A collar strategy is used as the one of the ways to hedge against possible losses, a hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion what?
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Collar (finance) In finance, a collar is an option strategy that limits the range of possible positive or negative returns on an underlying to a specific range. A collar strategy is used as the one of the ways to hedge against possible losses and it represents long put options financed with short call options.
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Hedge (finance) A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses or gains suffered by an individual or an organization.
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Fence (finance) Fence (also known as a Dutch Rudder) is an investment strategy that uses options to limit the range of possible returns on a financial instrument.
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Offset (law) An offset in law, is a reduction in the amount of a judgment granted to a losing party based on debts owed by the prevailing party to the losing party. For example, if an employee successfully sued an employer for wrongful termination, the employer might be entitled to an offset if the employer could demonstrate that it had previously made an overpayment to that employee which had not been returned. A party may similarly be entitled to an offset where it can demonstrate that the prevailing party has already received compensation for its injuries through insurance, a judgment against another party liable for those injuries, or some other source.
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Equity premium puzzle The equity premium puzzle refers to the phenomenon that observed returns on stocks over the past century are much higher than returns on government bonds. It is a term coined by Rajnish Mehra and Edward C. Prescott in 1985, although in 1982 Robert J. Shiller published the first calculation that showed that either a large risk aversion coefficient or counterfactually large consumption variability was required to explain the means and variances of asset returns. Azeredo (2014) shows, however, that increasing the risk aversion level may produce a negative equity premium in an Arrow-Debreu economy constructed to mimic the persistence in U.S. consumption growth observed in the data since 1929. Economists expect arbitrage opportunities would reduce the difference in returns on these two investment opportunities to reflect the risk premium investors demand to invest in relatively more risky stocks.
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Profit risk Profit risk is a risk management tool that focuses on understanding concentrations within the income statement and assessing the risk associated with those concentrations from a net income perspective.
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Pension A pension is a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a "defined benefit plan" where a fixed sum is paid regularly to a person, or a "defined contribution plan" under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.
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Growth investing Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as "growth investors", invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as value investing.
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Portfolio margin Portfolio margin is a risk-based margin policy available to qualifying US investors. The goal of portfolio margin is to align margin requirements with the overall risk of the portfolio. Portfolio margin usually results in significantly lower margin requirements on hedged positions than under traditional rules. While margin requirements of Regulation T generally limit leverage on equity to 2:1, with portfolio margin, leverage of 6:1 or more is possible.
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Delta neutral In finance, delta neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged when small changes occur in the value of the underlying security. Such a portfolio typically contains options and their corresponding underlying securities such that positive and negative delta components offset, resulting in the portfolio's value being relatively insensitive to changes in the value of the underlying security.
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Deferral A deferral, in "accrual accounting", is any account where the asset or liability is not realized until a future date (accounting period), e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability. See also accrual.
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Cost-loss model The cost-loss model, also called the cost/loss model or the cost-loss decision model, is a model used to understand how the predicted probability of adverse events affects the decision of whether to take a costly precautionary measure to protect oneself against losses from that event. The threshold probability above which it makes sense to take the precautionary measure equals the ratio of the cost of the preventative measure to the loss averted, and this threshold is termed the cost/loss ratio or cost-loss ratio. The model is typically used in the context of using prediction about weather conditions to decide whether to take a precautionary measure or not.
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Plainfield Asset Management Plainfield Asset Management is a defunct hedge fund that specialized in managing investment capital on behalf of institutions and high-net-worth individuals. The firm worked with clients in the United States and abroad, and maintained offices in Greenwich, Connecticut before transitioning to its disaster recovery site in Stamford, CT . At the end of May 2012, Plainfield substantially completed the liquidation of the funds which it managed and deregistered.
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Fixed investment Fixed investment in economics refers to investment in fixed capital or to the replacement of depreciated fixed capital.
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Defence in depth Defence in depth (also known as deep or elastic defence) is a military strategy that seeks to delay rather than prevent the advance of an attacker, buying time and causing additional casualties by yielding space. Rather than defeating an attacker with a single, strong defensive line, defence in depth relies on the tendency of an attack to lose momentum over time or as it covers a larger area. A defender can thus yield lightly defended territory in an effort to stress an attacker's logistics or spread out a numerically superior attacking force. Once an attacker has lost momentum or is forced to spread out to pacify a large area, defensive counter-attacks can be mounted on the attacker's weak points, with the goal being to cause attrition or drive the attacker back to its original starting position.
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Deferred compensation Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options. The primary benefit of most deferred compensation is the deferral of tax to the date(s) at which the employee receives the income.
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Companion planting Companion planting in gardening and agriculture is the planting of different crops in proximity for pest control, pollination, providing habitat for beneficial creatures, maximizing use of space, and to otherwise increase crop productivity. Companion planting is a form of polyculture.
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Segregated account Segregated account is a bank account or securities account in which a customer's funds are held separate from the funds of a brokerage firm. Thus, for example, in the United States the law requires that a broker must hold separately, in separate accounts on the broker's books, securities it holds for its customers from securities of the broker itself.
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Sharpe ratio In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.
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Strangle (options) In finance, a strangle is an investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit based on how much the price of the underlying security moves, with relatively minimal exposure to the "direction" of price movement. A purchase of particular options is known as a long strangle, while a sale of the same options is known as a short strangle. As an options position strangle is a variation of a more generic straddle position. Strangle's key difference from a straddle is in giving investor choice of balancing cost of opening a strangle versus a probability of profit. For example, given the same underlying security, strangle positions can be constructed with low cost and low probability of profit. Low cost is relative and comparable to a cost of straddle on the same underlying.
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Portfolios with Purpose Portfolios with Purpose (“PwP”) is a registered 501(c)(3) Non-profit organization founded by Stacey Asher in 2011. It is an annual virtual stock selection competition in which players of novice and professional experience pay a nominal entry-fee to choose a five-stock, long-term portfolio. The contestants with the top-performing portfolios over a 12-month period will direct the sum total of the collected entry-fees to the charitable cause of their choice; and have the opportunity of a meeting with one of the professional hedge fund managers.
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Margin (finance) In finance, margin is collateral that the holder of a financial instrument has to deposit with a counterparty (most often their broker or an exchange) to cover some or all of the credit risk the holder poses for the counterparty. This risk can arise if the holder has done any of the following: