Operating margin is the percentage of how much money a company makes for every dollar of sales. Also referred to as operating profit margin, the calculation measures what portion of a company’s revenues are left over once items like wages and materials have been paid for. This is an important ratio for investors who buy [...]
Return on Investment Definition – Also referred to as the ROI, it is the calculated performance (or ratio) of the cost associated to purchasing an asset. An easy way to remember the ratio is the percentage gain or loss on any type of investment that is made. The return on investment can be calculated for [...]
An Exchange Traded Fund (ETF) is a security that trades like a stock but offers the diversification of a mutual fund. Exchange traded funds often track a collection of assets such as commodities, indexes, or a group of stocks. These types of securities allow investors to target specific areas of the market. Whether it is [...]
A long call is a bullish option trading strategy used by investors who plan to profit from an increase in the underlying stock price. This type of strategy is initiated when an investor buys one or more call option contracts. If the share price of the stock increases, the long call becomes more valuable. On [...]
A bear call spread is a type of option trading strategy that is used when a decrease in the price of the underlying stock is anticipated. This strategy is implemented by selling call options at a specific strike price and at the same time buying the same number of call contracts at a higher strike [...]
When an option is sold, the buyer pays the seller a onetime nonrefundable amount of money called the option premium. In return for this payment, the buyer owns the right to exercise the option contract before the expiration date. The seller of the contract receives the premium from the buyer and is committed to buying [...]
Stock options that are considered to be in the money are contracts that have a positive intrinsic value. This includes any call option where the strike price is below the current share price of the underlying stock. It also includes any put option where the strike price is above the share price of the stock. [...]
The intrinsic value of an option is the difference between the underlying stock’s share price and the strike price of the contract. This amount is commonly referred to as the in the money portion of the option. If an option has a positive intrinsic value, then it is considered to be in the money. However, [...]
In order for a stock option to be considered in the money, it must be worth exercising. This means that the strike price of the contract must hold more value than the current share price of the underlying stock. Both puts and calls can be considered in the money, however the process of determining this [...]
The expiration date of a stock option is the day in which the contract is no longer valid. Once this date has passed, the contract no longer exists and becomes worthless. This date for all options traded in the U.S. are all set to expire on the third Friday during the expiration month. If this [...]
What does strike price mean on an option contract? It is the price at which an option (put or call) can be exercised. For call options, the strike price is where the underlying stock can be bought by the owner of the contract. A strike price on a put option is where the underlying stock [...]
An edge is essential to trading financial markets. Statistically, an edge is defined as a strategy’s ability to yield positive expectancy over time. If a strategy does not yield positive expectancy over time, then it has no edge. Trading is basically the repetitive act of a trader exercises his edge in the market. Every serious [...]
Dollar cost averaging is an important part of any long term trading strategy for investors who buy stocks. Dividend investors, for example will dollar cost average (DCA) into a stock they already own by setting up a dividend reinvestment plan (DRIP). Employees who contribute to a company sponsored 401k plan every month also dollar cost [...]
Abbott Laboratories (ABT) recently announced they were increasing their dividend by 9%, from $.44 per share to $.48. The company participates in the discovery, development, manufacture, and sale of health care products around the world. It currently operates in four different segments which includes pharmaceutical products, diagnostic products, nutritional products, and vascular products. Some of [...]
When it comes to analyzing stocks, there is more than one flavor of price-to-earnings ratios (P/E). The most common is the trailing P/E, which divides the current share price of a stock by the annual earnings from the past 12 months. This is usually the number that you will see analysts, the media, and most [...]
Want to learn how to calculate earnings per share. Most financial websites already calculate these numbers for investors, but it is still a good idea to learn where they actually come from. Every investor who buys stocks or sells them should at least have a general understanding of how to calculate earnings per share. The [...]
Investors who buy stocks need to understand the difference between preferred shares and common shares offered by corporations. Almost every investor has probably heard of common stock, which is what is usually referenced by analysts and media in the market. While preferred stock is not as common or well-known, it has plenty of advantages over [...]
What does P/E ratio mean? The P/E ratio is short for price-to-earnings ratio and represents the valuation of a company’s current share price to its earnings per share. This financial ratio is one of the most widely used numbers to analyze stocks by analysts and investors in the market today. Most of the time the [...]
An unrealized gain occurs when a stock increases after the investor buys it but has not sold it. The term unrealized refers to the fact the investor still owns the stock and has yet to sell it for a profit. Once the investor sells the asset, it becomes a realized gain, assuming it is worth [...]
There are several ways to buy stock in a company. The most common way investors purchase shares in a company is through a online discount broker. Most online brokers charge very low commissions (usually under $10 per trade) making them a popular choice. Another way to invest in the stock market is by setting up [...]