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Finance GlossaryEquity Options
Equity Options
Definition of Equity Options
An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
Related Terms
Contract Note
A contract note is a compilation of all the trades and transactions made through a stockbroker on a stock exchange. It is a legal record that all recognized stockbrokers must send to traders and investors at the end of each trading day.
High Volatility Stocks
High volatility stocks are shares that fluctuate based on market conditions, typically more than others. The volatility could be a result of inherent fundamentals or other factors like the industry or domain. Identifying high volatility stocks is possible through indicators like Average True Range and Bollinger Bands.
Free Cash Flow
In accounting and earnings reports, free cash flow refers to the amount of money a company has after paying its maintenance expenses, salaries, utility expenses, and other operating expenses as well as capital expenditures.
The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures
Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.
The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures
Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.
Equity Share Capital
The total amount of money that is raised by a company through the issuance of shares is known as equity share capital. Shares issued could be classified as common or preferred shares, both of which are a part of the equity share capital.
In general, share capital is known to be the money raised by issuing shares. Companies have the option of raising more equity share capital by issuing additional shares through a Follow on Public Offer (FPO) or other financing methods.
In general, share capital is known to be the money raised by issuing shares. Companies have the option of raising more equity share capital by issuing additional shares through a Follow on Public Offer (FPO) or other financing methods.
Compounded Annual Growth Rate (CAGR)
Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
Authorized Capital
Authorized capital or authorized share capital is the maximum amount of capital for which shares can be issued by a company to its shareholders.
Or in other words, authorized capital denotes all the shares across all the categories that a company could issue if it wanted to raise money.
Or in other words, authorized capital denotes all the shares across all the categories that a company could issue if it wanted to raise money.
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