speculate on the expectation that the price of a stock will go up or down. In recent years a new type of option has become extremely popular: options related to the various stock market averages, which let you speculate on the direction of the whole market rather than on individual stocks. Many trading techniques used by expert investors are built around options; some of these techniques are in-tended to reduce risks rather than for speculation.\
4.6 Rights
When a corporation wants to sell new securities to raise additional capital, it often gives its stockholders rights to buy the new securities (most often additional shares of stock) at an attractive price. The right is in the nature of an option to buy, with a very short life. The holder can use ("exercise") the right or can sell it to someone else. When rights are issued, they are usually traded (for the short period until they expire) on the same exchange as the stock or other security to which they
4.7 Warrants
A warrant resembles a right in that it is issued by a company and gives the holder the option of buying the stock (or other security) of the company from the company itself for a specified price. But a warrant has a longer life—often several years, sometimes without limit As with rights, warrants are negotiable (meaning that they can be sold by the owner to someone else), and several warrants are traded on the major exchanges.
4.8 Commodities and Financial Futures
The commodity markets, where foodstuffs and industrial commodities are traded in vast quantities, are outside the scope of this text. But because the commodity markets deal in "futures"—that is, contracts for de-livery of a certain good at a specified future date— they have also become the center of trading for "financial futures", which, by any logical definition, are not commodities at all.
Financial futures are relatively new, but they have rapidly zoomed in importance and in trading activity. Like options, the futures can be used for protective purposes as well as for speculation. Making the most head-lines have been stock index futures, which permit investors to speculate on the future direction of the stock market averages. Two other types of financial futures are also of great importance: interest rate futures, which are based primarily on the prices of U.S. Treasury bonds, notes, and bills, and which fluctuate according to the level of interest rates; and foreign currency futures, which are based on the exchange rates between foreign currencies and the U.S. dollar. Although, futures can be used for protective purposes, they are generally a highly speculative area intended for professionals and other expert inve¬stors.
5. STOCK MARKET AVERAGES READING THE NEWSPAPER QUOTATIONS
The financial pages of the newspaper are mystery to many people. But dramatic movements in the stock market often make the front page. In newspaper headlines, TV news summaries, and elsewhere, almost every-one has been exposed to the stock market averages.
In a brokerage firm office, it's common to hear the question "How's the market?" and answer, "Up five dollars", or "Down a dollar". With 1500 common stocks listed on the NYSE, there has to be some easy way to express the price trend of the day. Market averages are a way of summarizing that information.
Despite all competition, the popularity crown still does to an average that has some of the qualities of an antique–the Dow Jones Industrial Average, an average of 30 prominent stocks dating back to the 1890s. This average is named for Charles Dow–one of the earliest stock market theorists, and a founder of Dow Jones & Company, a leading financial news service and publisher of the Wall Street Journal.
In the days before computers, an average of 30 stocks was perhaps as much as anyone could calculate on a practical basis at intervals throughout the day. Now, the Standard & Poor's 500 Stock Index (500 leading stocks) and the New York Stock Exchange Composite Index (all stocks on the NYSE) provide a much more accurate picture of the total market. The professionals are likely to focus their attention on these "broad" mar-ket indexes. But old habits die slowly, and someone calls out, "How's the market?" and someone else answers, "Up five dollars," or "Up five"–it's still the Dow Jones Industrial Average (the "Dow" for short) that they're talking about.
The importance of daily changes in the averages will be clear if you view them in percentage terms. When the market is not changing rapidly, the normal daily change is less than ½ of 1%. A change of ½% is still moderate; 1% is large but not extraordinary; 2% is dramatic. From the market averages, it's a short step to the thousands of detailed listings of stock prices and related data that you'll find in the daily newspaper finan-cial tables. These tables include complete reports on the previous day's trading on the NYSE and other leading exchanges. They can also give you a surprising amount of extra information.
Some newspapers provide more extensive tables, some less. Since the Wall Street Journal is available world wide, we'll use it as a source of convenient examples. You'll find a prominent page headed "New York Stock Exchange Composite Transactions". This table covers the day's trading for all stocks listed on the NYSE. "Composite" means that it also includes trades in those same stocks on certain other exchanges (Pa-cific, Midwest, etc.) where the stocks are "dually listed". Here are some sample entries:
52 Weeks Yld P-E Sales Net
High Low Stock Div % Ratio 100s High Low Close Chg.
52 7/8 37 5/8 Cons Ed 2.68 5.4 12 909 49 3/8 48 7/8 49 1/4 +1/4
91 1/8 66 1/2 Gen El 2.52 2.8 17 11924 91 3/8 89 5/8 90 -1
41 3/8 26 1/4 Mobil 2.20 5.4 10 15713 41 40 1/2 40 7/8 +5/8
Some of the abbreviated company names in the listings can be a considerable puzzle, but you will get used to them.
While some of the columns contain longer-term information about the stocks and the companies, we'll look first at the columns that actually report on the day's trading. Near the center of the table you will see a column headed "Sales 100s". Stock trading generally takes place in units of 100 shares and is tabulated that way; the figures mean, for example, that 90,900 shares of Consolidated Edison, 1,192,400 shares of General Electric, and 1,571,300 shares of Mobil traded on January 8. (Mobil actually was the 12th "most active" stock on the NYSE that day, meaning that it ranked 12th in number of shares traded.)
0 comments:
Post a Comment