The Practical Guide to Wall Street: Equities and Derivatives (Wiley Finance)

The Practical Guide to Wall Street: Equities and Derivatives......Page 0
Contents......Page 7
Preface......Page 13
NEW HIRES......Page 14
EXPERIENCED PROFESSIONALS......Page 16
WHY DO WE NEED ANOTHER FINANCE BOOK?......Page 17
OVERVIEW OF CONTENTS......Page 18
LAYOUT......Page 19
A Comment on the Events of 2008......Page 23
Acknowledgments......Page 25
Part I: What Is a Stock?......Page 27
INTRODUCTION......Page 29
EQUITY AND CORPORATION......Page 30
INTRODUCTION TO FINANCIAL STATEMENTS......Page 31
THE BALANCE SHEET......Page 32
THE INCOME STATEMENT......Page 41
MEASURES OF PROFITABILITY......Page 45
STATEMENT OF CASH FLOWS......Page 46
SUMMARY......Page 50
INTRODUCTION......Page 53
FINANCIAL RATIOS......Page 54
THE DUPONT DECOMPOSITION......Page 59
GROWTH AND VALUE......Page 64
BLOOMBERG......Page 65
VALUATION......Page 66
TECHNICAL ANALYSIS......Page 77
CORPORATE ACTIONS......Page 80
SUMMARY......Page 90
Part II: Products and Services......Page 93
HOW A STOCK EXCHANGE FUNCTIONS......Page 95
EXCHANGE STRUCTURE......Page 102
ORDER TYPES......Page 107
HOW THE CASH TRADING BUSINESS WORKS......Page 128
COMMUNICATION......Page 138
PURCHASING A STOCK IN A FOREIGN CURRENCY......Page 141
SUMMARY......Page 147
INTRODUCTION......Page 149
INDEX CONSTRUCTION......Page 151
WHAT AN INDEX DOESN’T TELL US......Page 155
VALUATION AND CALCULATION......Page 157
REPLICATING PORTFOLIO......Page 160
TRADING AN INDEX PORTFOLIO......Page 162
INDEX CHANGES......Page 165
INDEX DIVIDEND POINTS......Page 168
TOTAL RETURN INDEX CALCULATION......Page 170
MULTICURRENCY INDICES......Page 171
EQUITY INDICES IN PRACTICE......Page 173
THE RUSSELL REBALANCE......Page 177
INTERNATIONAL INDICES......Page 182
SUMMARY......Page 191
INTRODUCTION......Page 193
EXPLANATION OF A SAMPLE TRADE......Page 199
WHEN IS PROGRAM TRADING MORE BENEFICIAL?......Page 208
PORTFOLIO ANALYTICS......Page 210
TRANSITION MANAGEMENT......Page 215
PRINCIPAL TRADES......Page 217
SUMMARY......Page 227
INTRODUCTION......Page 229
TRADING MECHANICS......Page 231
NET ASSET VALUE (NAV)......Page 233
POPULARITY......Page 234
TRADING VERSUS HOLDING......Page 238
SUMMARY......Page 240
INTRODUCTION......Page 243
CALCULATION OF FAIR VALUE......Page 245
FUTURES......Page 249
INDEX ARBITRAGE......Page 259
THE FUTURES ROLL......Page 266
EXCHANGE FOR PHYSICAL (EFP)......Page 271
EFP SUMMARY......Page 278
BASIS TRADES......Page 280
BASIS TRADE SUMMARY......Page 284
FUTURES CONTRACTS IN PRACTICE......Page 285
TECHNICAL COMMENT ON THE ACCURACY OF APPROXIMATIONS......Page 289
SUMMARY......Page 290
MOTIVATION FOR A SWAP......Page 293
A LONG EQUITY SWAP EXAMPLE......Page 295
THE SWAP IN DETAIL: DEFINITIONS AND TERMINOLOGY......Page 298
CALCULATION OF PAYMENTS......Page 303
SHORT SWAP......Page 305
BACK-TO-BACK SWAPS......Page 306
SWAPS AS A TRADING TOOL......Page 307
A COMMENT ON HEDGING......Page 312
SWAP VALUATION: ACCRUAL VERSUS NPV......Page 313
CURRENCY EXPOSURE......Page 315
ISDA......Page 319
RISKS AND OTHER CONSIDERATIONS......Page 320
SUMMARY......Page 322
INTRODUCTION......Page 325
DEFINITIONS AND TERMINOLOGY......Page 326
PAYOFF STRUCTURE......Page 327
OPTION VALUES PRIOR TO MATURITY......Page 337
GRAPHING CONCEPTS......Page 348
QUANTITATIVE CONSIDERATIONS......Page 349
THE BLACK-SCHOLES DERIVATION......Page 352
WHY DOES VOLATILITY GROW WITH THE SQUARE ROOT OF TIME?......Page 355
TYPES OF VOLATILITY......Page 363
SUMMARY......Page 367
VOLATILITY TRADING......Page 369
VOL TRADER MEETS DIRECTIONAL TRADER: HOW DID WE BOTH LOSE MONEY?......Page 379
OPTION SENSITIVITIES: THE “GREEKS”......Page 380
ON GAMMA......Page 388
THETA AND GAMMA—KICKING THE DEAD HORSE......Page 394
IMPLIED VOLATILITY REVISITED......Page 400
OTC AND EXOTIC OPTIONS......Page 403
SUMMARY......Page 409
INTRODUCTION......Page 411
ORGANIZATION OF THE SALES AND TRADING BUSINESSES......Page 412
OTHER GROUPS......Page 416
LICENSING AND REGISTRATION: REGULATION OF THE FINANCIAL SERVICES INDUSTRY......Page 423
SUMMARY......Page 430
Part III: Economics......Page 431
INTRODUCTION......Page 433
OVERVIEW OF MACROECONOMICS......Page 434
THE FED......Page 443
MOVING BEYOND THE BIG THREE: OTHER MACROECONOMIC CONCEPTS......Page 450
OTHER VARIABLES......Page 452
A FINAL OBSERVATION......Page 454
SUMMARY......Page 455
INTRODUCTION......Page 457
PRELIMINARY DEFINITIONS......Page 459
PRINCIPAL U.S. ECONOMIC INDICATORS......Page 462
HOUSING, CREDIT, AND THE FED......Page 465
REST OF THE WORLD ECONOMICS......Page 482
EUROPE......Page 483
EUROPEAN ECONOMIC STATISTICS......Page 488
ASIA......Page 492
THE MARKET’S REACTION FUNCTION......Page 497
WHAT THE MARKET TELLS US ABOUT THE ECONOMY......Page 502
SUMMARY......Page 506
INTRODUCTION......Page 507
FUNCTIONS......Page 508
COMPOUND INTEREST AND EXPONENTIAL GROWTH......Page 509
CALCULUS......Page 513
RANDOM VARIABLES, PROBABILITY, AND STATISTICS......Page 520
SUMMARY......Page 531
Notes......Page 533
About the Author......Page 545
Index......Page 547