A theory that states that during periods of recession or economic downturn, consumers will eschew purchases of big-ticket luxury items and seek material solace in smaller indulgences, such as premium lipstick. Also known as the "leading lipstick indicator". The lipstick effect is one of the reasons that the restaurant and entertainment industries typically do well amid recessions. Cash-strapped consumers want to treat themselves to something that will allow them to forget their financial problems, but they cannot afford to escape to Bermuda. Therefore, they often settle for dining out and going to a movie.
The amount of time that an investor believes is left until it would no longer be beneficial to exercise an option early, or the likelihood that an American-style option will be used before it expires. The fugit concept was named and created by Mark Garman, a Berkeley professor who studied the optimal time for exercising an American option using binomial trees. Unless an option is deep in the money, it should not be exercised early because this causes a loss of inherent value. Some investors find it profitable to exercise call options early when they are in the money or right before an ex-dividend date.
An economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100. |||Production data is often received directly from the Bureau of Labor Statistics and trade associations, both on physical output and inputs used in the production process. Each individual index is calculated using the Fischer index formula.Investors can use the IPI of various industries to examine the growth in the respective industry. If the IPI is growing month-over-month for a particular industry, this is a sign that the companies in the industry are performing well.
An attempt by a country's monetary authorities to influence exchange rates and its money supply by not buying or selling domestic or foreign currencies or assets. This is a passive approach to exchange rate fluctuations, and allows for fluctuations in the monetary base. |||If the central bank purchases domestic currency by selling foreign assets, the money supply will shrink because it has removed domestic currency from the market; this is an example of a sterilized policy. An unsterilized policy allows for the foreign-exchange markets to function without manipulation of the supply of the domestic currency; therefore, the monetary base is allowed to change.
A type of options spread in which a trader holds more short positions than long positions. This type of spread has unlimited risk of loss while also limiting profit potential. This type of trade is often implemented by professional traders who believe that the price of an underlying asset will make a calculated move higher or that volatility will decrease. Also known as a "ratio vertical spread". An example of a frontspread is known as a "Christmas tree", which is achieved by purchasing one call option and selling two other call options at two higher strike prices. These types of trades have unlimited downside risk due to the extra short call option and should only be attempted by professional traders.
Seed money or capital given by family or friends to an entrepreneur to start a business. The decision to lend money and the terms of the agreement are usually based on qualitative factors and the relationship between the two parties, rather than on a formulaic risk analysis. Love money is usually given to entrepreneurs who have proved their responsibility to close family and friends over the years, but who fail to meet the the capital requirements that financial institutions look for in borrowers. An angel investor's love money is sometimes the only way a business can get off the ground; this type of financing can allow for growth that would be impossible through traditional financing channels.
An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs. Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer's income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible. SEPs and SIMPLEs are retirement plans established by employers. Individual participant contributions are made to SEP IRAs and SIMPLE IRAs. Also referred to as "individual retirement arrangements." |||With the exception of Roth IRAs, where eligible distributions are tax-free, eventual withdrawal from an IRA is taxed as income; including the capital gains. Because income is likely to be lower after retirement, the tax rate may be lower. Combined with potential tax savings at the time of contribution, IRAs can prove to be very valuable tax management tools for individuals. Also, depending on income, an individual may be able to fit into a lower tax bracket with tax-deductible contributions during his or her working years while still enjoying a low tax bracket during retirement.
A fee that a mutual fund manager pays to a salesperson who sells the fund to investors. The trailer fee pays the salesperson for providing the investor with ongoing investment advice and services.Also known as a "trailer commission". It is important to know whether your mutual fund salesperson is receiving a trailer fee because it may cause him or her to try to sell you a particular fund not because it is a good investment but because selling it to you will make him or her money. This fee is paid annually for as long as the investor holds shares in the fund.
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