From Investopedia

• Hedge funds - Not regulated by the SEC, so they can’t market themselves to the public. Only accredited investors (need to meet certain income and net worth) can invest in them.
• Black-Scholes – A differential equations model used to price options contracts.
  • An option’s price can be influenced by a number of factors, which can be measured using the Greeks.
    • Delta (Δ) - measures the sensitivity of an option’s price relative to the change in the underlying asset’s price. In other words, if the price of the underlying asset increases by $1, the price of the option will change by Δ amount.
    • Gamma (Γ) - represents the rate of change of Delta relative to the change of the price of the underlying asset. Since Delta frequently changes with underlying asset’s price, Gamma provides insights into what to expect from the future. Near at-the-money options have the highest Gamma value.
    • Vega (v) - measures the sensitivity of an option’s price to volatility. If the underlying asset’s volatility increases by 1%, option’s price will increase by v amount.
    • Theta (Θ) - represents the rate of time decay of an option. If the option’s time to maturity decreases by one day, the option’s price will change by Θ amount.
• Bonds vs. Stocks
  • A company can raise money either by borrowing money or by selling company shares.
  • If a company does well, shareholders benefit but bondholders do not. If the company does poorly, the shareholders suffer while bondholders remain the same.
• Bonds - Yields and price are inversely related. If the interest rate goes up, then there are other investment options that pay more than the fixed interest given by the bond, so demand and price both decrease. If interest rates go down, then the value of investments related to interest rates fall. Since bonds that have already been issued will continue to pay the same coupon amount, they are better, driving demand and price up.
  • Duration - is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.
  • Convexity – Convexity is a measure of the curvature, or the degree of the curve, in the relationship between bond prices and bond yields.
• S&P Index - Index is a good indication of large-cap companies. The top 500 companies are weighted by market capitalization. Not necessarily the top 500 market capitalization since other factors are weighed in.
• Dow Jones Index - Includes 30 bluechip companies, which are companies with stable earnings and revenue even in an economic downturn.
• VIX - 30-day projection of volatility/fear.
• Fed Funds Rate - The interest rate that banks charge each other to borrow or lend excess reserves overnight.

A 10-year Treasury is a bond that guarantees interest plus repayment of the borrowed money in a decade. The 10-year Treasury is just one of a handful of securities issued by the U.S. government. Others include:

• Treasury bills, also known as T-bills, are short-term securities, with maturities that range from a few days to 52 weeks. Treasury bills are sold at a discount to their face value, meaning they provide investors with returns by paying them back at the full, not discounted, rate.
• Treasury notes, also known as T-notes, are issued with maturities of two, three, five, seven, and ten years. They pay interest every six months and return their face value at maturity.
• Treasury bonds, also known as T-bonds, are the longest-term government securities, issued for 20 and 30 years. They pay interest every six months and return their face value at maturity.

The 10-year Treasury yield is the current rate Treasury notes would pay investors if they bought them today. Declines in the 10-year Treasury yield generally indicate caution about global economic conditions while gains signal global economic confidence. This is because when people are worried about the economy, they try to find safer investment options like U.S. Treasury securities (since the U.S. government never defaulted on its debts), which drive up demand and price. Since price is the inverse of yield, yield goes down.

WTI Oil - West Texas Intermediate oil serves as a benchmark for the price of oil along with Brent and Dubai Crude.

Copper - A metal, and can be used to indicate the overall strength of the market. The greatest determinants of copper prices are emerging markets, the U.S. housing market, supply disruptions, and substitution.

Latest Employment Data - Released at 8:30 AM EST on the first Friday of every month. However, the data can vary from months to months.

• Product knowledge:
  • CDs (Certificate Deposit) - a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Unlike a savings account, you make a one-time initial deposit and cannot touch it for a certain time period at the benefit of higher interest rates.
  • Interest Rate Swaps - a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount. Usually, it's an exchange between a fixed and floating interest rate. You're betting that you can get a lower interest rate when swapping.
  • Vanilla Options - a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) within a given timeframe (expiry).
    • American Options - can be exercised if it is in the money (when market price > strike price) on or before the expiration date.
    • European Options - requires the option to be in the money on the expiration date in order for it to be exercised.
    • Call options (right to buy) - Buying the option allows you to put less capital at risk since profit is unlimited while the loss is only the premium you paid. Meanwhile, an option seller’s maximum profits are the premiums while their loss is unlimited. Usually, call options are seen as leverage since they are cheaper than stocks.
    • Put options (right to sell) - Often seen as buying insurance on a stock. If you buy a share of a stock and a put option at the same price, then any loss on the stock will be covered by the option since you have the right to sell at the price you bought. Any gain is yours to keep since you just never exercise the option. All you paid is the premium.
  • Asian options - Same as vanilla but uses average price. Rather than market price - strike price, it becomes average price - strike price. There are many ways to calculate the average.
  • Barrier options - A barrier option is a type of derivative where the payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it expires worthless if the underlying exceeds a certain price, limiting profits for the holder and limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price.
  • Corporate Bonds - A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or "reaches maturity," the payments cease and the original investment is returned.
  • MBS (Mortgage Backed Security) - A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments. Basically, you are lending money to home buyers.
  • CDO (Collateralized Debt Obligation) - A collateralized debt obligation (CDO) is a complex structured finance product that is backed by a pool of loans and other assets and sold to institutional investors. A CDO is a particular type of derivative because, as its name implies, its value is derived from another underlying asset. These assets become the collateral if the loan defaults.
  • Index’s - An index is a method to track the performance of a group of assets in a standardized way. Indexes typically measure the performance of a basket of securities intended to replicate a certain area of the market. Like S&P 500 and DJI.
  • Equity - typically referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation. In the case of acquisition, it is the value of the company's sale minus any liabilities owed by the company not transferred with the sale.
  • Futures - are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. The buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date. For example, company A and company B may benefit/suffer differently from a rise or fall in the price. To prevent this volatility, companies A and B can sign a futures contract and fix the price.
  • Forwards - A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. Similar to futures, but
    • It does not trade on an exchange
    • Settled at end of the contract term
    • In future contracts, you bet the change in volatility for profit. In forwards, you hedge the volatility in the underlying asset.

Basics of Choosing Stocks

3 + 1 technique