Tag Archives | stock

Singapore Stock Exchange (SGX)

Singapore Stock Exchange (SGX)

A merger between the Stock Exchange of Singapore and the Singapore International Monetary Exchange formed the Singapore Stock Exchange (SGX) in 1999. Furthermore, it is one of the largest Asian exchanges in terms of market capitalization and trading volume.

Singapore Stock Exchange (SGX) Meaning

The SGX is well known for its derivatives trading in addition to its equity trading. The make-up of the SGX market is approximately 25% in derivatives while the other 75% in equities. It also has approximately 775 companies listed and the SGX market capitalization is around 650 billion in Singapore Dollars. The SGX index is the Straits Times Index, and is considered to be a key indicator of the Asian markets. The Straits Times takes the 30 largest companies and market-value weights these stocks.

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singapore stock exchange

See Also:
Toronto Stock Exchange (TSX)
Hong Kong Stock Exchange (HKEX)
Shanghai Stock Exchange (SSE)
Tokyo Stock Exchange (TSE)
Bombay Stock Exchange (BSE)

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Shanghai Stock Exchange (SSE)

See Also:
Tokyo Stock Exchange (TSE)
National Stock Exchange of India (NSE)
Bombay Stock Exchange (BSE)
Frankfurt Stock Exchange (FSE)
Hong Kong Stock Exchange (HKEX)

Shanghai Stock Exchange (SSE)

The Shanghai Stock Exchange (SSE) is the third largest exchange in terms of market capitalization. The exchange is currently not open to all foreign investors.

Shanghai Stock Exchange (SSE) Meaning

The Shanghai Stock Exchange was formed in the 1842 as one of the first to be established in Asia and the first in China. The SSE Exchange trades in bonds, funds, and two classes of stock. The two types of stock are the Class A and Class B stock. At first the Class A stock was limited to Chinese Investors while the Class B remained open to all investors. However, after reforms the SSE changed its format slightly allowing a few foreign investors to invest in the Class A stock with several limitations. The class B stock remained open to all foreign and domestic investors after the reformation. The Class A stock is also currently listed with the local Yuan currency while Class B is listed under the U.S. dollar. The SSE exchange main indexes are the SSE 180 index and the SSE 50.

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Stock Options Basics

Stock Options Definition

A stock option is a financial instrument that gives its holder the right but not the obligation to buy or sell a security for a set price on or before a set date. Stock options are traded on financial bonuses. A stock option contract typically consists of no less than 100 options. A trader can enter into a stock option contract to profit from or protect against volatility in the underlying security without actually having to invest in the underlying security. A stock option is exercised when the stock option holder decides to buy or sell the underlying security. If a stock option is not exercised by its expiration date, the stock option expires.

A stock option contract has an option premium, a strike price, and an expiration date. The option premium is the price of the stock option contract. The strike price refers to the price of the underlying security at which the stock option can be exercised. The expiration date is the date on which the option contract expires.

There are two basic types of options: calls and puts. A call option gives its holder the right to buy the underlying security. A put option gives its holder the right to sell the underlying security.

Call Option Contract

A call option gives its holder the right to buy the underlying security at a set price on or before a set date. If a trader expects a security to rise in value, the trader can buy a call option on that security.

Put Options Contract

A put option gives its holder the right to sell the underlying security at a set price on or before a set date. If a trader expects a security to fall in value, the trader can buy a put option on that security.

Stock Options Examples

Call Option Example

A stock is currently trading at $10. A trader expects the stock to rise in value so he buys a call option. The premium is $1, the strike is $12, and the option expires in 1 month. For the option to make a profit, the stock must rise above $13 before the contract expires. Let’s say the stock rises to $15 within a month. The trader can then exercise the option and make $2 profit. He buys the stock at $12 when it is worth $15, so he gains $3. But the cost of the option was $1, so his profit is $2.

Put Option Example

A stock is currently trading at $10. A trader expects the stock to fall in value so he buys a put option. The premium is $1, the strike is $8, and the option expires in 1 month. For the option to make a profit, the stock must fall below $7 before the contract expires. Let’s say the stock falls to $5 within a month. The trader can then exercise the option and make $2 profit. He sells the stock at $8 when it is worth $5, so he gains $3. But the cost of the option was $1, so his profit is $2.

Black Scholes Model

The value of an option consists of time value and intrinsic value. Option values can be determined using the Black-Scholes formula, or other option valuing formulas.

European Options vs American Options

American options can be exercised at any time during the life of the option contract. You can only exercise European options on the expiration date. Both types of contract trade in markets all over the world.

In-the-Money Call Option

An option is in-the-money if exercising it immediately would result in a profit.

At-the-Money Call Option

An option is at-the-money if exercising it immediately would result in no profit or loss.

Out-of-the-Money Call Option

An option is out-of-the money if exercising it immediately would result in a loss. (A trader would not exercise an out-of-the money option, but instead would simply let it expire.)

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stock options

See Also:
Intrinsic Value – Stock Options
Initial Public Offering (IPO)
Black Scholes Option Calculation
Binomial Options Pricing Model
Subscription (Preemptive) Rights

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Reverse Stock Split

See Also:
Common Stock Definition
Intrinsic Value – Stock Options
Stock Options Basics
Treasury Stock (Repurchased Shares)

Reverse Stock Split

A reverse split is a procedure that is the exact opposite of a stock split. It involves reducing the number of shares for the corporation while maintaining the same market value. However, the cost per share will be worth more in the market after a reverse stock split occurs.

Reverse Stock Split Meaning

A reverse stock split is usually performed by companies that are going through some financial difficulty and their price may be too low. Some exchanges require that a company maintain a certain price per share to be listed. For example, the U.S. exchanges require a stock price to be above $1 to be listed. If a company’s stock price were approaching this $1 then the company might perform a reverse split to try and up the price per share and keep the company listed.

Reverse Stock Split Example

Blokbusta Inc. has been a declining business the past couple of years. It’s stock price has steadily declined from the $20 Per share two years ago, and prospects for the company are not looking favorable. The current price per share has dropped to $2 per share. To be listed on the exchange that it is currently on the price per share must be listed at least $1. Worried that Blokbusta might fall below the $1 mark before it can turn around the company, Blokbusta performs a reverse split of 10 to 1. There are currently 100,000 shares outstanding. What is the new stock price?

The current market value of the stock is $200,000 (100,000 shrs. * $2/shr.)

The new amount of shares will be 10,000 (100,000/10)

Thus the new price per share will be $20 per share ($200,000/10,000 shrs.)

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Private Placement

See Also:
Convertible Debt Instrument
Common Stock Definition
Preferred Stocks
Hedging Risk
Treasury Stock

Private Placement Definition

The private placement definition is the process of raising capital directly from institutional investors. A company that does not have access to or does not wish to make use of public capital markets can issue stocks, bonds, or other financial instruments directly to institutional investors. Institutional investors include the following:

You do not have to register private placement issuances with the Securities and Exchange Commission (SEC). In addition, you do not have to provide a detailed prospectus. The issuing company and the purchasing investors negotiates the terms and conditions are negotiated. You cannot trade private placement securities on public markets, but they can be traded privately among institutional investors after they have been issued by the issuing company.

A private placement is in contrast to a public offering, which is issued in public capital markets, requires a detailed prospectus, must be registered with the SEC, and can be traded by the investing public in the secondary markets.

Advantages and Disadvantages of Private Placement

The primary advantage of the private placement is that it bypasses the stringent regulatory requirements of a public offering. You have to conduct public offerings in accordance with SEC regulations; however, investors and the issuing company privately negotiate the private placements. Furthermore, they do not have to register with the SEC, do not require the issuing company to publicly disclose its financial statements, and ultimately avoid the scrutiny of the SEC.

Another advantage of private placement is the reduced time of issuance and the reduced costs of issuance. Issuing securities publicly can be time-consuming and may require certain expenses. It forgoes the time and costs that come with a public offering.

Also, because the investors and the issuing company privately negotiate private placements, they can be tailored to meet the financing needs of the company and the investing needs of the investor. This gives both parties a degree of flexibility.

Now, let’s look at the disadvantages of private placement. The main disadvantage of private placement is the issuer will often have to pay higher interest rates on the debt issuance or offer the equity shares at a discount to the market value. This makes the deal attractive to the institutional investor purchasing the securities.

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Private Placement, Disadvantages of Private Placement, Private Placement Definition
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Private Placement, Disadvantages of Private Placement, Private Placement Definition

 

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Primary Market

See Also:
Investment Banks
Initial Public Offering (IPO)
Secondary Market
Securities Act of 1933
Securities Exchange Act of 1934

Primary Market Definition

The Primary Market is where the issuance of new or original securities occur. Furthermore, these securities can range from the debentures to newly issued stocks.

Primary Market Meaning

Primary markets are typically not what the typical investor gets involved in. In fact, often times these markets are only available to selected investors. The Securities Act of 1933 regulate the primary market to ensure that all of the securities have the proper amount of information associated. Often times, they involve Initial Public Offerings or IPOs. Investment bankers bring these IPOs to the market. They will either buy the stock beforehand and sell it in the market at a profit, or they will simply sell the shares into the market and take a commission. The former is usually true for primary market stocks. Offer the stocks to very few investors that gather during “road shows” put on by investment bankers. Debentures are often done in the same way through investment bankers.

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Price to Book Value Analysis

Price to Book Value Analysis Definition

Price to book ratio analysis (PBV ratio or P/B ratio) expresses the relationship between the stock price and the book value of each share. In general, the lower the PBV ratio, the better the value is. However, the value of the ratio varies across industries. A better benchmark is to compare with industry average.

Price to Book Value Analysis Formula

Use the following price to book value analysis formula:

Price to book value = Market Cap ÷ book value

Calculation

Book value is the value of the company if you subtracted all liabilities from assets and common stock equity.

For example, assume $ 20,000 in market cap and $ 10,000 in book value.

Price to book value = 20,000 / 10,000 = 2

As a result, investors pay $2 for every dollar of book value that a company has.

Applications

Price to book value ratio measures whether or not a company’s stock price is undervalued. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A company either is undervalued or in a declining business if the value of 1 or less. Although investors use price to book value ratio to get some idea of how expensive a company’s stock is, it provides very limited information for some industries with hidden assets, which are of great value but are not reflected in the book value.

Resources

For statistical information about industry financial ratios, please click the following website: www.bizstats.com and www.valueline.com.

Price to Book Value Analysis

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Price to Book Value Analysis

See Also:
Price Earnings Ratio
Price to Sales Ratio
Financial Ratios

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