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Finance GlossaryDefensive Stock
Defensive Stock
Definition of Defensive Stock
A defensive stock refers to the shares of iconic companies that generate stable and consistent returns and dividends, regardless of the market conditions.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Related Terms
Exponential Moving Average
Exponential Moving Average (EMA) is a technical indicator used to follow price trends over a specific period of time. EMA assigns more weight to recent prices than older prices. The formula to calculate EMA is:
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Option Chain
An Option Chain is the complete list of all the options contracts, both calls and puts, for a given underlying security, across a wide range of expiration dates and strike prices. It shows real-time data of bid price and ask price, trading volume, and open interest for each contract. Traders use the option chain to analyse market depth and identify where the most trading activity is concentrated (often suggesting potential support and resistance levels).
Futures Expiry
Futures expiry is the date on which the derivative contract’s terms and conditions must be fulfilled. Alternatively, it’s the day on or before which the trader must square-off their futures contract to avoid delivery. In India, futures expire on the final Thursday of the expiry month.
Commodity Options
A commodity option is a contract that gives the buyer or seller the right but not the obligation to execute a trade for a commodity like copper, cotton, zinc, and others at a pre-agreed price and date. Commodity options are derivative contracts that require a trader to pay a premium in order to secure the “option”.
Adjusted Closing Price
The adjusted closing price of stock accounts for any changes that happen due to corporate actions like dividends, stock splits, and others after trading hours.
Red Herring Prospectus
A Red Herring Prospectus (RHP) is a preliminary offer document filed with SEBI when a company plans to go public through an IPO, outlining the company’s business, financials, risks, management, and most issue details. It does not include the final offer price or the exact number of shares being issued. It is marked with a bold red disclaimer indicating that certain key information like price and share count is incomplete or subject to change, and it helps investors assess the company before subscription. Once the offer price and share details are finalised (usually after book-building), the final prospectus with complete priced details is issued for public use.
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