Asset-Backed Securities (ABS)

Asset-Backed Securities (ABS)

Asset-Backed Securities (ABS)

A security whose income payments and hence values are derived from and backed by a specified pool of underlying assets are known as Asset-Backed Securities (ABS). An ABS is an investment security consisting of a bond or note that is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables. ABS is a pool of loans that are packed and sold to investors as securities through a process known as securitization. This pool is a group of illiquid and small assets that cannot be sold individually. (more…)
EQUITY DERIVATIVE

Equity Derivatives

EQUITY DERIVATIVE

An equity derivative is a type of financial instrument. The value of an equity derivative is derived from the price movement of an underlying asset. Investors use equity derivatives to speculate or hedge against the downside of their investment. The hedge to mitigate the risk associated with taking a long position or short position. Equity option and equity index futures are two forms of equity derivatives. A stock option is a good example of an equity derivative because the value of the stock option is based on the price movements of the underlying stock. (more…)
Negotiable Certificate of Deposit

Negotiable Certificate of Deposit

Negotiable Certificate of Deposit

Negotiable certificate of deposit (NCD) was introduced in 1961 by the First National City Bank of New York which is now known as Citibank. The instrument allowed the banks to raise funds that could be used for lending. The First National City Bank of New York loaned $10 million in government securities to a New York broker who agreed to accept trades in CD so this created a secondary market in which the NCDs could trade. Participants in the market for NCDs primarily comprise wealthy individuals and institutions such as corporations, insurance companies, mutual funds, and pension funds. Those seeking a return on cash in a low-risk and liquid investment the market attract such investors. (more…)
Lookback Options

Lookback Options

Lookback Options

Exotic options are options that have complex features than generally traded vanilla options. They have several triggers that determine their payoff. Lookback options are types of exotic options where the payoff depends on the maximum or minimum price of the underlying asset over the life of the option. (more…)
Barbell Strategy

Barbell Strategy

Barbell Strategy

Options are a conditional derivative instrument that allows the buyer of the contract to buy or sell a security at a chosen price. Option buyers are charged an amount called a “premium” by the sellers. Options are divided into “call” and “put” options. In a “Call” option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price called the exercise price or strike price. In a “Put” option, the buyer acquires the right to sell the underlying asset in the future at a predetermined price. (more…)
Calendar spread

What is Calendar spread

Calendar spread

What are option spreads? Options spreads are the basic building of many option trading strategies. A spread position is entered by buying and selling an equal number of options of the same class on the same underlying security but with different strike prices or expiration dates. The three main classes of spreads are the horizontal spread, the vertical spread, and the diagonal spread. (more…)
Equity Linked Notes

Equity Linked Notes

What are Equity Linked Notes?

Equity-linked notes (ELNs) are a type of debt instrument which are similar to fixed income security but the risk involved in this instrument depends on the market movement of particular stock or security an individual invests. The equity-linked note is basically a short-term instrument trade for 1 to 4 months in which investors are allowed to purchase their selected security at a discount price from the market price which results into a high return to an investor. Similarly, there is another term called Reversed Equity Linked Notes (RELNs) under this instrument an investor has an option to sell their selected security at a higher price than the price prevailing in the market. In short Equity, Link Notes are the instrument which helps an investor to get a high return from various type of security but the amount of risk involved in of the security will highly depend on the market movement (more…)
Dollar Duration (DV01)

Dollar Duration (DV01)

Dollar Duration (DV01)

  What is DV01 (Dollar Duration)? A bond analysis method that helps an investor ascertain the sensitivity of the bond price to interest rate changes is called Dollar Duration(DV01). It is formally referred to as DV01 (i.e., dollar value per 01) It measures the change in bond price for every 100 basis points of change in interest rates. Bond fund managers use DV01 as a way of approximating the portfolio’s interest rate risk in nominal or dollar amount terms. It is used to calculate risk for many fixed income products such as forwards, zero-coupon bonds, par rates, etc. (more…)
Rho in Options Trading

Rho- Options Trading

Rho- Options Trading

“Greeks” is a term used in the options market that describes the different dimensions of risk involved in taking an options position. The reason for these variables to be called Greeks is that they are typically associated with Greek symbols. Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Different Greek values like delta, gamma, theta, rho, and others are used by the traders to manage option portfolios. (more…)
Closed-end mutual fund

Closed-end mutual fund

Closed-end mutual fund

A closed-end mutual fund is an equity or debt fund that issues a fixed amount of capital and then lists the shares for trading on a stock exchange. Once the offer period ends, investors cannot purchase or redeem the units. The closed-end fund ‘closes’ after the launch period until maturity.

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