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VIX - CBOE Volatility Index

Posted by

admin on October 13 2008 07:52:57

What Does it Mean?
The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".

There are three variations of volatility indexes: the VIX tracks the S&P 500, the VXN tracks the Nasdaq 100 and the VXD tracks the Dow Jones Industrial Average.
Investopedia Says... The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors' expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

0 Comments · 157 Reads ·

Fair Trade Investing

Posted by

admin on August 20 2008 07:57:19

What Does it Mean?
Investing in companies or projects that promote fair trade with producers in developing nations. Basic fair trade philosophies call for equal pay for suppliers of raw goods and materials as well as respect for strong environmental practices and a focus on the trading relationships between advanced economies and developing nations.

Explanation:
Fair trade investing mainly deals with trade in agricultural products, such as coffee, sugar and textiles. Many of the growers of these products are low-income workers who are often marginalized in trade agreements and receive few subsidies from their home governments. Fair trade practices aim to help these workers gain a higher standard of living and financial independence, while the companies who actively promote fair trade can show transparency in their business dealings and gain valuable image points with shareholders.

0 Comments · 160 Reads ·

Underemployment

Posted by

admin on August 08 2008 08:46:13

What Does it Mean?
A measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience and availability to work. Labor that falls under the underemployment classification includes those workers that are highly skilled but working in low paying jobs, workers that are highly skilled but work in low skill jobs and part-time workers that would prefer to be full-time. This is different from unemployment in that the individual is working but isn't working at their full capability.

Explanation:
For example, an individual with an engineering degree working as a pizza delivery man as his main source of income is considered to be underemployed and underutilized by the economy as he in theory can provide a greater benefit to the overall economy if he were working as an engineer. Also, an individual that is working part-time at an office job instead of full-time is considered underemployed because they are willing to provide more employment, which can increase the overall output.

0 Comments · 189 Reads ·

Exchange Traded Notes (ETN)

Posted by

admin on June 23 2008 19:17:36

What Does it Mean?
A type of unsecured, unsubordinated debt security that was first issued by Barclays Bank PLC. This type of debt security differs from other types of bonds and notes because ETN returns are based upon the performance of a market index minus applicable fees, no period coupon payments are distributed and no principal protections exists.

Explanation...
The purpose of ETNs is to create a type of security that combines both the aspects of bonds and exchange traded funds (ETF). Similar to ETFs, ETNs are traded on a major exchange, such as the NYSE during normal trading hours. However, investors can also... Read more.

1 Comments · 175 Reads ·

Deficit Spending

Posted by

admin on June 19 2008 21:09:27

What Does it Mean?
When a government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect by raising interest rates.

Explanation ...
John Maynard Keynes was an advocate of deficit spending as a fiscal policy tool to help stimulate an economy in recession. During a recession, increased government spending can stimulate business activity, create jobs and spur consumer spending. This creates a multiplier effect in which ... Read more.

1 Comments · 186 Reads ·

Passive Management

Posted by

admin on June 09 2008 20:23:54

What Does it Mean?
A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies and buying/selling decisions of a portfolio's securities.

Also known as "passive strategy," "passive investing" or "index investing."

Explanation...
Followers of passive management believe in the efficient market hypothesis. It states that at all times markets incorporate and reflect all information, rendering individual stock picking...

0 Comments · 231 Reads ·

Exchange-Traded Fund (ETF)

Posted by

admin on June 04 2008 07:07:19

What Does it Mean?
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

Explanation...
Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the... Read more.

0 Comments · 196 Reads ·

Froth

Posted by

admin on June 02 2008 20:51:05

What Does it Mean?
Market conditions preceding an actual market bubble where asset prices become detached from their underlying intrinsic values as demand for those assets drives their prices to unsustainable levels. Market froth marks the beginning of unsustainable rates of asset price inflation.

Explanation:
An interesting example of a frothy market was Holland's tulip bulb market in the early 1600s. The market for tulip bulbs went through a huge run up and crash. People mortgaged whatever they could to raise cash to trade tulip bulbs. In 1633, a farmhouse changed hands for three tulip bulbs.

The market top came in the winter of 1636-37 when a single tulip bulb, left along with 70 other tulip bulbs as seven orphans' only inheritance, sold for 5,200 guilders. Soon after the top, tulip bulbs traded for 1/100 of what they had two weeks earlier...

3 Comments · 219 Reads ·

Shotgun Clause

Posted by

admin on June 02 2008 20:06:30

What Does it Mean?
A buy-sell provision used by related parties in a business venture which gives an investor within the partnership the right to offer his/her portion to a partner at a specified price. If the partner does not buy the offered interest at this price, the partner must then sell his/her own interest to the offering party at the same specified price.

Explanation:
The shotgun clause attempts to provide security to the partners of a venture by ensuring the offering of a fair price. Because the investor initially tendering the shares cannot be certain whether the shares will be purchased or rejected, the specified price must be carefully considered - after all, a rejection of the tendering creates an obligation for the offering party to buy the partner's portion at the same price he/she was originally willing to sell at... Read more.

1 Comments · 155 Reads ·

Rational Pricing

Posted by

admin on May 28 2008 19:35:41

What Does it Mean?
A financial theory that contends that the market prices of assets will represent the arbitrage-free pricing level for those assets. This is based on the assumption that any deviation from arbitrage-free price levels for an asset will result in arbitrageurs immediately trading away the profit opportunity on the asset until it trades at an arbitrage-free price.

Explanation ...
A typical example of where the theory of rational pricing would be expected to come into play would be two identical assets trading in different markets. If the asset traded at a lower price in one market, an arbitrage trader would attempt to make a risk-free profit by purchasing the asset in the cheaper market by short selling the asset in the more expensive market....

1 Comments · 164 Reads ·

Theory Of The Firm

Posted by

admin on May 27 2008 19:25:11

What Does it Mean?
A microeconomic concept founded in neoclassical economics that states, firms (corporations) exist and make decisions in order to maximize profits. Businesses interact with the market to determine pricing and demand and then allocate resources according to models that look to maximize net profits.

It goes along with the theory of the consumer, which states that consumers seek to maximize their overall utility. Modern takes on the theory of the firm sometimes distinguish between long-run motivations (sustainability) and short-run motivations (profit maximization).

Explanation ...
The theory of the firm is always being re-analyzed and adapted to suit changing economies and markets. Early economic analysis focused on broad industries, but as the nineteenth century progressed, more economists began to look at the firm level to answer basic questions about why companies produce what they do, and what motivates their choices when allocating capital and labor... Read more.

3 Comments · 183 Reads ·

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