Saturday, September 3, 2016

Semester V: Stock Exchange Terms
16.   Short Covering: Short covering is buying back borrowed securities in order to close an open short position. Short covering refers to the purchase of the exact same security that was initially sold short, since the short-sale process involved borrowing the security and selling it in the market. Short Covering means the buying of securities, stocks, or commodities in order to close out a short sale. The purchase of securities or commodities by a short seller to meet delivery requirements is known as Short Covering.   
Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price. For example, assume you sold short 100 shares of XYZ at $20 per share, based on your view that the shares were headed lower. When XYZ declines to $15, you buy back 100 shares of XYZ in the market to cover your short position (and pocket a gross profit of $500 from your short trade).  
17.   Ban on Trading: It is a partial or complete prohibition on commerce and trade with a particular country. When a board member, alternate board member, managing director, deputy managing director, auditor and deputy auditor in a listed company or its parent company as well as related parties of these persons are not allowed to trade in shares in the company 30 days prior to the publishing of regular interim reports, it is known as a ban on trading.
18.   Replacement Buying: Here replacement buying means an investment strategy that attempts to minimize the returns of a certain asset or group of assets by using a combination of different derivatives rather than buying the individual shares in the market. Traders will attempt to profit from the leverage found in options and futures because they can provide any type of exposure to the underlying asset for lower cost than if the trader were to buy the underlying assets outright.

19.   Option Trading: An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.           Option is basically an instrument that is traded at the derivative segment in stock market. Option is a contract between the buyer and seller to buy or sell one or more lot of underlying asset at a fixed price on or before the expiry date of the contract. While buying an option contract the buyer has the right to exercise the option within the stipulated time period but he or she is not bound to exercise that option. On the other hand if the buyer is willing to exercise the option the seller is bound to honor that contract. In option trading the price that is agreed up on for trading is called the strike price and the date on which the option contract is going to expire is called the expiration time or expiry. There can be different underlying assets for which options are traded including stocks, index, commodity, derivative instrument like the future contract and so on.
The two types of options are calls and puts:
1. Call Option: A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.
2. Put Option: A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.
20. Circuit filters: Circuit filters are price bands imposed by the Securities Exchange Board of India (SEBI) to restrict the movement of stock prices (up or down) of listed securities. When the stock price crosses a stipulated price band as decided by stock exchanges, trading in that particular stock is suspended as per requirement i. e. from half an hour to even an entire day. Circuit breakers are applied only on equity and equity derivative markets. Whenever the major stock indices like BSE Sensex and Nifty cross the threshold level, SEBI rules require that the trading at the stock exchange be stopped for a certain period of time. Circuit filter also protects investors from extreme price fluctuation. The time frame for which trading is stopped depends upon the time and amount of movement in the indices. The idea is to allow the market to cool down and resume trading at normal levels. For example, if you have a share price of Rs 100, and there is a circuit breaker of 10%, it will stop trading if the share price goes above Rs 110. Similarly if the stock price drops below Rs 90, the lower end circuit filter is applied and trading is suspended. In short, the objective of circuit breakers is to control the stock markets at times when they move beyond reasonable limits.
21. Bear: An investor, who believes that a security, a sector, or the overall market is about to fall. A speculator, who sells shares expecting the prices to fall, is called a bear. He buys them when the prices fall further with a view to making profit. It is the opposite of bull. An operator who believes that prices are likely to go down is called a bear operator. Further an operator who is short of shares or stocks is also called a short.
A bear is an investor who believes that a particular security or market is headed downward and attempts to profit from a decline in prices. Bears are generally pessimistic about the state of a given market. For example, if an investor were bearish on the Standard & Poor's (S&P) 500, he would attempt to profit from a decline in the broad market index.
22. Bear Covering: Bear Covering is a point in a market where dealers who sold stock short, now buy back at lower prices to cover their positions. When the bear operators feel that the prices might go up, they try to adjust their selling at the minimum loss or sometimes even at a loss.
23. Bull: An investor who believes that a particular security, a sector, or the overall market is about to rise. A bull is a speculator who deals in with the expectation that the prices of shares will go up. He buys shares at low prices with the intention of selling them at increased prices before pay day. It is the opposite of bear. An operator who believes that the prices are bound to go up is known as a bull. Only a holder of shares or securities can become a bull.
24. Capital Goods Shares: A distinct subset of a market, society, industry, or economy, whose components share similar characteristics. Stocks are often grouped into different sectors depending upon the company's business. Standard & Poor's breaks the market into 11 sectors. Two of these sectors, utilities and consumer staples, are said to be defensive sectors, while the rest tend to be more cyclical in nature. The other nine sectors are: transportation, technology, health care, financial, energy, consumer cyclical, basic materials, capital goods, and communications services. Other groups break up the market into different sector categorizations, and sometimes break them down further into subsectors.
25. Sustained loading: Put more stress on share on continuous process of share loading.
26. Disinvestment Selling: The term ‘Disinvestment’ is the opposite of ‘Investment’. It is a process of selling an asset. When investors are selling their stocks in the market to realise their profits, it is said to be disinvestment selling. In business, disinvestment selling means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line. Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. In the case of disinvestment selling an earning asset is converted into liquid asset. Stock exchange disinvestment selling means the sale of shares of public sector undertakings by the government or the selling of shares of the organisations for making profit. In most cases, the primary motivation behind corporate or government disinvestments is the optimization of resources to deliver maximum returns. Disinvestments may also be undertaken for political or legal reasons. Firms may have several motives for disinvestment selling: no core operations, generation of funds, dominance of liquidation values etc.

27. Reserve Repo Rate: Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country. An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market. Reverse Repo Rate is the short term borrowing rate at which RBI borrows money from banks. The Reserve bank uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI. As a result, banks prefer to lend their money to RBI which is always safe instead of lending it others (people, companies etc) which is always risky.