). So total, the trader would have made $206 ($2.06 x 100 shares/contract).

Partial Loss

If the stock price decreased by $2.75 to close at $47.25 by expiration, the option trader would lose money. For this example, the trader would have lost $0.19 per contract ($47.06 breakeven stock price - $47.25 stock price). Therefore, the hypothetical trader would have lost $19 (-$0.19 x 100 shares/contract).

To summarize, in this partial loss example, the option trader bought a put option because they thought that the stock was going to fall. By all accounts, the trader was right, the stock did fall by $2.75, however, the trader was not right enough. The stock needed to move lower by at least $2.94 to $47.06 to breakeven.

Complete Loss

If the stock did not move lower than the strike price of the put option contract by expiration, the option trader would lose their entire premium paid $0.44. Likewise, if the stock moved up, irrelavent by how much it moved upward, then the option trader would still lose the $0.44 paid for the option. In either of those two circumstances, the trader would have lost $44 (-$0.44 x 100 shares/contract).

Again, this is where the limited risk part of option buying comes in: the stock could have risen 20 points, potentially blowing out a trader shorting the stock, but the option contract owner would still only lose their premium paid, in this case $0.44.

Buying put options has many positive benefits like defined-risk and leverage, but like everything else, it has its downside, which is explored on the next page.

Apple awards executive Tim Cook 75,000 stock options for navigating without Jobs

March 12, 2010 | 5:01 pm

Apple Inc. awarded its Chief Operating Officer Tim Cook a bonus of $5 million in cash and 75,000 stock options Friday for leading the company when its celebrity chief executive, Steve Jobs, was on medical leave.

At today's prices, the stock would be worth just shy of $17 million.  Half of the shares will vest in March 2011, and the rest a year after that, according to regulatory filings .

Apple's stock has been steadily rising for more than a year, more than doubling from its January 2009 price of $90 to its current value of $226 per share.  Cook oversaw the company during much of that time, when  Jobs was on medical leave after a liver transplant in mid-2009.

Despite concerns that the company would be on shaky ground without Jobs,  Apple performed strongly in his absence, enjoying surging sales in several categories, including its popular iPhone.

Google parent company Alphabet just announced a monster $5 billion stock buyback

Alphabet, the new holding company that includes search giant Google, is starting off on a good foot with investors.

The company just announced that it will undertake a $5 billion stock buyback starting in the fourth quarter.

Investors cheered the move, which was announced with its Q3 earnings on Thursday, sending shares up 11% in after-hours trading.

Stock buybacks lower the total number of shares on the market, helping to buoy a company's stock price.

The buyback is one of the first big moves by CFO Ruth Porat, a former Morgan Stanley executive who joined Google earlier this year. It may reflect a more investor-friendly Google, which has long had the reputation for ignoring Wall Street conventions such as providing financial guidance and hosting annual analyst meetings.

Here's what Alphabet said about the buyback:

The board of directors of Alphabet authorized the company to repurchase up to $5,099,019,513.59 of its Company's Class C capital stock, commencing in the fourth quarter of 2015. The repurchase is expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.

NOW WATCH: Clever iPhone tricks only power users know about

Why Some In-The-Money Strikes Are NOT Exercised; A Real Life Example

When studying the basics of option investing we learn that the option holder of an in-the-money strike has a certain amount of intrinsic value which appears to be profit that would never be bypassed. For example, if we (as covered call writers) sold a $50 call and the stock was trading @ $52 @ 4PM EST on expiration Friday, the holder can exercise the option and buy our shares for $50 and sell for a profit after the market opens the following week. In addition, the Options Clearing Corporation has provisions for the automatic exercise of in-the-money options at expiration, called exercise by exception . Exercise will occur automatically if the strike is $0.01 or more in-the-money. Some brokerages may not have the same threshold as the OCC but $0.01 is very common. We, as call sellers, have no control over exercise. That is up to the holder. Why then are some of our in-the-money calls not exercised?

During and after hours trading

For Blue Collar Investors like us the ability to trade ends @ 4PM EST and most options expire on the third Friday of the month (technically the Saturday after the third Friday but we cannot trade on Saturday). However, professional traders have the ability to trade for 90 minutes more, until 5:30 PM EST. Now the options-related trading is based on the composite or consolidated price based on the 4PM price of the underlying security. The trader in this instance has until 5:30 PM to let the OCC know if he wants his options exercised. Those in-the-money options will be automatically exercised unless the trader provides a contrary exercise notice (“do not exercise”) to the OC in which case these options will not be exercised. For more information on after-hours trading see pages 430-432 of Alan Ellman’s Encyclopedia for Covered Call Writing .

Real life example

• Purchase ALXA @ $5.30

• Sell a 1-month $5.50 call @ $0.95

• At 4PM expiration Friday ALXA was trading @ $5.79, the strike $0.29 in-the-money

• Exercise of option and sale of the shares @ $5.50 was anticipated

• The option was NOT exercised and the shares were NOT sold

• ALXA opened @ $5.18 on Monday morning after expiration Friday

• Several days later the stock was trading @ $4.82

The chart below shows the gap-down from expiration Friday to the following Monday:

What caused this unusual circumstance?

When this BCI member first told me about this trade, the first thought I had was why was the initial 1-month return so high?

Obviously the implied volatility of the option was high so I started my research. It turns out there was an FDA approval/disapproval result due out prior to expiration. The results were divulged 10 minutes prior to 4PM on expiration Friday. Although the initial results appeared positive (the company received approval), the professionals had 90 minutes to decide if they wanted to take possession of the shares @ $5.50. As they studied the details of the ruling many decided not to. 47% of those holding the $5.50 calls sent contrary exercise notices to the OCC and those in-the-money calls expired without exercise. On Monday, the market agreed and the shares continued to fall.

The first lesson is to avoid stocks with extremely high implied volatility . I will rarely select an underlying that generates more than 6-7% for a 1-month return for at-the-money strikes. The second lesson is that if you do find yourself in that position close the short call and perhaps the entire position prior to the event in question.

Although in-the-money calls are almost always exercised after 4PM EST on expiration Friday there are exceptions. These unusual circumstances occur when professional traders make after hour decisions to send contrary exercise notices to the OCC because an event near or just after market close made ownership of the underlying undesirable in their eyes.

Thanks to ALL our members and my fabulous team :

We value all our members both general and premium. 2012 was a banner year for The Blue Collar Investor as our membership had its best year ever and continues to grow at a rate we never dreamed possible. We will never take this for granted and always work as hard as we can to justify the trust and confidence you have gifted to us. I also want to thank the entire BCI team for a job well done and a special thank you to Barry for overseeing that our weekly stock reports maintain the highest possible level of excellence. I can’t possibly do all this by myself.

We had a successful roller-coaster ride through the fiscal cliff (hanger) and now have the debt ceiling (potential) crisis on deck. 2013 should be a great year for investors as long as our representatives do the right thing by negotiating in good faith and compromising so as many of us as possible get properly represented. This week’s reports generally support a bullish outlook:

Payrolls rose slightly in December, up by 155,000 (150,000 was expected)

The unemployment rate remained @ 7.8% down from the 9.3% rate of 2 years ago according to the US Department of Labor

For the 3rd consecutive month government jobs declined, this time by 13,000 in December

For the first time in 8 months construction spending declined by 0.3% partly due to Hurricane Sandy

The ISM survey of manufactures showed a modest improvement to 50.7 slightly better than the 50.0 anticipated (50 indicates expansion)

Initial jobless claims (a report of the number of individuals who filed for unemployment insurance for the first time the prior week. While the weekly figure indicates trends in the job market, the four-week moving average is considered a truer gauge) for the week ending December 29th was at 372,000, worse than the 355,000 expected

The ISM’s December nonmanufacturing survey climbed to 56.1 from 54.7 in November (54.8 expected)

The FOMC (The 12-member FOMC meets to determine the near-term direction of monetary policy—in other words, to decide the level of short-term interest rates. Seven of the 12 members are members of the Federal Reserve Board appointed by the President. Four members are presidents of the regional Federal Reserve banks, who serve on a rotating basis. The president of the Federal Reserve Bank of New York is a permanent member) announced that it would link monetary easing to levels of unemployment and inflation rather than to specific dates so as to provide greater transparency

For the week, the S&P 500 rose by 4.6% as the New Year got off to a positive start.

IBD . Market in a confirmed uptrend

BCI . Long-term bullish and short-term cautious. Returning to a fully-invested position but favoring in-the-money strikes.

Poner opción

A put option is a contract between two parties (a buyer and a seller) whereby the buyer acquires the right but not the obligation to sell a specified stock or other underlying instrument at a specified price by a specified date.

The seller of a put option assumes the obligation of taking delivery of the stock or other underlying instrument from the buyer should the buyer wish to exercise his option. The put is known as a short instrument which means that the buyer profits from the stock going down.

For the seller to profit, the stock must not move below the strike price plus the amount of money received for the sale of the option. This point is known as the breakeven point and is calculated by adding the call’s strike price to the option’s premium. Obviously, the buyer hopes that the stock price exceeds the breakeven point.

For example, you buy the MSFT January 65 put for $2.00 because you think Microsoft is going to go down. This option gives you the right, but not the obligation to sell the stock at $65.00. In order to obtain this right, you had to spend $2.00. In order for you to make money, the stock would have to trade down below $63.00 by expiration.

This is because the stock has to trade down below the strike plus the cost of the option. If the stock traded down to $60.00, you would make $5.00 because you have the right to sell it at $65.00. However, because you paid $2.00 for the put, you must subtract that from your $5.00 profit for a total profit of $3.00. You have just made $3.00 on a $2.00 investment. Not a bad return.

The buyer of the put has limited risk and unlimited potential gain. His risk is limited only to the amount of money he spent in purchasing the put. His unlimited potential gain comes from the stocks unlimited downside potential.

The seller, on the other hand, has limited potential gain and unlimited potential loss. The seller can only gain what he was paid for the put. The unlimited risk comes from the stock price’s ability to decline during the life of the contract.

For example, if a seller sold the MSFT January 65 put for $2.00, he is giving the buyer the right to sell 100 shares (per contract) of MSFT to him at $65.00 per share at any time until the option expires.

If MSFT declines and trades down to $55.00, the seller would realize a $10.00 loss less the amount he received for the sale of the option ($2.00), for a net loss of $8.00. Meanwhile, the buyer would realize a $10.00 profit less the amount he paid for the option ($2.00), for a net gain of $8.00 per contract.

If MSFT were to trade up to $75.00, the seller would realize a $2.00 profit (the amount of money he was paid from the buyer). Meanwhile, the buyer would only lose what he paid for the option ($2.00). The seller is obligated to take delivery of the stock from the buyer at the strike price regardless of the present market price of the stock. This is why the seller receives premium for the sale.

Again, the following graphs are called parity graphs. They are intended to show you your option’s profit and loss at expiration (when they are trading at parity: i. e. when they are trading without intrinsic value). The first graph shows a put purchase and the second shows a put sale. The graphs show the amount of your expenditure (in the case of a purchase) or the amount you have received (in the case of a sale) and the dollar price of the stock where you would breakeven.

Using the fictitious stock XYZ below, make note of where the stock needs to be at expiration in order for you to be profitable, and how the premium paid (in the case of a purchase) or the premium received (in the case of a sale) affects your profitability. Also notice the difference in the profit potential between a purchase of the option as opposed to a sale of the option. Lastly, it is important to note the unlimited potential risk inherent in the sale of an option, compared to the fixed risk of an option purchase.

For more Information about option trading, please click here: Options University

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Disclaimer: The Options University makes no warranties or claims for this information, these ideas are provided strictly as a reference. We are not responsible for any financial, legal, losses, complications or other problems that may arise from using these strategies. Please also read our disclaimer and terms of service policy on the website.

Under $5 Stock Offers Income Ahead of a Potential Comeback

Coal has fallen on hard times with the development of inexpensive and plentiful natural gas reserves.

In 2008, Arch Coal (NYSE: ACI ) was a $70 stock. It now trades for less than $5. Commodity assets have tangible value -- that is to say, at some level, they're always worth something. And with natural gas prices seemingly on the rise, coal may become more attractive.

ACI has been trading in a range largely between $6 and $4 since February. The extreme low sits at $3.47, which was made on June 24. Currently trading near $3.75, the $4 level is one to watch as weekly pivot support for the stock.

If you are comfortable holding on to this inexpensive stock for a potential recovery, then selling puts could allow you to collect income while you wait to get into ACI at a 12% discount.

Cash-Secured Put Selling Strategy

While the typical investor might use a limit order to buy a stock or ETF at a designated price or lower, the options trader can do one better by selling a cash-secured put option .

This strategy has the same mathematical risk profile as a covered call. When selling puts, there is an obligation to buy the stock at the option's strike price if it is assigned, allowing you to get into the stock at a discount. In fact, the true entry cost basis is even lower with the subtraction of the premium you earned from selling the puts.

And if the stock is not below the strike price at expiration, then the premium received is all profit. In other words, you're getting paid not to own the stock.

There are two rules traders must follow to be successful at selling puts.

Rule One: Only sell put options on stocks you want to own.

The intention of the put selling strategy is to be assigned the stock as a long-term investment. Each option contract represents 100 shares, so make sure you have the funds in your account to buy the stock at the option's strike price if a sell-off occurs. Paying in full ensures that no additional money is needed to hold the stock for potentially many months or even years until a price recovery.

Rule Two: Sell either of the front two option expiration months to take advantage of time decay.

Collect premium each month from selling puts until you are assigned shares at a cost-reduced basis. Every month that you keep the premium is money subtracted from your entry price.

Recommended Trade Setup: Sell to open ACI Nov 3.50 Puts at $0.20 or better. (This is a volatile stock, so be sure to use a limit order to get the desired price.)

This cash-secured put sale would assign long shares at $3.30 ($3.50 strike minus $0.20 premium), which is about 12% below ACI's current price, costing you $330 per option sold. If the put option expires worthless, you keep the $20 premium, earning a potential 6.1% return in 37 days.

But remember, you should only sell this put option if you want to own ACI at a discount to the current price. If you are assigned the shares, a December covered call can be sold against the stock to lower your cost basis even further.

If ACI does not fall below the strike price before expiration, then you keep the premium you collected, essentially getting paid not to buy the stock.

Note: By using this same income-generating strategy, my colleague, Amber Hestla, has helped her Income Trader members earn $6,000. $19,500. even $150,000 this year alone. Click here to learn how you could do the same.

Call Options on FIT on 11/23/2015

The company makes both wrist bands and clippable devices that monitor a user’s fitness activity by tracking the calories burned or distance covered.

It manufactures and markets products that track people’s health and fitness activities, including Fitbit Zip, a wireless tracker that allows users to track daily activity statistics, such as steps, distance, calories burned, and active minutes; Fitbit One, a clippable wireless tracker, which tracks stairs climbed and sleep; Fitbit Flex, a wristband-style tracker that tracks steps, distance, calories burned, active minutes, and sleep; and Fitbit Charge, a wireless activity and sleep wristband, which tracks steps, distance, calories burned, active minutes, floors climbed, and sleep.

The company also provides Fitbit Charge HR, a wireless heart rate and activity wristband; Fitbit Surge, a fitness watch that consists of GPS watch, heart rate tracker, activity tracker, and smartwatch; and Fitbit Aria, a Wi-Fi connected scale that tracks weight, body fat percentage, and body mass index. In addition, it sells various accessories, such as bands and clips, charging cables, and Fitbit apparel.

Fitbit Inc. sells its products primarily through retailers and distributors.

Shares of this recent IPO have formed a "double bottom " around the $27 level. Higher share prices are expected for this stock.

We are trading December 18th Options

52-Weeks Trading Range: $26.80 - $51.90

Comercio

Buy 1 December $27.00 Call at $1.75

For a net debit of $1.75

Profit/Loss Analysis

Breakeven at $28.75

Maximum profit is unbounded

Maximum loss is ($175.00) at strike of $27.00

Closing Summary

Sold 1 December $27.00 Call at $4.35

Position closed on 11/23/2012 at price of $2.80 with a 237.35% gain in 15 days.

Updates

11/23/2012 9:51:45 AM

Stockwinners is taking profits off the table on this trade. adjust your stop-loss if you decide you want to stay long on this trade. you can also short another call against your position to to lock in some profits.

Call Spread on LVS on 8/27/2012

Las Vegas Sands (LVS) brings a touch of Venice to the US and China. Replete with gondoliers and a replica of the Rialto Bridge, the company's Venetian Las Vegas Hotel, Resort & Casino offers a 120,000-sq.-ft. casino and a 4,000-suite hotel, as well as a shopping, dining, and entertainment complex. Through its majority-owned Sands China subsidiary, the firm operates The Venetian Macau on the Cotai Strip (the Chinese equivalent of the Las Vegas Strip), as well as two other properties in Macao. Properties also include the Marina Bay Sands in Singapore and the partially-owned Sands Bethlehem in Bethlehem, Pennsylvania. Billionaire casino mogul Sheldon Adelson and trusts for his family own about 55% of Las Vegas Sands.

Stockwinners. com is bullish on this name for the following reasons:

Double digits revenue growth in Macau

Margins are improving in Macau

LVS shares are trading at historical low valuation at 18X earning and is relatively cheap compared to other names in this sector.

The trade structure has a great payoff of 1:3 (aiming for sale before expiration)

Trade: Buy 1 Oct $45/$46 call spread for less than $0.25

Buy 1 OCT $45 Call for $1.13

Sell 1 OCT $46 Call for $0.87

Breakeven & profit/loss Analysis

Breakeven at $45.25 by Oct expiration

Profit up to $.75 between $45.25 to $46, Max profit of $.75 above $46 by Oct expiration

Loss up to $.25 between $45.25 to $45, max loss $.25 below $45 by Oct expiration

The payoff table is presented below:

Comercio

Buy 1 October $45.00 Call at $1.13

Sell 1 October $46.00 Call at $0.88

For a net debit of $0.25

Profit/Loss Analysis

Breakeven at $45.25

Maximum profit is $75.00 at strike of $46.00

Maximum loss is ($25.00) at strike of $45.00

Closing Summary

Sold 1 October $45.00 Call at $3.15

Bought 1 October $46.00 Call at $2.38

Position closed on 9/25/2012 at price of $0.77 with a 208.00% gain in 28 days.

Put Options on SCHW on 9/17/2012

The Charles Schwab Corporation (CSC) is a savings and loan holding company. The Company engages, through its subsidiaries, in securities brokerage, banking, and related financial services. The Company provides financial services to individuals and institutional clients through two segments: Investor Services and Institutional Services. The Investor Services segment provides retail brokerage and banking services to individual investors. The Institutional Services segment provides custodial, trading and support services to independent investment advisors (IAs). Its business subsidiaries include Charles Schwab & Co. Inc. (Schwab), Charles Schwab Bank and Charles Schwab Investment Management, Inc. (CSIM), which is the investment advisor for Schwab’s mutual funds. On September 1, 2011, the Company acquired optionsXpress Holdings, Inc. In November 2011, the Company acquired Compliance11, Inc. In September 2012, GAIN Capital Holdings Inc. acquired Open E Cry, LLC.

Stockwinners is Bearish on this name for the following reasons:

The company reported 285,200 Daily Average Revenue Trades (DARTs) in the second quarter of 2012, a decline of 10% from the first quarter. DARTs were flat between June and July as a negative trend was observed throughout the industry. Although Schwab is yet to reveal metrics for August, Ameritrade’s numbers might provide an indication of the client activity for the month. Ameritrade reported 303,000 client trades per day in August, down 9% from the previous month, a year-on-year decline of 37%. The trend seems to be common within this industry. With the state of the U. S. economy and growing concerns over the national debt, we expect DARTs to remain low for the next few months. The result of the general elections in November might lead to some optimism and have a positive impact on investor confidence. We expect trade volumes to recover in the long-term as the global economy comes out of its shell but in the short-run, the stock is going to struggle .

The market is already over extended and has lifted bad stocks with no news. The first minor correction will cause such stocks to sell off and SCHW is one of them

Trade: Buy 1 OCT 14 PUT for less than $.30

Breakeven & Profit/Loss analysis:

Breakeven at 13.70 by Oct expiration

Profit up to $13.70 if stock is between $13.70 and $0, max profit $13.70 if stock is $0

Lose up to $.30 between $14.30 and $14, max loss .30 above $14

The payoff table is presented below:

Comercio

Buy 1 October $14.00 Put at $0.30

For a net debit of $0.30

Profit/Loss Analysis

Breakeven at $13.70

Maximum profit is unbounded

Maximum loss is ($30.00) at strike of $14.00

Closing Summary

Sold 1 October $14.00 Put at $0.70

Position closed on 9/19/2012 at price of $0.70 with a 133.33% gain in 2 days.

Updates

9/19/2012 10:50:05 AM

Stockwinners is happy with the gains from this trade and has decided to close out this position. Please adjust your stop-loss if you decide to stay long in this name.

Call Options on FL on 8/30/2012

Foot Locker leads the pack in the race to capture the biggest share of the global athletic footwear market. The company is a leading retailer of athletic shoes and apparel, with more than 3,350 specialty stores in 20-plus countries in North America and Europe, as well as Australia and New Zealand. Its 1,900-store namesake Foot Locker chain is the #1 seller of name-brand (NIKE) athletic footwear in the US. The company also operates stores under the Lady Foot Locker, Kids Foot Locker, Footaction, Champs Sports, and CCS banners. In addition to its bricks-and-mortar business, Foot Locker markets sports gear through its direct-to-customer unit, which consists of catalog retailer Eastbay and Footlocker. com

Stockwinners is bullish on this name for the following reasons:

Stockwinners is hearing rumors that FL is going to be featured on a major stock advisory firm as stock of the week

Volatility is low on this name and hence options are relatively cheap compared to rest of the markets

Trade: Buy 1 Sept $35 Call for less than $.60

Breakeven & Profit/Loss analysis

Breakeven at $35.60 by Sept expiration

Profits are unlimited above $35.60 by sept expiration

loss up to $0.60 between $35.60 to $35. max loss $0.60

The payoff table is presented below:

Comercio

Buy 1 September $35.00 Call at $0.60

For a net debit of $0.60

Profit/Loss Analysis

Breakeven at $35.60

Maximum profit is unbounded

Maximum loss is ($60.00) at strike of $35.00

Closing Summary

Sold 1 September $35.00 Call at $1.45

Position closed on 9/19/2012 at price of $1.45 with a 141.67% gain in 20 days.

Updates

9/19/2012 10:19:38 AM

Stockwinners is happy with the gains and is closing out this position. please adjust your stop-loss if you still want to stay long.

Call Spread on NKE on 8/23/2012

Nike, the Greek goddess of victory, helped others succeed in times of war. NIKE, the world's #1 maker of athletic footwear and apparel, does more dominating than assisting, to capture a hefty share of the US athletic shoe market. It designs and sells footwear and uniforms for a wide variety of sports. NIKE also sells upscale Cole Haan shoes, as well as athletic apparel and equipment. It operates NIKETOWN shoe and sportswear stores, NIKE factory outlets, NIKE Women shops, and sells its products online. Overall, the company sells its items in some 690 NIKE-owned retail stores worldwide and through about 23,000 retail accounts in the US and via independent distributors and licensees in other countries.

Stockwinners is bullish on Nike for the following reasons:

Shares have formed a bullish triangle and are supposed to break our of this formation

Back to school event is going to boost sales during fall season

TRADE: Buy 1 SEPT $97.50/$100 call spread for less than $0.55

Buy 1 SEPT $97.50 Call for $0.85

Sell 1 SEPT $100 Call for $0.30

Breakeven & profit/loss analysis

Breakeven at $98.05 by Sept expiration

Profit up to $1.95 between $98.05 to $100, max profit $1.95 above $100

Loss up to $0.55 between $98.05 to $97.50. max loss $0.55 below $97.50

The payoff table is presented below:

Comercio

Buy 1 September $97.50 Call at $0.85

Sell 1 September $100.00 Call at $0.30

For a net debit of $0.55

Profit/Loss Analysis

Breakeven at $98.05

Maximum profit is $195.00 at strike of $100.00

Maximum loss is ($55.00) at strike of $97.00

Closing Summary

Sold 1 September $97.50 Call at $2.00

Bought 1 September $100.00 Call at $0.24

Position closed on 9/6/2012 at price of $1.76 with a 220.00% gain in 14 days.

Updates

9/6/2012 1:15:46 PM

Stockwinners is happy with the gains of this trade at this time and is closing this position. Please adjust your stop-loss if you plan to stay long.

Put Options on QSII on 7/20/2012

Quality Systems (QSII) engages in the development and marketing of healthcare information systems in the United States. The company operates in four divisions: QSI Dental, NextGen, Hospital Solutions, and Revenue Cycle Management (RCM) Services. The QSI Dental division develops, markets, and supports software suites for dental organizations. It also supports various dental organizations utilizing its Software as a Service model-based financial and clinical software, as well as certain medical clients that utilize its UNIX-based medical practice management software. Shares last traded at $23.99.

We are Bearish on this name for the following reason:

Shares have formed a bearish "flag" as most of the hospitals and medical practices have implemendted to requirements of automating their practices as required by the Affordable Healthcare Act." It seems that best days of this stock are behind it. We expect shares to reach a new. On July 20, 2012,

TRADE: Buy 1 Aug $25 Put

Comercio

Buy 1 January $50.00 Call at $1.50

For a net debit of $1.50

Profit/Loss Analysis

Breakeven at $51.50

Maximum profit is unbounded

Maximum loss is ($150.00) at strike of $50.00

Closing Summary

Sold 1 January $50.00 Call at $9.40

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How Employee Stock Options Can Influence the Value of Ordinary Shares

Tallying corporate profits has never been easy, but in the past few years it’s become even harder as accountants, executives and regulators debate how to count the ever growing number of stock options issued to top managers and rank-and-file employees. Most of the debate is over whether options should be counted as an expense, which would reduce reported earnings and possibly undermine share prices.

But there’s another, equally important problem that gets less attention, says Wharton accounting professor Wayne R. Guay. What effect do options have on the number of stock shares a company has in circulation? The answer can make a big difference when a company computes its earnings per share, and when investors calculate the critical price-to-earnings ratio.

“A firm’s equity is not just common stock,” says Guay. “The other big chunk is employee stock options … Most of the debate over stock options has been how to treat stock options as an expense in the numerator of the earnings-per-share (calculation)….but their effect on the denominator has to be fixed as well.”

Guay, John E. Core . professor of accounting at Wharton, and S. P. Kothari, professor of accounting at the Massachusetts Institute of Technology, examined the problem in their paper, The Economic Dilution of Employee Stock Options: Diluted EPS for Valuation and Financial Reporting . The paper was published in The Accounting Review in July 2002, and has special relevance now because regulators such as the Financial Accounting Standards Board are expected to modify options accounting rules next year.

After studying 731 stock options plans at American Corporations, Guay and his colleagues concluded “that the existing FASB treasury-stock method of accounting for the dilutive effects of outstanding options systematically understates the options’ dilutive effects, and thus overstates reported EPS (earnings per share).”

The authors conclude that current accounting rules cause options dilution to be understated by an average of about 50% – that options dilution is really twice what companies say it is. Understating dilution inflates earnings per share, the authors say. “We incorporate the time value of the option in our measurement and that’s going to lead to more dilution,” says Guay. “If investors fail to consider this dilution, then stock prices can be inflated.”

Employee options give their owners the right to buy shares at a set price anytime over a given period. Typically, the purchase price (also called the strike or exercise price) is the stock’s price on the day the options are issued. The right to exercise the options may vest all at once or in stages on the first few anniversaries of the grant. Employee options usually expire if they are not exercised within 10 years.

Options appeal to employees because they can convey great value without requiring that the employee put money at risk, as one does owning actual shares of stock. If the share price rose over 10 years to $100, an option with a $25 exercise price would be worth $75. The employee could exercise the right to buy the shares for $25, then immediately sell them on the open market for $100. If the share price instead fell to $15, the option would be worthless, but the employee would not have lost money. Had he owned real shares, he’d have lost $10 per share.

Sponsored Content:

In 1985, options outstanding on companies’ books – options that had been granted but not yet exercised – equaled 4.6% of the companies’ ordinary shares of common stock. By 1995, that figure had grown to 8.9%, the authors write. Options became even more popular in the late ‘90s and continue to be widely used despite criticism of their role in the soaring executive compensation of the past few years.

The growing use of options has raised a debate about how they should be accounted for. Some advocate carrying them as an expense, arguing options have value and should be considered a compensation cost just like wages and other benefits. Others say that since options don’t involve a transfer of cash out of company coffers, they should not be expensed.

This issue has received a great deal of attention in the past few years, and the FASB expected to issue new rules in 2004 requiring some form of expensing.

But this still leaves the second problem of how to account for options-related dilution of share value, Guay and his colleagues say. Companies have various ways of providing the shares needed to turn over to employees who exercise options. Some companies draw on a reserve of shares that have not yet been in circulation. Others use profits to buy back shares on the open market, using them to build a reserve to meet options exercises.

Either way, when options are exercised the result is that more shares are in circulation, and that reduces, or dilutes, the value of shares previously in investors’ hands.

If a company had one million shares outstanding and employees exercised options to purchase 200,000 shares, there would then be 1.2 million shares outstanding. This would affect earnings per share, which is figured by dividing the company’s total earnings for the period by the number of shares outstanding. If the company earned $1 million, earnings per share would be $1 before the options were exercised, and only 83.3 cents after the exercise. Since a stock’s price is heavily influenced by earnings per share, lower per-share earnings would likely cause the share price to fall.

In practice, the accounting is not as simple as in this example. It’s easy to see the dilution caused by options that are exercised, but what about the options that could be exercised but haven’t been?

Investors have to calculate the potential harm that could be done if options are exercised, but they don’t know when the options will be exercised, if at all. Many options holders wait to exercise until shortly before their options expire, hoping the share price will rise further

Under current accounting rules, this uncertainty is handled in a fairly simple way: by figuring how many shares could be purchased at the current market price if all in-the-money options were exercised. Those are options with a strike price lower than the current market price. If the stock price is $10 and the exercise price is $5, each option could make its owner a $5 profit. That is enough to buy ½ of a share. Hence, each option creates ½ share that is added to the total number of common shares outstanding in order to calculate diluted earnings per share. A company might have one million options outstanding, but count only 500,000 in the diluted earnings per share calculation.

The problem with this approach, the authors say, is that it uses too low a figure for potential options-related profits. That means it understates the number of shares that could be bought with those profits. Hence, the dilution is understated as well.

Since options holders tend to postpone exercising until share prices rise further, the value of an in-the-money option held today is actually greater than the difference between today’s market price and the strike price. For example, if an employee held a $25 option and the share price were $75, the current accounting rules would value the option at $50. But if one offered the employee $50 for the option, he might well refuse to sell because he would prefer to bet that a higher share price would make his option more valuable later. In fact, this is what the typical employee does.

In addition, the FASB method assigns no value to options that could not be exercised at a profit. Those are at-the-money options, where the strike price and market price are the same, and out-of-the-money options, where the strike price is higher than the market price. In fact, if one asked an employee to relinquish one of these options for nothing, he would likely refuse since, even if the option is worthless today, the stock’s price might later rise enough to put the option in the money. “It’s because these options have such a long maturity that they have so much extra value,” Guay says.

To figure just how much value the in-, at-, and out-of-the-money options have to their owners, the authors studied 731 options plans from 1995 to 1997. They concluded that while the FASB approach might, for example, value an option at $50, it might have a real value of $80 or more to its owner.

That means the options-related profits could buy more shares, causing greater dilution when those are added to common shares to figure diluted earnings per share. If the $80 figure were used, earnings per share should be lower and the stock price could therefore fall.

Among all the options plans studied, the authors found that options should increase the number of shares used in the diluted earnings-per-share calculation by 2.96%. The FASB method accounted for only half the dilution – 1.46%. In the most extreme cases, options dilution was about 22%, but the FASB approach put it at only 14.5%.

Guay says he and his colleagues are not wedded to their own options-valuation model, since any approach involves a lot of assumptions about factors like future stock prices and at what point employees will choose to exercise.

But they believe their findings demonstrate that rule makers should go beyond the current debate about whether to count options as an expense. They also should seek a better way of figuring how options undermine the value of ordinary shares.

Mechanics of Options

Related Essays

Options Guide to Option Investing In contrast, there are a myriad of books on the basics of stock options, and many of them do a good job explaining the mechanics of options in Fundamentals Of Futures And Options Markets 7E By Hull(Test Bank) Suppose that a trader buys two call options and one put option. (i) What is the. ______ Test Bank: Chapter 2 Mechanics of Futures and Forward Markets Mechanical Research 7 .7 .8 .8 .8 .9 10 11 11 12 About AutoCAD Mechanical. Modeling with AutoCAD Mechanical 6. Object Oriented Construction. Layer and Layer Groups Futures And Options Chapter 9 Answer 9 Mechanics of Options Markets Practice Questions Problem 9.8. A corporate treasurer is designing a hedging program involving foreign currency options. Qué

Submitted by seomini to the category Business and Industry on 08/26/2012 11:42 AM

Problem 9.9 Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option. Ignoring the time value of money, the holder of the option will make a profit if the stock price at maturity of the option is greater than $105. This is because the payoff to the holder of the option is, in these circumstances, greater than the $5 paid for the option. The option will be exercised if the stock price at maturity is greater than $100. Note that if the stock price is between $100 and $105 the option is exercised, but the holder of the option takes a loss overall. The profit from a long position is as shown in Figure S9.1.

Profit from long position in Problem 9.9

Problem 9.10 Suppose that a European put option to sell a share for $60 costs $8 and is held until maturity. Under what circumstances will the seller of the option (the party with the short position) make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option. Ignoring the time value of money, the seller of the option will make a profit if the stock price at maturity is greater than $52.00. This is because the cost to the seller of the option is in these circumstances less than the price received for the option. The option will be exercised if the stock price at maturity is less than $60.00. Note that if the stock price is between $52.00 and $60.00 the seller of the option makes a profit even though the option is exercised. The profit from the short position is as shown in Figure S9.2.

Figure S9.2 Profit from short position in Problem 9.10

Problem 9.12 A trader.

Liu Picked to Cure China's Stock Hurt After $5 Trillion Rout

The new head of China’s securities regulator has been tasked with restoring confidence after policy missteps by his predecessor rattled investors and helped deepen a $5 trillion rout.

Liu Shiyu is assuming oversight of the world’s second-largest stock market in the wake of last summer’s slump that saw Xiao Gang criticized for mismanagement. As well as needing to rebuild morale among the nation’s 99 million investors, Liu will preside over an overhaul of initial public offerings, the planned expansion of a trading link with Hong Kong and a campaign to get the nation’s shares included in MSCI Inc.’s global indexes.

"China faces a confidence crisis after the recent stock market turmoil, stoked to a large extent by policy flip flops," said Vasu Menon, Singapore-based vice-president for wealth management research at Oversea-Chinese Banking Corp. “International investors will wait to see if he can deliver fresh policies to stabilize the stock market with a steady hand without backtracking on market liberalization."

Liu takes over as chairman of the China Securities Regulatory Commission from Xiao, who was removed from his post on Saturday after less than three years. Under Xiao, looser controls over leverage helped triple the value of Chinese equities to $10 trillion before share prices collapsed last summer. The plunge reverberated across global financial markets and triggered unprecedented state intervention as the government sought to prevent the turmoil from spreading to an economy already growing at its slowest pace in 25 years.

Liu was previously chairman of Agricultural Bank of China Ltd. the nation’s third-largest lender, and was a deputy governor at the People’s Bank of China before that. Prior to joining the PBOC, Liu worked at China Construction Bank Corp. and the nation’s economic reform commission. He holds a master’s degree from the economic management school of Tsinghua University in Beijing.

Liu has played a significant role in developing China’s bond market, and should be a better steward of the securities industry than Xiao, according to Xia Chun, a senior finance lecturer at the university of Hong Kong. Both are seen as quite conservative toward new developments in financial markets, he said.

Volatility Falls

For Bocom International Holdings Co. and Partners Capital International Ltd. Liu’s appointment may buoy the market in the short term as investors anticipate supportive policies. The Shanghai Composite Index rose 2.4 percent the close, after its best stretch in 2016 last week, when it rallied 3.5 percent. Even so, the benchmark gauge is down 17 percent this year, with losses surpassed only by Italy and Greece. The Shanghai measure trades at 15.1 times earnings, compared with 11.3 times on an index of global emerging equities.

“The situation is not very stable," said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities Ltd. “The CSRC must regulate without overly protecting the market."

One of Liu’s most important tasks will be to oversee the introduction of a more market-based registration system for initial public offerings, expected to be unveiled later this year. The new regime would leave the questions of IPO supply and timing to companies and the market, rather than the CSRC, and give firms more power to determine pricing.

MSCI Decision

Investors are still awaiting an exchange link between Hong Kong and Shenzhen, modeled on the Shanghai one that began in November 2014. MSCI has said that giving foreigners more access to China’s second-largest equity market, home to many of its small technology companies, is key to getting the nation’s stocks included in global gauges. The index compiler refrained from taking that step in June, saying China still needed to make shares easier for foreign investors to access. The decision came before the summer rout spurred state intervention that was criticized by global asset managers.

Xiao last month acknowledged mistakes after a review of the turmoil. An immature bourse and participants, incomplete trading rules, an inadequate market system and an inappropriate regulatory system were to blame and regulators will learn from the experience, he said.

In one of the most high-profile missteps, the CSRC scrapped circuit breakers in the same week it introduced them. The implementation of the system in January, which was meant to reduce volatility, had the opposite effect as investors panicked at the prospect of not being able to sell their shares.

Last Straw

“The circuit breaker system was the last straw," said Dai Ming, a fund manager at Hengsheng Asset Management co. in Shanghai. “Xiao does not have a very thorough understanding of the stock market."

Xiao’s achievements often get overlooked, said Hao Hong, Hong Kong-based equity strategist at Bocom International. Xiao oversaw the development of index futures and options, margin financing and the equity link with Hong Kong, while the stock market is still almost twice the size it was when he took the helm.

Liu’s “challenge is to roll out the registration-based IPO system to let the stock market become an even more efficient financing instrument," Hao said. “Also the securities law will need some improvement for a fairer and more transparent market."

For now, shareholders will be looking to Liu to balance the interests of the state with the opening up of the $5.6 trillion market, while attempting to restore morale among the individual investors who account for more than 80 percent of trading.

“It’s a huge challenge to soothe the fragile investor sentiment,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “For the longer term, how to press ahead with the policy initiatives and deepen reforms in a sustained and stable manner remains a big challenge.”

Stocks Under $5 That Pay Dividends - 30339 views

Stock Quotes in this Article: ELSE. ESEA

By Fred Fuld Contributor 01/26/11 - 04:15 PM EDT

SAN FRANCISCO (Stockerblog ) -- Low-priced stocks that pay dividends have a few advantages. The lower share price allows for greater diversification. The dividends provide the investor with quicker return on capital and can reduce volatility. You may not be aware of them, but there are actually more than half a dozen stocks, including closed-end funds, that sell for less than $5 a share and have dividend yields greater than 6%.

At WallStreetNewsNetwork. com. I've just updated the list of high-yield stocks selling for $5 or less, with yields ranging from 0.4% to 16.5%. Just remember that the yields are based on historical payments, and the dividends can be adjusted, reduced or terminated at any time. I also believe that extremely high yields may not be sustainable.

Electro-Sensors (ELSE ), which makes and sells industrial production monitoring and process control systems, has a yield of 3.5% and recently traded at 4.64. The company, which trades at 28 times earnings, has been paying quarterly dividends since 1995. Earnings for the latest quarter ending Sept. 30 were down 16.9%. The company reports earnings for the quarter ending Dec. 31 on Feb. 21.

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Euroseas (ESEA ) owns and operates dry bulk ocean transportation carriers that transport iron ore, coal, and grain. The stock yields 6.6% and recently traded at 3.62 per share. Quarterly dividends have been paid since 2006. The stock has a forward price to earnings ratio of 21. Earnings for the latest reported quarter were negative, and the company reports again on Feb. 28.

For the full list of high yield stocks trading for less than $5, which can be downloaded, updated and sorted, go to WallStreetNewsNetwork. com .

At the time of publication, author had no positions in stocks mentioned.

Fred Fuld III, the publisher of stock and bond investing blog Stockerblog and founder of WallStreetNewsNetwork. has been in the financial services industry for over 20 years, working as an investment advisor, options market maker at the Pacific Stock Exchange, vice president of a San Francisco money management firm, university faculty member and wholesaler for the New Alternatives Fund (the first environmentally conscious mutual fund). He is the author of the books Investing in Brazil Stocks and The Green Light on Green Stocks.

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Micron Tech Insiders Sell $5.7 Million in Stock

Micron Technology just saw some big sales.

Four Micron (ticker: MU) insiders sold 167,000 shares for $5,683,601, an average of $34.03 each, from Sept. 2 through Oct 3. Transactions included open market sales, options exercises and 10b5-1 plans, and occurred as shares of the maker of semiconductor devices climbed to a multiyear high.

Ronald C. Foster, chief financial officer and vice president of finance, disposed of 70,000.

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5 Biotech Stocks Under $5 Blasting Off - views

By Roberto Pedone Senior Contributor 08/16/12 - 03:05 PM EDT

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.

>> 5 Huge Stocks Ready to Slingshot Higher

With that in mind, let's take a closer look at a five biotech stocks under $5 making large moves to the upside today.

Biosante Pharmaceuticals (BPAX ) is a specialty pharmaceutical company focused on developing products for female sexual health and oncology. This stock is trading up 9.8% to $1.55 in recent trading.

Today’s Range: $1.39-$1.58

52-Week Range: $1.21-$17.58

Three-Month Average Volume: 772,327

From a technical perspective. BPAX is ripping higher here right off some near-term support at $1.35 with decent volume. This stock has been downtrending badly for the last six months, with shares falling from $4.62 to its recent low of $1.21 a share. During that move, shares of BPAX have consistently made lower highs and lower lows, which is bearish technical price action. That said, BPAX has now started to rebound off that $1.21 low, and it’s setting up to trigger a near-term breakout trade .

Traders should now look for long-biased trades in BPAX if it can manage to break out above some near-term overhead resistance levels at $1.50 to $1.62 with high volume. Look for a sustained move or close above those levels with volume that’s near or above 772,327 shares. If that breakout hits soon, then look for BPAX to re-test and possibly take out its next major overhead resistance levels at $1.96 to $2.25.

BioMimetic Therapeutics (BMTI ) is a biotechnology company. BioMimetic Therapeutics is engaged in developing and commercializing products to the healing of musculoskeletal injuries and diseases, including therapies for orthopedic, sports medicine and spine applications. This stock is trading up 8.3% to $3.77 in recent trading.

Today’s Range: $3.45-$3.78

52-Week Range: $1.87-$4.20

Three-Month Average Volume: 219,025

From a technical perspective, BMTI is soaring higher here with decent volume, and this move has pushed the stock above some near-term overhead resistance levels at $3.44 to $3.68. Traders should now look to play the next major breakout for BMTI. That trade will trigger once BMTI takes out some near-term overhead resistance at $3.78 with high volume.

Traders should look for long-biased trades if BMTI can sustain a move or close above $3.78 with volume that’s near or above 219,025 shares. If that breakout triggers soon, then look for BMTI to re-test and possibly take out its next major overhead resistance level at $4.20. If that $4.20 level gets taken out with volume, then BMTI could be on its way to $5 in the near future.

Arca Biopharma (ABIO ) is a biopharmaceutical company. Arca Biopharma’s principal focus is developing genetically-targeted therapies for heart failure and other cardiovascular diseases. This stock is trading up 5.5% at 36 cents per share in recent trading.

Today’s Range: $0.32-$0.36

52-Week Range: $0.31-$2.45

Three-Month Average Volume: 91,008

>> 5 Rocket Stocks Worth Buying This Week

From a technical perspective, ABIO is ripping to the upside here right off some near-term support at 31 cents per share with above average volume. This move has also pushed ABIO above some near-term overhead resistance at 35 cents per share.

Traders should now look for long-biased trades as long as ABIO is trending above 35 cents with strong upside volume flows. I would consider any upside volume day that registers near or above 91,008 shares as bullish. If ABIO can maintain that trend, then this stock has a great chance of re-testing and possibly taking out its next major overhead resistance levels at 40 cents to 47 cents per share.

Geron (GERN ) is a biopharmaceutical company developing therapies for cancer. This stock is trading up 12% at $1.93 in recent trading.

Today’s Range: $1.74-$1.93

52-Week Range: $1.25-$3.13

Volume: 1.2 million

Three-Month Average Volume: 687,805

From a technical perspective, GERN is exploding to the upside here right off its 200-day moving average of $1.69 with monster volume. This move has also started to push GERN above some major overhead resistance levels at $1.88 at $1.89.

Traders should now look for long-biased trades as long as GERN is trending above today’s low of $1.74 with strong upside volume flows. I would consider any upside volume day that registers near or above 687,805 shares as bullish. If GERN can continue to trade near or above those key resistance levels, then this stock will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $2.22 to $2.60

NuPathe (PATH ) is a specialty pharmaceutical company focused on the development and commercialization of therapeutics for diseases of the central nervous system, including neurological and psychiatric disorders. This stock is trading up 5.3% at $3.96 in recent trading.

Today’s Range: $3.77-$4.00

52-Week Range: $1.52-$5.10

Three-Month Average Volume: 35,861

From a technical perspective, PATH is moving sharply to the upside here right off its 50-day moving average of $3.66 with above average volume. This move is quickly pushing PATH within range of triggering a major breakout trade. That trade will trigger once PATH takes out some near-term overhead resistance levels at $4.10 to $4.25 with high volume.

Traders should now look for long-biased trades once PATH sustains a move or close above those levels with volume that’s near or above 35,861 shares. If that breakout triggers soon, then PATH will have an excellent chance of re-testing and possibly taking out its next major overhead resistance level at $5.10.

To see more stocks that are making notable moves higher today, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

>> 5 Stocks Under $10 Set to Soar

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Get Paid While You Wait for a Recovery in This $5 Stock

Groupon (NASDAQ: GRPN ) has been hit hard during the past year, but a price bottom may have formed with extreme lows below $3 per share. As of this writing, GRPN is trading around $5.36 a share. The unfilled gap down in August from $6.35 to the 52-week low at $2.60 has midpoint support at about $4.50 to lean on.

"Cheap" is a relative term, but with the downside risk of zero and unlimited upside potential, I'd say Groupon stock qualifies.

Due to volatility, another word for opportunity, the options on the stock offer many strategies with mathematical advantages over a straight purchase of the shares. If you are comfortable holding on to this inexpensive stock to wait for a potential recovery, then selling put options could allow you to collect income while you wait to get into the stock at a 16% discount.

Cash-Secured Put Selling Strategy

While the typical investor might use a limit order to buy a stock or ETF at a designated price or lower, the options trader can do one better by selling a cash-secured put.

This strategy has the same mathematical risk profile as a covered call. With put selling, there is an obligation to buy the stock at the strike price if it is assigned, allowing you to get into the stock at a discount. In fact, the true entry cost basis is even lower with the subtraction of the premium you earned from selling the puts.

And if the stock is not below the strike price at expiration, then the premium received is all profit. In other words, you're getting paid not to own the stock.

There are two rules traders must follow to be successful at selling put options.

Rule One: Only sell puts on stocks you want to own.

The intention of this strategy is to be assigned the stock as a long-term investment (each option contract represents 100 shares). So make sure you have the funds in your account to buy the stock at the options strike price if a sell-off occurs. Paying in full ensures that no additional money is needed to hold the stock for potentially many months or even years until a price recovery.

Rule Two: Sell either of the front two option expiration months to take advantage of time decay.

Collect premium every month on put sales until you are assigned shares at a cost-reduced basis. Every month that you keep the premium is money subtracted from your entry price.

Recommended Trade Setup: Sell to open GRPN March 5 Puts at $0.50 or better.

This cash-secured put sale would assign long shares at $4.50 ($5 strike minus $0.50 premium), which is about 16% below GRPN's current price, costing you $450 per option sold. Remember: Only sell this put if you want to own Groupon stock at a discount to the current price. If you are assigned the shares, an April covered call can be sold against the stock to lower your cost basis even further.

If the stock does not fall below the strike price before expiration, then you keep the premium you collected, essentially getting paid not to buy the stock.

Note: I just finished reading a special report published by my colleague, Amber Hestla-Barnhart. The report details how to consistently and reliably pull income from the options market. It's Amber's one-of-a-kind training as a military intelligence analyst that allows her to see things others miss. It's something I think you should see. If you're interested, you can see the report for free when you click here .

FIN 534 Week 5 Chapter 8

1. An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

2. Cazden Motors' stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?

a. The options with the $25 strike price will sell for less than the options with the $35 strike price.

segundo. The options with the $25 strike price have an exercise value greater than $5.

do. The options with the $35 strike price have an exercise value greater than $0.

re. If Cazden's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

mi. The options with the $25 strike price will sell for $5.

3. Braddock Construction Co.'s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

a. The price of the call option will increase by more than $2.

segundo. The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.

do. The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.

re. The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.

mi. The price of the call option will increase by $2.

4. Which of the following statements is CORRECT?

a. Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

segundo. Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

do. Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

re. Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

mi. If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

5. Which of the following statements is CORRECT?

a. Call options generally sell at a price less than their exercise value.

segundo. If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

do. Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

re. Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

mi. If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit

Millions by millions, CEO pay goes up

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When it comes to executive pay, 2013 could be one for the record books, with 15 CEOs and other key members of publicly held companies gaining membership into the $100 million-plus compensation club, likely the most since before the 2008 financial crisis.

With proxy season in full bloom, companies are disclosing compensation payouts en masse. Depending on reporting methodology, the aggregate payouts and gains from stock and stock options that provide year-over-year compensation comparisons can vary widely.

USA TODAY's analysis of Standard & Poor's 500 companies headed by the same CEO the past two fiscal years shows 2013 median pay — including salary, bonus, incentive awards, perks and gains from vested shares and exercised stock options — jumped 13% to $10.5 million, a level buoyed by soaring stock prices that's likely to rise as more companies meet annual Securities and Exchange Commission filing deadlines.

An examination of a broader spectrum of companies filing proxy statements filed through April 3 found far bigger compensation gains among top executives, up to $3.3 billion for Facebook's hoodie-loving co-founder, Mark Zuckerberg. Moreover, unlike past years when huge compensation gains were concentrated among a few sectors, pay kings reign far from the deep-pocketed realms of Wall Street and Silicon Valley, including Starbucks CEO Howard Schultz, Discovery Communications' David Zaslav and Jim Gallogly, head of petrochemicals manufacturer LyondellBasell.

Coming in a year in w hich corporate earnings gains continue to come mostly from job cuts and streamlining instead of organic growth, as well as nearly a decade of stagnant wage growth for rank-and-file workers, continued gains in CEO pay underscore the disconnect between boardrooms and Main Street. Among the nation's 104.8 million full-time workers, average median annual wages were $40,872 last year, up just 1.4% over 2012.

"The extremes are getting bigger and run smack dab into the debate of income inequality,'' says veteran compensation consultant Alan Johnson.

"Boards are quite concerned over how executive compensation will be perceived. There's very little of, 'Let's make Mr. Big happy because we're all friends and he's a nice man.' But you try to balance what's competitive. I tell boards that their primary goal is to do what's best for shareholders. If a CEO has created shareholder value, whether they're good or lucky, and things look like they're going to go well, you're probably going to have to pay a lot."

Behind the biggest scores: employment contracts, benevolent corporate boards and of course, Wall Street's bull market, which continues to elevate the value of stock options and restricted shares, many issued at depressed pre - and post-recession-era prices, that vested or were cashed in last year

"The stock market's rebound has created a massive wealth effect, and the speed with which people can amass hundreds of millions of dollars is accelerating," notes long-time corporate compensation analyst Paul Hodgson, who says 2013's batch of publicly held company mega-earners may be the largest since the 2008 financial crisis crippled Wall Street and corporate earnings.

To be sure, the biggest scores were racked up by company founders, led by Zuckerberg's haul, a year after the Harvard University dropout cashed in stock options for $2.3 billion.

Another repeat winner, Starbucks' founder Schultz, received compensation valued at $163 million, including more than $128 million from exercising stock options, after pulling about $142.5 million in 2012. That doesn't include a 2013 $193 million payout from deferred shares and dividends that Starbucks says is from a 1992 equity grant.

Other returning $100 million clubbers include Oracle billionaire Larry Ellison, who received compensation valued at $78.4 million and gained another $151.4 million exercising previously awarded stock options, and Google Executive Chairman Eric Schmidt, who received $19.3 million in 2013 compensation and gained $28.2 million from vested shares. In February, Schmidt received $100 million in restricted shares "in recognition of his contributions to Google's (2013) performance." Google awarded Schmidt an earlier $100 million stock grant when he stepped down as CEO in 2011.

Walt Disney valued CEO Robert Iger's compensation at $34.3 million, down from $37.1 million in 2012. But gains from shares that vested, and previously awarded stock options exercised last year, reaped another $72.4 million.

Viacom CEO Philippe Dauman (Photo: Dario Acosta)

Among other entertainment industry executives, Viacom's Philippe Dauman received compensation valued at more than $148.3 million, while Senior Vice President Tom Dooley's compensation and stock gains were valued at $117.8 million. Discovery Communications' Zaslav received compensation and gains from previous equity awards valued at about $118.6 million, including $58.7 million in gains from previously issued stock options, and $26.6 million from vested shares.

Zuckerberg's bonanza aside, executives at publicly traded private-equity firms — several of whom pocketed billions in the leveraged-buyout era that fueled mergers and acquisitions in the 1980s — were 2013's biggest winners.

Apollo Global's Leon Black received $546 million, including nearly $370 million in dividend payments and about $177 million in other payments. Co-founders Josh Harris and Marc Rowan got nearly $397 million and $366 million. Stephen Schwarzman, co-founder of investment firm Blackstone Group, received more than $465 million in compensation, dividends and other payouts — more than double his $229 million 2012 compensation.

KKR co-CEOs Henry Kravis and cousin George Roberts each received more than $160 million in dividends and other compensation. Kravis received about $161 million; Roberts, $165 million.

Among other members of the $100 million-plus club, Gilead Sciences' John Martin pulled in compensation valued at $179.2 million, nearly $159 million from exercising previously awarded stock options, $4.9 million from vested shares and $15.5 million in pay, incentives and equity awards, nearly double the $95.8 million the biotech firm says Martin pulled in the prior year.

Facebook CEO Mark Zuckerberg (Photo: Kim White, Bloomberg)

Salesforce. com co-founder and CEO Marc Benioff pulled in compensation, incentive pay, equity awards and perks valued at $22.1 million plus $106.3 million in gains from exercising stock options. And Paul Bisaro, CEO of pharmaceutical company Actavis, gained $107.8 million from vested shares and exercising stock options on top of compensation valued at $11.4 million.

LynondellBasell said Gallogyreceived compensation valued at $106 million, including a $73 million gain from a 2010 stock grant that vested in 2013. Ameriprise Financial's Jim Cracchiolo barely missed the $100 million club, with compensation valued at $20.4 million and about $79 million in gains from exercised stock options and vested shares.

Short-timers, retirees and the soon-to-be-departed also scored, albeit on a smaller but still impressive scale.

Time Warner Cable CEO Robert Marcus — on the job just six weeks when cable-TV rival Comcast offered a $45 billion buyout — stands to pocket nearly $80 million in severance, vesting equities and supplemental bonuses.

Discovery Communications founder and board Chairman John Hendricks, who retires next month, pulled in compensation valued at $94 million, including $7.8 million in pay, incentives and other compensation, plus option gains valued at $86 million, up from $32.9 million in 2012.

Outgoing Stanley Black & Decker Executive Chairman Nolan Archibald got compensation and gains from stock and options valued at more than $130 million, including a $51.7 million "synergy bonus" based on "cost synergies" realized from the 2010 merger with Stanley Toolworks, a payout that's drawn scrutiny for its parameters and size.

"A lot of his compensation was baked in years ago, and it comes as a surprise when it turns up. But this is pushing it,'' says Ralph Ward of the Boardroom Insider newsletter.

Apple CEO Tim Cook (Photo: Marcio Jose Sanchez, AP)

Factoring in vested stock awards and options exercised last year, dozens of other CEOs pulled in well over twice the median CEO compensation. Apple's Tim Cook received $4.3 million in pay and incentives. He was also able to take ownership of part of the $376.2 million restricted stock grant he received in 2011 for a $69.6 million gain.

Chipotle founder and co-CEO Steve Ells pulled in compensation valued at $25.1 million, plus $62.1 million in gains from vested shares and exercising stock options. The fast-food chain valued co-CEO Monty Moran's compensation, stock and options gains at nearly $46.5 million.

Industrial products maker Honeywell International valued CEO David Cote's compensation at about $25.4 million. He gained another $30.3 million exercising stock options. Danaher's Lawrence Culp received compensation valued at $19.7 million, gaining another $20.7 million from vested shares and exercising previously awarded stock options. Sporting equipment manufacturer Brunswick's Dustan McCoy's compensation was valued at $8.3 million. He gained nearly $56 million exercising stock options and from vested shares.

Executives at companies you probably never heard of also scored big. Selim Bassoul, CEO of Middleby Corp.,an Illinois-based restaurant equipment supplier, made about $9 million in pay, incentives and perks. Stock options and vested shares boosted his 2013 compensation another $50.4 million. And Mednax, a medical care provider, paid CEO Roger Medel $8.8 million in compensation. Medel gained another $42 million from vested shares and stock options.

There's been increasing scrutiny and complaining by shareholder activists who've forced companies such as Occidental Petroleum to revamp compensation plans and CEOs such as McKesson's John Hammergren to cut his pension from $159 million to $114 million. But scores of long-tenured executives who've accumulated years of deferred compensation, supplemental retirement pay, substantial stock holdings and other benefits are likely to receive massive payoffs in the next several years.

"For a lot of companies, the pensions being amassed are enormous; there's a huge amount of money on top of all the stock and options profits CEOs have made during their tenure,'' says Hodgson.

No one should shed tears for Hammergren giving up $45 million in pension benefits. McKesson, a pharmaceutical products distributor, valued his 2013 compensation at $27.5 million and said he gained another $34.2 million from vested shares and exercising stock options.

Say-on-pay shareholder votes — which are non-binding — have boosted awareness on executive compensation plans since 2011. But shareholders voted down just one compensation plan in 2014, medical-imaging company Hologic's, according to compensation consultant Towers Watson. That's due partly to the heady gains of many stocks. The Standard & Poor's 500 Index surged 32% last year.

Say-on-pay votes could be swayed by a Securities and Exchange Commission proposal that would require companies to disclose the pay ratio between CEOs and average workers. But the proposal, part of the Dodd-Frank overhaul of financial markets, was first floated in 2010 and continues to be opposed by companies who say the information would be too difficult and expensive to calculate. Towers Watson says the proposal isn't likely to be included in proxy statements until 2016.

More bothersome, to some corporate watchdogs, are the sense-of-entitlement perks bestowed on executive that are often masked by excessive pay and stock gains, such as personal use of the corporate plane, financial and tax planning, executive medical checkups, car allowances and country club memberships. The median value of CEO perks was $183,841, but some executives are running up far bigger tabs for travel, security, even legal bills.

J. C. Penney's Mike Ullman, who replaced ousted CEO Ron Johnson last April, ran up more than $900,000 for personal use of corporate aircraft, another $10,000 for financial counseling, and $8,200 for home security. Oracle covered more than $1.5 million in security costs for Ellison's home and $3,000 for legal expenses tied to his personal campaign contributions.

Although some companies, such as St. Jude Medical, eliminated the quaint, kid-style CEO cash allowance in December, the perk remains in vogue at several companies. Ameriprise Financial's Cracchiolo, for example, gets a $35,000 annual allowance. Allergan CEO David Pyott, who received compensation valued at $11.6 million last year, gets an annual perk payment of $20,000 — on top of an annual tax and planning allowance of $20,000 and $1,000 for an annual physical.

Beverage marketer Dr Pepper Snapple Group pays out up to $24,000 in annual "executive service allowances,'' on top of automobile allowances of up to $35,000. CEO Larry Young received compensation valued at $9 million and had stock and options gains valued at more than $6.2 million.

"They can pay for everything the need with just their salaries,'' says Hodgson. "It's the height of redundancy."

Michelle Leder, whose Footnoted. org website tracks compensation and often odd executive perks typically ignored by shareholder activists and the mainstream financial press, is more troubled with the pervasive personal use of corporate aircraft. The six-figure fees frequently cited in corporate proxies are based on the cost of first-class commercial airline tickets, not the actual cost of flying and maintaining private jets, Leder says.

"Companies really fudge on this; there is no accounting for the cost in any realistic way,'' Leder says. "But this is the prima donna effect. If the CEO is used to unfettered access to the corporate jet, it's hard to take that toy away. As a shareholder, am I going to complain? The rising stock market can certainly help sooth any pain or discomfort."

Contributing: Mark Hannan

Stock Transactions

A. Issuance of Common Stock With a Par Value

When corporations issue stock they record the cash (or other asset) received and credit the common stock account at the par value (an amount established in the corporate charter). Any excess received above the par value is credited to "Paid-in-Capital in Excess of Par".

B. Issuance of Common Stock With a Stated Value

If the stock issuance has a stated value instead of a par value, simply treat the stated value like a par value. Any excess received above the stated value is credited to "Paid-in-Capital in Excess of Stated Value".

C. Issuance of Common Stock Without a Par or Stated Value

If the stock issuance does not have a par or stated value, the entire proceeds from the stock issuance is credited to the stock account.

D. Acquistion of Treasury Stock

When a corporation purchases its own shares in the market with the intent to reissue the shares at a later date, the repurchased shares are known as "Treasury Stock". Treasury stock is recorded at cost with no consideration of par or stated values. The account is a contra-equity account meaning that it has a debit balance and is shown as a negative component of stockholders' equity on the balance sheet.

E. Reissuance of Treasury Stock

If the corporation later reissues the Treasury Stock at more than it costs, the excess is credited to "Paid-in-Capital - Treasury Stock". A corporation can not show a gain from the sale of its own stock.

If the corporation later reissues the Treasury Stock at less than its costs, the deficit is removed from "Paid-in-Capital - Treasury Stock" up to the extent that any credit balance exists in that account. Any remaining deficit is debited against "Retained Earnings".

Option Quiz

Let’s Stay Sharp!

There was a quiz on another option blog last week and I thought it was a good idea to constantly brush up on our skills. Tests and quizzes always are good to help you know if you really understand a subject or not.

I’m thinking this might be a good weekly article to keep us sharp. Let’s try a short quiz:

1. With a stock price of $58, a 50-strike call will have a minimum value of: A. $0 B. $10 C. $8 D. $5 E. Not enough information to answer the question.

2. If you sell an option, the most you can lose is the amount you sold the option for. A. True B. False

3. Options are similar to what other financial product? A. IPO’s B. Bonds C. Insurance D. Mutual Funds

4. “Buy stock and sell call options” is commonly known as what strategy? A. Synthetic Long Put B. Covered Stock C. Covered Call D. Naked Call

5. Which options have the highest time premium component? A. Out-of-the-money B. At-the-money C. Over-the-money D. In-the-money

6. Which option has the highest VEGA with the stock at $100 on March 1st? A. MAR 115 CALLS B. APR 115 CALLS C. APR 120 CALLS D. MAY 120 CALLS

Submit your answers to qu iz@ op ti one l e m e n ts. co m and we’ll send you the answers back right away!

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Las opciones implican riesgos y no son adecuadas para todos los inversores. Prior to buying or selling an option, you must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or at www. theocc. com. The information on this web site is provided solely for general education and information purposes. No statement should be construed as a recommendation to buy or sell a security or to provide investment advice. Usted es completamente responsable de cualquier decisión de inversión que tome. Tales decisiones deben basarse únicamente en su evaluación de sus circunstancias financieras. Tales decisiones deben basarse únicamente en su evaluación de su situación financiera, objetivos de inversión, tolerancia al riesgo y necesidades de liquidez. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available at Option Elements (info@optionelements. com).

Los resultados anteriores no son indicativos de resultados futuros. Parameters relating to past performance of strategies discussed are not capable of being duplicated. In order to simplify the computations, slippage, commissions, fees, margin interest and taxes are not included in the examples used on this web site. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Brokerage firms may require customers to post higher margins than the minimum margins specified on this web site. Investors should consult their tax advisor about any potential tax consequences. Simulated trading programs are designed with the benefit of hindsight. No representation is being made that any portfolio or trade will, or is likely to, achieve profits or losses similar to those shown. Todas las inversiones y operaciones tienen riesgos.

Sólo para uso personal. All information on this web site is for your personal, non-commercial use only. Commercial use requires the written permission of Option Elements and may involve licensing fees.

NYSE: Twitter (TWTR) A $5 Stock?

January 25, 2016

Twitter Inc. (NYSE: TWTR ) shareholders have had a rough year so far, as the social media giant’s stock began 2016 by plummeting to all-time lows, declining by 4.76 percent to $16.76 in the morning on Monday. According to Benzinga . Global Equities Research’s Trip Chowdhry predicted in an email that Twitter, despite its 232 million users, may become a $5 stock.

Chowdhry implies that the existing markets for social media are stretched thin with the rise of so many new sites and apps like Pintrest and SnapChat. With interest rates rising, moneyed investors may choose to abandon the trendy social media stocks, increasing competition for growth.

This dire prediction may come true as investors have grown increasingly bearish toward Twitter as it struggles with finances and finding new users. Twitter Inc.’s 2015 fourth quarter earnings will be reported after the market closes February 10. The Street reported on its prior quarter earnings.

“During the prior quarter, the total number of users who log into the service at least once a month increased by just 1% to 307 million quarter-over-quarter.”

Wall Street analysts’ predictions for Twitter Inc.’s earnings are not optimistic.

Twitter logo and app displayed on a mobile device. [Photo by Bethany Clarke/Getty Images] Twitter also confirmed on Sunday that four top executives are on their way out in order to earn back investors’ trust in the company, as reported by The Street . CEO Jack Dorsey has indicated that he plans to eventually replace the entire board.

The departures from Twitter were reportedly voluntary. It seems there are major management changes in store for the social media company. According to The Wall Street Journal . the four executives leaving include “engineering chief Alex Roetter, product head Kevin Weil, human-resources vice president Skip Schipper and media head Katie Stanton.”

Ominously, the Journal also reported that since appointing Mr. Dorsey as CEO, “its stock has fallen 37% to $17.84. Shares hit an all-time low of $16.69 last Tuesday.”

Considering that Twitter is one of the most popular social media sites in the world, the idea that it faces financial hardship and market instability might seem shocking. Nevertheless, the stock price of Twitter has dropped 65.89 percent over the last 200 days (over 23 percent since the start of 2016) and is continuing a strong downward trend.

The homepage of Twitter. [Photo by Oli Scarff/Getty Images] The reasons for this are manyfold. User growth has been dwindling, advertisers do not see Twitter as a viable option compared to other social media outlets, and cynical crisis-hardened Wall Street investors worry about Twitter’s future with users fleeing to other sites like SnapChat, Pinterest, Facebook and Instagram.

The stock was downgraded to “Hold” by analysts at Stifel Financial after news of the departures broke. The confidence of some investors will likely be shaken by the management overhaul Dorsey is planning. Others. like analyst Gaurav S. Iyer over at Profit Confidential . still remain bullish and strongly defend the marketability of Twitter, advocating that Vine and Twitter have become synonymous.

“Think about it: when was the last time you heard of a service with 300 million users and counting described as a ‘failed product?’ Twitter’s subscriber growth isn’t as strong as Facebook Inc ‘s (NASDAQ:FB ), but why must all social media companies have to be measured by the same stick?”

Don’t count on the culturally ubiquitous blue bird logo disappearing anytime soon. According to USA Today . Twitter still has $3.5 billion in its coffers and an operating expense of only $8.5 million a year. That’s 412 years of operating capital to fix itself.

The answer to the Twitter’s problems may come with the long-discussed removal of their famous 140 character limit. A larger character limit could potentially revitalize the company’s image to gain relevancy with new users, and allow it to compete with Google, Facebook and Tumblr for advertising dollars.

Twitter may be down for the moment, but analysts contend it’s not out of the fight yet.

[Photo by Andrew Burton/Getty Images]

Reacquiring shares of stock

Companies sometimes acquire their own shares of stock. Such shares may be used for employee incentive programs, future mergers with other companies, or for other reasons. In general, when a company acquires its own stock, its resources (assets) decrease and its sources of resources (stockholders' equity) decrease. The specific accounts affected depend upon the type of stock purchased and what management intends to do with the shares.

Reacquiring common stock When a company acquires its own common stock, it may either retire the shares or hold them for future use. To understand the effects of both options, it may be helpful to review three aspects of common stock. First, the total number of shares a company may issue, based on its articles of incorporation, is called its authorized shares. Second, the total number of shares sold to owners is called issued shares. Third, the total number of shares in the hands of owners is called outstanding shares. As you will see in the following discussion of treasury stock, it is possible for a company's issued shares to differ from its outstanding shares. At this point, however, assuming treasury stock does not exist, a company's issued shares will equal its outstanding shares and both will be less than its authorized shares.

For example, assume a company's articles of incorporation provide for the possibility of 40,000 common shares to be sold. In such a case, the company's authorized common shares are 40,000. If 10,000 common shares are sold to owners, the company's issued shares become 10,000. If all 10,000 issued shares remain in the hands of owners, the company's outstanding shares are also 10,000. As a result, the company's authorized shares (40,000) are more than its issued shares (10,000) and outstanding shares (10,000). Note also that the number of issued shares (10,000) equals the number of outstanding shares (10,000).

Retiring common stock When a company retires some of its common stock, it purchases them from owners and reduces the number of shares issued and the number of shares outstanding. Such shares continue to be authorized shares and may be issued by the company again at a later date. Continuing the above example, it the company retires 500 common shares, its authorized shares remain at 40,000, its issued shares fall to 9,500 (10,000 – 500), and its outstanding shares fall to 9,500 (10,000 –500).

The financial effects of a company retiring its own common stock, are a decrease in resources (assets) and an equal decrease in sources of resources (stockholders' equity). Assets and stockholders' equity both decrease by the dollar amount the company pays to acquire the stock.

For example on October 11, if the company acquired the 500 common shares at a price of $5 per share, show the effects on the company's resources and sources of resources.

Sources of Borrowed Resources

Sources of Owner Invested Resources

Sources of Management Generated Resources

- $1,000 common stock

- $1,500 additional paid-in capital, common stock

The cash payment for the 500 shares reduces the company's resources (assets) as the $2,500 cash flows out to owners (500 shares x $5 per share = $2,500). The company's sources of resources (stockholders' equity) decrease by $2,500 because the owners' rights to the company have been reduced. The common stock account was reduced by the $1,000 par value of the number of shares retired (500 shares x $2 par = $1,000). The $1,500 reduction of the additional paid-in capital, common stock account represents the elimination of the amount of additional paid-in capital, common stock originally recorded when the stock was issued to owners. Remember, the 10,000 shares were originally sold to owners at $5 per share. Thus, each common share had been issued at $3 above par ($5 per share sales price - $2 per share par = $3 additional paid-in capital). If the company had paid $4 per share to acquire the 500 shares, additional paid-in capital would have been reduced by only $1,000 [500 shares x ($4 purchase price - $2 par) = $1,000]. If the company had paid $9 per share to acquire the 500 shares, additional paid-in capital would have been reduced by $1,500 and retained earnings would have been reduced by $2,000 [500 shares x ($9 purchase price - $2 par - $3 additional paid-in capital) = $2,000]. Regardless of the specific accounts affected, the most important point of retiring common stock is the decrease in the company's resources and sources of resources. Managers are concerned about retiring stock because the process reduces the amount of resources they have to work with in the future. From an accounting standpoint, it is important to note that gains or losses are not recorded on the retiring of common stock. Since such transactions do not involve customers, but are strictly transactions between the company and its owners, any "gains or losses" affect contributed capital or retained earnings and do not appear on the income statement.

Remembering that assets increase with debits and that debits must equal credits, prepare the journal entry to record the $2,500 cash payment to retire 500 shares of the company's common stock.

** You now have the background to do text exercise 12.13.

Treasury stock When a company acquires some of its own stock and holds it rather than retiring it, such shares are called treasury stock. The shares continue to be authorized shares and may be used by the company again at a later date but they are not currently in the hands of owners. Although the treasury shares were authorized (in the articles of incorporation) and had been issued to owners, they are not outstanding because they are not being held by owners. Continuing the above example, if the company acquires 500 common shares and does not retire them, its authorized shares remain at 40,000, its issued shares also remain at 10,000, while its outstanding shares fall to 9,500 (10,000 –500). Thus, when a company has treasury stock, its issued shares differ from its outstanding shares. Since treasury stock shares are not in the hands of owners, such shares are not eligible to vote on any stockholders' issues, nor are such shares eligible to receive cash dividends. Many companies use treasury stock for employee stock purchase plans to provide incentives to employees. The companies acquire their own shares, hold them until employees achieve certain goals, and then distribute the shares to employees. More advanced accounting courses will discuss the accounting for treasury stock and employee benefits.

The financial effects of a company acquiring its own common stock and holding it, are a decrease in resources (assets) and an equal decrease in sources of resources (stockholders' equity). Assets and stockholders' equity both decrease by the dollar amount the company pays to acquire the stock.

For example on October 11, if the company acquired the 500 common shares at a price of $5 per share, show the effects on the company's resources and sources of resources.

Sources of Borrowed Resources

Sources of Owner Invested Resources

Sources of Management Generated Resources

The cash payment for the 500 shares reduces the company's resources (assets) as the cash flows out to owners. The company's sources of resources (stockholders' equity) decrease by $2,500 because the owners' rights to the company have been reduced. The $2,500 reduction in stockholders' equity was recorded in the treasury stock account. Notice the common stock account and additional paid-in capital, common stock account were not affected by the purchase of treasury stock. This is because the common stock has not been retired. It was issued to owners, purchased by the company, and is still being held by the company. Notice, also, that the decrease in stockholders' equity was not shown in either the sources of owner invested resouces column or the sources of management generated resources column. The actual stockholders' equity accounts ultimately affected by treasury stock depend upon the par value of the shares, the price at which the shares were originally issued to owners, the price paid by the company when it reacquired the shares, and the final use of the treasury stock by the corporation. As long as the treasury stock is held by the corporation, the dollar amount of the treasury stock appears in the treasury stock account, which is reported as a separate account in stockholders' equity.

Remembering that assets increase with debits and that debits must equal credits, prepare the journal entry to record the $2,500 cash payment to acquire 500 shares of the company's own common stock to be held by the company.

Treasury stock purchased

The treasury stock account is a contra stockholders' equity account: it is a stockholders' equity account with a debit balance. It is usually the last stockholders' equity account on a company's balance sheet, as can be seen below.

8% Preferred Stock, $10 par, 5,000 shares authorized, 1,000 shares issued

Common Stock, $2 par, 40,000 shares authorized, 10,000 shares issued

Additional Paid-in Capital, Preferred Stock

Additional Paid-in Capital, Common Stock

Total Contributed Capital

Less: Treasury Stock, 500 shares

Total Stockholders' Equity

Based on the above stockholders' equity section, the company has 40,000 common shares authorized, 10,000 shares issued, and 9,500 shares outstanding (10,000 shares issued – 500 treasury shares). This means the company has 30,000 more shares it can issue (40,000 shares authorized – 10,000 shares issued) and 500 shares it can use for such things as employee incentive programs ( 500 treasury shares).

The Christopher Corporation's articles of incorporation provided for the sale of 10,000,000 shares of $.05 par common stock. As of November 30, 6,000,000 shares had been sold, 10,000 shares had been acquired by the company and retired, and 8,000 shares had been acquired by the company and were still being held.

1. Calculate the Christopher Corporation's number of issued shares as of November 30.

Issued shares are the number of shares sold but not retired. Issued shares include any shares being held as treasury stock. On November 30, the Christopher Corporation's issued shares are 5,990,000 (6,000,000 shares sold - 10,000 shares retired).

2. Calculate the Christopher Corporation's number of outstanding shares as of November 30.

Outstanding shares are shares sold to owners and still owned by them. Treasury shares are not included in outstanding shares because they are not owned by stockholders. On November 30, the Christopher Corporation's outstanding shares are 5,982,000 (5,990,000 shares issued - 8,000 treasury shares).

3. Calculate the number of common shares eligible to vote for the Christopher Corporation's board of directors and receive cash dividends as of November 30.

5,982,000 common shares. Only owners of outstanding shares are eligible to vote for the board of directors and receive cash dividends. Retired shares and treasury shares do not have voting rights or rights to cash dividends.

** You now have the background to do text exercises 12.14 and 12.15.

Intarcia Therapeutics Closes Novel $225 Million Synthetic Royalty Financing With Equity Conversion Option At $5.5 Billion Valuation - Company secures $225M financing in exchange for 1.5% of future global net sales of ITCA 650, a novel once or twice yearly and injection-free GLP-1 therapy currently in phase 3 clinical development to treat type 2 diabetes.

- Investors have the option to convert their synthetic royalty interests into Intarcia common stock at a $5.5 billion Company valuation during an agreed upon conversion period.

- Combined with the 2014 private round of $200M and the recently completed ex-US collaboration with Servier valued at more than $1B, this financing puts Intarcia in a strong financial position through the planned approval and early launch of ITCA 650 in the US.

BOSTON. April 27, 2015 /PRNewswire/ -- Intarcia Therapeutics, Inc. today announced the closing of a $225 million synthetic royalty financing with an equity conversion option at a $5.5 billion Company valuation. Plans are to use these funds to accelerate the initiation of additional head-to-head comparative and switch studies of ITCA 650 vs. leading oral and injectable type 2 diabetes therapies. In addition, proceeds from the financing will fund the expected infrastructure and talent required to launch ITCA 650 in the United States. and to advance the Company's recently in-licensed pipeline assets.

Under the terms of the deal, investors have purchased Convertible Limited Recourse Notes from Intarcia and are entitled to receive quarterly payments equal to 1.5% of future global net sales of ITCA 650 until the notes mature or are fully paid. Investors have the option, commencing upon U. S. regulatory approval of ITCA 650 and ending on the later of the second anniversary of the approval or December 31, 2019. to convert their synthetic royalty interests into Intarcia common stock at a conversion price corresponding to an equity valuation of $5.5 billion .

"Our vision and driving belief remains that we can and must discover a new and game-changing way to deliver better medicines, and better health outcomes, with just once - or twice-yearly dosing for chronic diseases," said Kurt Graves. Chairman, President and CEO of Intarcia. "Transforming the status quo trends around poor control, poor compliance and costly outcomes in diabetes is mission critical around the world. Our aim with ITCA 650 is to deliver a once-yearly medicine that succeeds beyond the key efficacy and compliance shortcomings that the majority of patients experience when trying to stick with life-long pills and self-injections," added Graves. "This large and innovative financing announced today is another first-of-its-kind in our industry, and it shows investor confidence in our pivotal data, our partnerships and our overall approach to a huge unmet need and opportunity in type 2 diabetes. We've now secured the financial means to keep 100 percent control of the U. S. commercialization of ITCA 650, with funds needed all the way through the planned approval and early launch period in 2017. In parallel, we are also advancing our product pipeline more aggressively, including our recent Numab collaboration, aiming to develop new once - or twice-yearly antibody-based therapies and combinations for diabetes, obesity and autoimmune diseases."

Morgan Stanley & Co. LLC acted as sole structuring agent to Intarcia on this novel transaction. PhaRMA(SM) is a service mark of Morgan Stanley.

About Intarcia Therapeutics, Inc. Intarcia Therapeutics, Inc. is an independent, privately held, biopharmaceutical company developing therapies to enhance treatment outcomes by optimizing and improving the efficacy, continuous administration and tolerability of drug therapies. Delivering medicines just once or twice yearly has the potential to ensure improved patient adherence and compliance, which is otherwise difficult to achieve in most chronic diseases. Intarcia's drug development expertise and competitive edge are demonstrated by its abilities to stabilize proteins and peptides at above-body temperature and to deliver them in a constant and consistent manner via Intarcia's proprietary technology platform. Intarcia is conducting a phase 3 development program for type 2 diabetes that consists of four separate clinical trials, two of which have been completed. Intarcia continues to conduct research and development, utilizing its platform technology, to treat other chronic serious disorders in the field of diabetes, obesity and autoimmune diseases. For more information on Intarcia, please visit www. intarcia. com.

About ITCA 650 ITCA 650 (a once - or twice-yearly continuous subcutaneous delivery of exenatide) is being developed for the treatment of type 2 diabetes. The investigational therapy employs Intarcia's proprietary technology platform involving a matchstick-size, miniature osmotic pump that is placed sub-dermally to provide continuous and consistent drug therapy, and the company's proprietary formulation technology, which maintains stability of therapeutic proteins and peptides at human body temperatures for extended periods of time. Exenatide, the active agent in ITCA 650, is a glucagon-like peptide-1 (GLP-1) receptor agonist currently marketed globally as twice-daily and once-weekly self-injection therapies for type 2 diabetes. Upon approval, ITCA 650 would represent the first injection-free GLP-1 therapy that can deliver up to a full year of treatment from a single placement. ITCA 650 is currently in a global phase 3 clinical trial program called FREEDOM.

Intarcia and its logo are registered trademarks of Intarcia Therapeutics, Inc.

SOURCE Intarcia Therapeutics, Inc.

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New Zynga CEO Mattrick’s Package Is Worth About $50M In Stock, Options & Salario

New Zynga CEO Don Mattrick, who just left Microsoft to fix the ailing social gaming company. is getting incentivized heavily with stock for his new gig.

He starts with a sign-on bonus of $5 million, a base salary of $1 million, then gets a pro-rated minimum annual bonus that is either worth 200 percent of his salary or the average bonus percentage for the rest of the company’s executives — whichever is greater.

The first big stock part of the package is worth about $25 million at the moment, and vests over three years. It’s a “make whole” grant that makes up for the stock Mattrick is giving up in leaving his job at Microsoft.

Then on top of that there’s an “inducement grant” that vests over five years that’s currently worth a little over $6 million at about 1.8 million restricted stock units or RSUs.

It also gives Mattrick the option to purchase more than 7 million shares of stock equal to the closing price on the grant date, with the target for these options being worth about $10 million. If Mattrick is successful in turning the company around, that grant could be worth much more. He is also eligible for equity grants every year, with the one for 2014 being worth about $7 million in restricted stock units.

If Mattrick leaves, he gets a severance benefit worth twice his annual salary of $1 million plus two times his bonus. He also gets accelerated vesting of all of his initial “make whole” $25 million stock grant and any other grants that would have vested in the same year.

If he gets terminated in the event that Zynga has a “change in control” or gets acquired, both the big stock grants get fully accelerated with the cash severance being paid in a lump sum.

Zynga also covers his legal fees with the salary offer up to $60,000. If any payments to him trigger a “golden parachute” tax, the payments and benefits may get reduced to the point where he would be better off overall on an after-tax basis.

It’s a package that’s designed to incentivize him to get that stock price up, which has been hovering around $2 to $3 for the past six months. Zynga debuted at about $10 during its IPO but its stock sank by almost 75 percent in the year afterward as investors lost confidence that the company could keep its hold on the Facebook platform and successfully transition to Android and iOS. Indeed, Zynga and King are neck-and-neck in terms of monthly active users on the Facebook platform, according to AppData.

In the same SEC filing, Zynga also reveals that Owen Van Natta, who was at one point Zynga’s Executive Vice President of Business, is also stepping off the board.

0

CrunchBase

Bio Don Mattrick is Chief Executive Officer of Zynga, a social game services company headquartered in San Francisco, California. His mandate is to further the company’s mission of connecting the world through games. As an industry-leading executive in entertainment, games, and consumer products, Mattrick has firmly established himself during a 30-year career as a world-class leader of game, platform, …

Full profile for Don Mattrick

Founded 2007

Overview Zynga was founded in July 2007 by Mark Pincus and is named for his late American Bulldog, Zinga. Loyal and spirited, Zinga's name is a nod to a legendary African warrior queen. The early supporting founding team included Eric Schiermeyer, Michael Luxton, Justin Waldron, Kyle Stewart, Scott Dale, John Doerr, Steve Schoettler, Kevin Hagan, and Andrew Trader. Zynga's mission is connecting the …

Location San Francisco, California

Categories Networking. Tecnología. Facebook Applications. Juegos

Website http://www. zynga. com

Full profile for Zynga

boletines

Futures and Options Chapter 9 Answer

CHAPTER 9 Mechanics of Options Markets

Problem 9.8. A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using (a) the NASDAQ OMX and (b) the over-the-counter market for trading?

The NASDAQ OMX offers options with standard strike prices and times to maturity. Options in the over-the-counter market have the advantage that they can be tailored to meet the precise needs of the treasurer. Their disadvantage is that they expose the treasurer to some credit risk. Exchanges organize their trading so that there is virtually no credit risk.

Problem 9.9. Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option.

Ignoring the time value of money, the holder of the option will make a profit if the stock price at maturity of the option is greater than $105. This is because the payoff to the holder of the option is, in these circumstances, greater than the $5 paid for the option. The option will be exercised if the stock price at maturity is greater than $100. Note that if the stock price is between $100 and $105 the option is exercised, but the holder of the option takes a loss overall. The profit from a long position is as shown in Figure S9.1.

Figure S9.1 Profit from long position in Problem 9.9

Problem 9.10. Suppose that a European put option to sell a share for $60 costs $8 and is held until maturity. Under what circumstances will the seller of the option (the party with the short position) make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.

Ignoring the time value of money, the seller of the option will make a profit if the stock price at maturity is greater than $52.00. This is because the cost to the seller of the option is in these circumstances less than the price received for the option. The option will be exercised if the stock price at maturity is less than $60.00. Note that if the stock price is between $52.00 and $60.00 the seller of the option makes a profit even though the option is exercised. The profit from the short position is as shown in Figure S9.2.

Figure S9.2 Profit from short position in Problem 9.10

Problem 9.11. Describe the terminal value of the following portfolio: a newly entered-into long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the forward contract and a strike price that is equal to the forward price of the asset at the time the portfolio is set up. Show that the European put option has the same value as a European call option with the same strike price and maturity.

The terminal value of the long forward contract is: [pic] where [pic] is the price of the asset at maturity and [pic] is the forward price of the asset at the time the portfolio is set up. (The delivery price in the forward contract is also [pic].) The terminal value of the put option is:

[pic] The terminal value of the portfolio is therefore [pic]

[pic] This is the same as the terminal value of a European call option with the same maturity as the forward contract and an exercise price equal to [pic]. This result is illustrated in the Figure S9.3.

Figure S9.3 Profit from portfolio in Problem 9.11

We have shown that the forward contract plus the put is worth the same as a call with the same strike price and time to maturity as the put. The forward contract is worth zero at the time the portfolio is set up. It follows that the put is worth the.

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finance question bank

Question Multiple Choice Identify the choice that best completes the statement or answers the question.

____ 1. An option that gives the holder the right to sell a stock at a specified price at some future time is a. a call option. segundo. a put option. do. an out-of-the-money option. re. a naked option. mi. a covered option.

____ 2. Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant? a. The price of these call options is likely to rise if XYZ's stock price rises. segundo. The higher the strike price on XYZ's options, the higher the option's price will be. do. Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months. re. If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase. mi. If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

____ 3. GCC Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options. Which of the following actions would decrease the value of the options, other things held constant? a. GCC's stock price suddenly increases. segundo. The exercise price of the option is increased. do. The life of the option is increased, i. e. the time until it expires is lengthened. re. The Federal Reserve takes actions that increase the risk-free rate. mi. GCC's stock price becomes more risky (higher variance).

____ 4. Which of the following statements is CORRECT? a. Put options give investors the right to buy a stock at a certain strike price before a specified date. segundo. Call options give investors the right to sell a stock at a certain strike price before a specified date. do. Options typically sell for less than their exercise value. re. LEAPS are very short-term options that were created relatively recently and now trade in the market. mi. An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend.

____ 5. Deeble Construction Co.'s stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options? a. The options with the $25 strike price will sell for $5. segundo. The options with the $25 strike price will sell for less than the options with the $35 strike price. do. The options with the $25 strike price have an exercise value greater than $5. re. The options with the $35 strike price have an exercise value greater than $0. mi. If Deeble's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

____ 6. Which of the following statements is CORRECT? a. If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit. segundo. Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be. do. Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be. re. Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be. mi. Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

____ 7. Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be? a. $310.25 b. $1,689.75 c. $1,774.24 d. $1,862.95 e. $1,956.10

____ 8. Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be? a. $510.25 b. $1,989.75 c. $2,089.24 d. $2,193.70 e. $2,303.38

____ 9. The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value? a. $2.43 b. $2.70 c. $2.99 d. $3.29 e. $3.62

____ 10. An analyst wants to use the Black-Scholes model to value call options on the stock of Ledbetter Inc. based on the following data:

• The price of the stock is $40. • The strike price of the option is $40. • The option matures in 3 months (t = 0.25). • The standard deviation of the stock's returns is 0.40, and the variance is 0.16. • The risk-free rate is 6%.

Given this information, the analyst then calculated the following necessary components of the Black-Scholes model:

• d1 = 0.175 • d2 = ?0.025 • N(d1) = 0.56946 • N(d2) = 0.49003

N(d1) and N(d2) represent areas under a standard normal distribution function. Using the Black-Scholes model, what is the value of the call option? a. $2.81 b. $3.12 c. $3.47 d. $3.82 e. $4.20

Tutorial Preview ……

Multiple_Choic3.docx (14.79 KB)

Preview: $25 xxx some xxxx a strike xxxxx of $35 xxxx options xxxxxx xx three xxxxxx Which of xxx following best xxxxxxxxx the xxxxx xx these xxxxxxxx a The xxxxxxx with the xxx strike xxxxx xxxx sell xxx $5 b xxx options with xxx $25 xxxxxx xxxxx will xxxx for less xxxx the options xxxx the xxx xxxxxx price x The options xxxx the $25 xxxxxx price xxxx xx exercise xxxxx greater than xx d The xxxxxxx with xxx xxx strike xxxxx have an xxxxxxxx value greater xxxx $0 x xx Deeble's xxxxx price rose xx $5, the xxxxxxxx value xx xxx options xxxx the $25 xxxxxx price would xxxx increase xx xx ____ x Which of xxx following statements xx CORRECT? x xx the xxxxxxxxxx stock does xxx pay a xxxxxxxxx it xxxx xxx make xxxx economic sense xx exercise a xxxx option xxxxx xx its xxxxxxxxxx date, even xx this would xxxxx an xxxxxxxxx xxxxxx b xxxx options generally xxxx at a xxxxx greater xxxx xxxxx exercise xxxxxx and the xxxxxxx the exercise xxxxxx the xxxxxx xxx premium xx the option xx likely to xx c xxxx xxxxxxx generally xxxx at a xxxxx below their xxxxxxxx value, xxx xxx greater xxx exercise value, xxx lower the xxxxxxx on xxx xxxxxx is xxxxxx to be x Call options xxxxxxxxx sell xx x price xxxxx their exercise xxxxxx and the xxxxx the xxxxxxxx xxxxxx the xxxxx the premium xx the option xx likely xx xx e xxxxxxx of the xxxxxxxx parity relationship, xxxxx equilibrium xxxxxxxxxx x put xxxxxx on a xxxxx must sell xx exactly xxx xxxx price xx a call xxxxxx on the xxxxx ____ x xxxxxxx you xxxxxxx that Johnson xxxxxxxxx stock price xx going xx xxxxxxxx from xxx current level xx $22 50 xxxxxxxx during xxx xxxx 5 xxxxxx For $310 xx you can xxx a xxxxxxx xxxx option xxxxxx you the xxxxx to buy xxx shares xx x price xx $25 per xxxxx If you xxx this xxxxxx xxx $310 xx and

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Fundamentals of Futures and Options Markets, 8e (Hull) Chapter 1 Introduction

13) The price of a stock on February 1 is $124. A trader sells 200 put options on the stock with a strike price of $120 when the option price is $5. The options are exercised when the stock price is $110. The trader's net profit or loss is

14) The price of a stock on February 1 is $84. A trader buys 200 put options on the stock with a strike price of $90 when the option price is $10. The options are exercised when the stock price is $85. The trader's net profit or loss is

15) The price of a stock on February 1 is $48. A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2. The options are exercised when the stock price is $39. The trader's net profit or loss is

16) A speculator can choose between buying 100 shares of a stock for $40 per share and buying 1000 European call options on the stock with a strike price of $45 for $4 per option. For second alternative to give a better outcome at the option maturity, the stock price must be above

17) A company knows it will have to pay a certain amount of a foreign currency to one of its suppliers in the future. ¿Cual de los siguientes es verdadero?

A) A forward contract can be used to lock in the exchange rate

B) A forward contract will always give a better outcome than an option

C) An option will always give a better outcome than a forward contract

D) An option can be used to lock in the exchange rate

18) A short forward contract on an asset plus a long position in a European call option on the asset with a strike price equal to the forward price is equivalent to

A) A short position in a call option

B) A short position in a put option

C) A long position in a put option

D) None of the above

19) A trader has a portfolio worth $5 million that mirrors the performance of a stock index. The stock index is currently 1,250. Futures contract trade on the index with one contract being on 250 times the index. To remove market risk from the portfolio the trader should

A) Buy 16 contracts

B) Sell 16 contracts

C) Buy 20 contracts

D) Sell 20 contracts

20) Which of the following best describes a central clearing party?

A) It is a trader that works for an exchange

B) It stands between two parties in the over-the-counter market

C) It is a trader that works for a bank

D) It helps facilitate futures trades

Tutorial Preview …$1,000 xx Loss xx $2,000 C) xxxx of $200 xx Gain xx xxxxx Answer: x 15) The xxxxx of a xxxxx on xxxxxxxx x is xxx A trader xxxxx 200 put xxxxxxx on xxx xxxxx with x strike price xx $40 when xxx option xxxxx xx $2 xxx options are xxxxxxxxx when the xxxxx price xx xxx The xxxxxxxx net profit xx loss is xx Loss xx xxxx B) xxxx of $200 xx Gain of xxxx D) xxxx xx $900 xxxxxxx C 16) x speculator can xxxxxx between xxxxxx xxx shares xx a stock xxx $40 per xxxxx and xxxxxx xxxx European xxxx options on…

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How Does Buying Back Stock Affect Stockholders Equity?

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Companies repurchase their own shares for various reasons -- for example, to try to boost a sagging stock price, to thwart a hostile takeover or to gather up shares to distribute to employees through stock options or awards. Whatever the reason, the effect on stockholders' equity is the same: Equity declines by the amount spent to buy back the shares.

Stockholders' Equity

Every corporation is owned by its stockholders, and the equity section of a company's balance sheet gives you a sense of what those stockholders actually own. Equity is simply the difference between the company's assets (the stuff it owns) and its liabilities (its debts and obligations to others). In layman's terms, if the company were to sell off all of its assets and pay off its liabilities, then equity would be what's left over for the company's stockholders.

Contributed Capital

Stockholders' equity has two elements: contributed capital and earned capital. Contributed capital is the money the company got from selling stock. If you buy a share of stock from a company for $100, then that company's contributed capital total rises by $100. Note that contributed capital reflects only the money that the company gets when it sells a share to the public. When those shares later change hands on the open market, the company doesn't see any of that money, so those sales have no effect on contributed capital. The second portion of stockholders' equity is earned capital, which is the aggregate total of all its retained profits and losses since the company started operating.

Stock Buybacks

When a company buys back stock from the public, it is returning a portion of its contributed capital to shareholders. Those shareholders are literally cashing in their equity. As a result, total stockholders' equity declines. It's important to note, however, that the remaining shareholders -- those who didn't sell their shares back to the company -- don't really "lose" anything when equity declines through buybacks. After a buyback, there is less equity in the company, but there are also fewer shareholders with a claim on that equity. In fact, by reducing the supply of company stock available in the market, buybacks tend to push share prices up, which leaves the remaining shareholders with stock that's more valuable than before.

Accounting Treatment

A stock buyback is solely a balance sheet transaction, meaning that it doesn't affect the company's revenue or profits. When a company buys back stock, it first reduces its cash account on the asset side of the balance sheet by the amount of the buyback. Say a company repurchases 100,000 shares for $50 each. The company would subtract $5 million from its cash balance. In the equity section, the company increases the "treasury stock" account by $5 million. Treasury stock represents money paid out to reacquire stock; it is a "contra equity" account that offsets contributed capital, so increasing treasury stock $5 million has the effect of reducing net contributed capital $5 million. The balance sheet is back in balance.

Sobre el Autor

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

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Penny Stocks: Complete Guide on How to Invest in Stocks Under $5.00

By Alex Volsky, B. Comm. Published. April 21, 2015

The reason to invest in penny stocks is simple—investors can make large profits by investing in stocks before they turn into successful corporate behemoths. But reward never comes without risk and investors should read this primer on how to invest in penny stocks before jumping into the action.

What Are Penny Stocks?

As is implied by their name, penny stocks have a low stock price, say below $5.00, and the entire company is not worth a lot. The company size as measured by market capitalization (share price times number of shares outstanding) would be less than $2.0 billion for small caps and under $250 million for micro caps. For some perspective, General Motors Company (NYSE/GM) is worth $60.0 billion.

Another distinguishing factor of investing in penny stocks is the exchanges they trade on. While General Motors trades on the world’s biggest stage, the New York Stock Exchange (NYSE), penny stocks trade on over-the-counter markets (OTC). These exchanges lack a physical location, like 11 Wall Street, the home of the NYSE.

Moreover, when buying and selling penny stocks, investors are dealing with a broker/dealer who sets the price. This is unlike most public exchanges where investors interact directly with another market participant through an order matching system. In the OTC markets, the broker makes the market for a particular stock wielding power over the quoted price and availability of a particular penny stock.

Practically speaking, there are three levels of OTC exchanges for penny stocks. The first mentioned are the most transparent and the latter have no financial reporting requirements. OTCQX is a market designed for large international organizations, often looking to have a listing in the U. S.; this is for firms that are current and consistent with their required financial disclosures. Companies listed on this exchange include: Roche Holding AG (OTCMKTS/RHHBY), a Swiss pharmaceutical giant; Canadian Oil Sands Limited (OTCMKTS/COSWF); and Yamaha Corporation (OTCMKTS/YAMCY), a musical instrument and motorcycle manufacturer with a market cap of $3.6 billion. (Source: OTC Markets web site. last accessed April 20, 2015.)

The other two over-the-counter markets are titled OTCQB, or simply the “bulletin board,” and OTCPINK, infamously known as the “pink sheets.” Companies listed on the bulletin board are high-risk, development-stage companies that are current with reporting requirements, but are not of high enough quality to list on the OTCQX. Another step up the risk curve and down the quality ladder will take you to the pink sheets. Penny stocks listed here have no formal reporting requirements; the only requirement for trading is the need to have a broker willing to make a market for your shares.

Investing in Penny Stocks

The first step toward investment success in penny stocks would be to avoid as much of the junk as possible, namely the bulletin board and pink sheet stocks. The best way to avoid high-risk, low-reward penny stocks is to consider only companies worth more than $250 million by market capitalization and that have an average trading volume over the last 30 days of about 100,000.

Following this rule would not have helped you avoid Enron, Nortel Networks Corporation (OTCMKTS/NRTLQ), or Lehman Brothers, but it’s a great starting point. These penny stocks will have greater liquidity, greater financial transparency, and possibly lasting businesses.

Running this sort of filter greatly narrows your focus and simplifies the decision-making process. Those looking to dive right in can run their own penny stock screen based on market value and volume criteria by visiting the OTC Markets web site stock screener .

Two examples of the kinds of stocks that meet value and volume criteria were Fission Uranium Corp. (OTCMKTS/FCUUF) out of British Columbia with a market worth of $342 million, and Kroton Educacional S. A. (OTCMKTS/KROTY) the largest private education provider out of Brazil. At this point, investing in and trading penny stocks requires that investors take a closer look.

How to Make Money in Penny Stocks

What you are counting on at the end of the day is that your penny stock investment grows exponentially, that the business increases in size and garners attention from institutional investors, such as mutual funds, and is eventually covered by analysts. For a penny stock to achieve success, the underlying business model must be sustainable, the financials strong, and management must be focused on shareholders.

Keeping this in mind, I strongly suggest that penny stock investors look at the regulatory filings that companies submit to the U. S. Securities and Exchange Commission (SEC). Accessing these documents can be done by directly visiting the SEC web site or by visiting the investor relations webpage of the company which you are researching.

Investors want to look at the company’s latest annual report (Form 10K) or quarterly filing (Form 10Q), keeping an eye on the following:

A strong balance sheet: Look for a large and growing cash balance and manageable debts on the liabilities side

Consistent earnings history: Examine past earnings to discern a trend and the volatility of results

Management stewardship: Management compensation that is in line with shareholder interests

Unfortunately, there are no shortcuts and doing your due diligence is a must. Of the above quality-discerning criteria, I believe management stewardship is the most important and most difficult to grasp. Management compensation should be reasonable to the size of the company, should preferably be in the form of options to buy company shares, and must be transparent—without special clauses.

Fundamental analysis, as outlined above, isn’t without flaws and even professionals can come to differing opinions after looking at the same information. The problem is that one mistake can be costly, as penny stocks can easily gravitate towards zero dollars—wiping out your entire investment. The best way to avoid such hardship is to employ a basket approach, spreading out your investment dollars over several stocks. This way, investors can limit their downside potential in one stock and have a better chance of holding a penny stock that grows exponentially on the road to becoming a household name.

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Why call option price cannot exceed the price of underlying asset?

Confidence votes 23.4K

I am an Army veteran who has worked in the graphic arts, photography, transportation and retail industries.

Call options allow their buyers to purchase assets from a "counterparty" for a set price--which is called the "strike price." Say, 100 shares of Acme for $25 with expiration in June. The reason you buy this thing is because you think the price of the asset is going to go up. If Acme stock goes up to $27, you exercise your option and pay $25 per share. If you paid less than $2 per share premium, you'll make money when you sell the stock.

If you exercised the option when Acme was $23, you'd pay $25 for $23 stock--which is a bad investment any way you look at it.

Call prices CAN exceed the price of the underlying asset. It happens all the time, but no one exercises the options when they're like this because you would lose money if you did.

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