Used in regression analysis, Kappa represents the ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility. Remember, the price of the option increases simultaneously with the volatility.
A document published by the Internal Revenue Service (IRS) that outlines how to determine the cost basis for investments, real estate and business assets. The basis is used to determine what gain or loss is realized from a sale, and represents the cost of the investment or property. It is also used to determine depreciation and amortization for a piece of property. The basis for a piece of property is typically the purchase cost, however the basis may increase over time if the owner makes improvements to the property. For investments, such as stocks and bonds, the cost basis also includes trading fees. More information on establishing the cost basis for investments can be found in IRS Publication 550.
A reduction in the overall level of economic or business activity. Downswings may be caused by fluctuations in the business cycle or a variety of macroeconomic events. Downswing may also refer to the downward movement in the value of a security following a period of stable or rising prices. Taobiz explains Downswing A downswing is one of many buzzwords related to poor performance in the market. When interest rates rise, the economy will typically experience a downswing. The new rates make it more difficult for businesses to acquire financing, which results in a lower number of new firms and less expansion. A downswing in the stock market or a single security will usually occur after the market has peaked. At this point, a bear market starts to occur as prices swing lower.
The use of an option or other hedging instrument in order to limit or reduce losses in the case of a decline in the value of the underlying security. Downside protection often involves the purchase of an option to hedge a long position. Other methods of downside protection include using stop losses or purchasing assets that are negatively correlated to the asset you are trying to hedge. Taobiz explains Downside Protection An example of downside protection would be the purchase of a put option for a particular stock. If an investor already owns shares and the price of that stock falls, the value of the option will increase and thus limit the total loss exposure.
A document published by the Internal Revenue Service (IRS) that provides information on how investment income and expenses are to be treated when filing taxes. IRS Publication 550 explains what investment expenses are deductible, when gains and losses from the sale of investment property are to be reported and what type of investments are considered taxable. Investors who purchase U.S. property from a foreign individual or firm may be required to withhold income taxes. In addition, U.S. citizens must report income earned on foreign investments, even if a Form 1099 was not issued. This is explained in more detail in IRS Publication 515. Special tax rules apply to employees who exercise stock options. More information is provided in IRS Publication 525.
An option that is sold on a registered exchange, such as the Chicago Board Options Exchange (CBOE) or Euronext. Listed options cover securities such as common stocks, ETFs, market indexes and commodities. All listed options have stated exercise prices and expiration dates. Also known as "exchange-traded options". There are many options contracts that are sold OTC in very illiquid market situations, but such trading is usually limited to the buyers and sellers, and the terms tend to be more variable. There are two types of listed options: American style and European style. The main difference between the two is that American style options can be exercised at any time up to the expiration date, while European style options have a smaller window in which they must be exercised. Most options found on the national exchanges are American style options.
A document published by the Internal Revenue Service (IRS) that provides information on how taxpayers are to treat casualty, theft and other property gains and losses when filing taxes. IRS Publication 547 indicates how insurance payments for losses are to be reported, what constitutes property theft or casualty loss and the amount of loss that can be deducted. Gains and losses caused by some natural disasters, such as floods and hurricanes, may fall under special, temporary rules that allow the taxpayer extra allowances. Taxpayers typically fill out Form 4684 (Casualties and Thefts) when reporting a casualty or theft, but may also need to complete Schedule A, Schedule D or Form 3797 (Sales of Business Property).
A type of share division in which companies issue shares that have differing rights. In a dual class ownership structure, the company can issue two classes of shares, Class A and Class B. These classes may have different voting rights, but they represent the same underlying ownership in the company. Taobiz explains Dual-Class Ownership Often companies that are transitioning from being private to becoming a public companies may use a dual-class structure to maintain control over the company. For example, when Google went public, it issued Class B shares that had no voting rights to ensure that the founders and executives still had control of the company.
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