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					Careers in Finance for non-MBA
      Graduate Students


    Scott Stallings, Associate Director
   MBA Career Management (MBACM)
               September 2005




             MBA Career Management        1
Investment Banking 101




      MBA Career Management   2
League Table Rankings-
Second Quarter 2005, Mergers & Acquisitions, Financial Advisors




                        MBA Career Management                     3
Investment Banking- Bulge Bracket



•   Merrill Lynch
•   Morgan Stanley
•   Goldman Sachs
•   Citigroup
•   Lehman Brothers
•   Credit Suisse First Boston
•   J.P. Morgan Chase




                      MBA Career Management   4
Understanding Bank Mergers

Investment banking has witnessed a rash of cross-industry mergers and
acquisitions in recent times. These mergers have only added to the
downward pressure on employment in the industry, as merged institutions
make an effort to eliminate redundancy.


   M&A activity in recent years:

• First Boston and Donaldson, Lufkin & Jenrette (“DLJ”) were both
  acquired by Credit Suisse
• J.P. Morgan and Hambrecht & Quist were acquired by Chase,
  which then acquired Banc One
• Robertson Stephens was acquired by FleetBoston, which was
  acquired by Bank of America
• Alex. Brown and Bankers Trust were acquired by Deutsche
  Bank
• SBC Warburg acquired Dillon Read, which was then acquired
  by UBS

                           MBA Career Management                          5
Investment Banking- Boutiques



    Niche firms that focus on a particular industry, such as technology, or a
    specific geography, such as the Southeast.

    Many boutiques recruit at Wharton including:

•   Harris Williams
•   Miller Buckfire
•   Houlihan Lokey Howard & Zukin
•   Dresdner Kleinwort Wasserstein
•   Greenhill
•   Broadview/Jefferies
•   Sagent Advisors

    In addition, many more firms do not interview on campus, but will post
    on the Wharton Job Board



                             MBA Career Management                              6
Investment Banking- Boutiques




Advantages to working at a boutique:
• Greater exposure to deals
• More opportunity for promotion?
Disadvantages to working at a boutique:
• Smaller deals
• Perceived lack of prestige




                 MBA Career Management    7
Investment Banks Seeking Full-Time Recruiting at
Penn

Banc of America Securities   Gordian Group, LLC          Peter J. Solomon Company
Barclays Capital             Greenhill & Co, Inc.        Piper Jaffray & Co.
Bear, Stearns & Co. Inc.     Harris Williams & Co.       Putnam Lovell NBF
Blackstone Group LP, The     Houlihan Lokey              Raymond James
Brown Gibbons Lang           HSBC                        RBC Capital Markets
CIBC World Markets           J.P. Morgan                 Rothschild Inc.
Citigroup                    Jefferies./Broadview        Sagent Advisors
Credit Suisse First Boston   Legg Mason                  Thomas Weisel Partners
Deutsche Bank                Lehman Brothers             UBS Investment Bank
Dresdner Kleinwort           Lincoln Partners            Wachovia Securities
Evercore Partners            Merrill Lynch & Co., Inc.
FINANCO, Inc.                Montgomery & Co. LLC
Goldman Sachs & Company      Morgan Stanley
Goldsmith Agio               Nomura Securities




                             MBA Career Management                                  8
Private Equity 101




   MBA Career Management   9
“What is Private Equity”


• Volunteers?
   – (this is a good question to know if interviewing with P/E
      funds)
• #1 – General Partner (GP) raises a fund of illiquid capital
   – $500M to be spent over seven years
• #2 – Investors (Limited Partners / LP’s) often sophisticated
  institutions (pensions / insurance / finance) or wealthy families
• #3 – GP utilizes unique knowledge / relationships / strategy to
  invest in companies / securities
• #4 – GP guarantees a minimum return to LP’s after which GP
  splits profits with LP (often 20% / 80%)




                         MBA Career Management                        10
Fund Basics


• GP person / group with proven track record to attract investors
• GP writes fund documents explaining investment strategy, how
  much they wish to raise, who else is on the team
• GP meets with LP’s or increasingly with LP’s advisors
• LP’s “commit” specific dollars for specified period
• Fund Economics: 1.5% and 8% and 20% / 80% split
   – 1.5% of fund size as annual management fee ($500M fund
     has $7.5M / year to pay employees, rent offices, travel, etc.)
   – 8% annual return hurdle on money drawn for investments
   – 20% / 80% split on profits above 8% return
       • This 20% is known as “carried interest”




                         MBA Career Management                        11
        Private Equity – Summary




                                                                                                                                 "Hedge
               "Angel"        "Venture Capital"         "Growth"             "Buyouts"              "Distressed Investing"
                                                                                                                                 Funds"

                                        2nd & 3rd       Emerging     Leveraged      Mezzanine      Distressed    Distressed
                Seed       1st Round                                                                                           Hedge Funds
                                         Round           Growth       Buyouts         Debt           Equity         Debt

Age of
                0 years     0-1 year     1-3 years      3-10 years   10-50 years    10-50 years    10-50 years   10-50 years     5+ years
Company

                                                        2nd or 3rd
Stage of                               1st generation                Established,   Established,
                 Idea      Prototype                    generation                                  Stressed      Stressed        Public
Company                                    product                   slow growth    slow growth
                                                         product

Public or                                               Private or    Private or     Private or     Private or    Private or
                Private     Private       Private                                                                                 Public
Private?                                                 Public        Public         Public         Public        Public

Equity
               $0.2-0.5m     $1-2m        $2-5m          $5-20m      $10 - 250m     $10 - 250m     $10 - 250m    $10 - 250m        N/A
Requirement

Return
                70%+        50-70%        50-60%         40-50%        25-40%         20-30%        30-50%        30-40%           20%
Expectations




                                                    MBA Career Management                                                                   12
Simple LBO Example




• LBO’s are just like buying a house
   – Minimal down payment (20%)
   – Significant leverage / debt (80%)
   – Cash flow (your wages / company earnings) must meet debt
     payments
   – Asset (house / company) should increase in value during
     holding period (home improvements / company is more
     profitable)
   – Minimal initial investment yields significant gain




                      MBA Career Management                     13
Simple LBO Example

•   Buy a house / company for $100
     – Minimal down payment ($20)
     – Significant leverage / debt ($80)
     – Cash flow (your wages / company earnings) must meet debt
       payments
     – Over three years mortgage / debt payments reduce principal to $75
     – Over 3 years value of the house / company rises to $125
     – Sell company for $125
     – Subtract $75 of debt
     – $50 profit on $20 investment in three years
     – 8% annual hurdle on $20 is $25 at end of year three when I sell
     – $50 profit - $25 to LP’s = $25 left to split
     – 20% to GP ($5) and 80% to LP’s ($20)




                           MBA Career Management                           14
Investment Management 101




       MBA Career Management   15
Variety of Asset Managers

•   Individuals
     –   Small Mutual Funds
     –   Family/Individual Managers
     –   Private Client Services/Private Wealth Management

•   Group of Individuals/institutions
     –   Mutual Funds (independent companies/investment banks)
     –   Hedge Funds (independent companies/investment banks)

•   Investors (individuals/institutions)
     –   Insurance Companies
     –   Educational Institutions/Not-for-Profits
     –   Public Companies
     –   Pension Funds

•   Advisors
     –   Investment Banks (Equity Research)
     –   Fund-of-funds
     –   Consulting Companies
     –   Rating Agencies




                                       MBA Career Management     16
Defining the “Investment Management” Industry

• Investment Management covers a broad spectrum of sectors:
   – Mutual Funds – create funds otherwise known as portfolios of stocks
      or bonds which will be benchmarked against a chosen index, and
      performance is relative to the index. The funds are then marketed to
      individuals or institutions. This is commonly known as the buy-side.
   – Hedge Funds – raise capital from high net worth individuals and
      institutions, rather than the public. The emphasis here is on absolute
      performance due to the incentive fee structure (20% of profits). A
      variety of investing styles are used in order to achieve this return and to
      manage the risk involved.
   – Investment Banks - offer investors access to both mutual funds as well
      as hedge funds. Many investment banks will also run Proprietary
      Trading Desks or Risk Arbitrage Groups which function similarly to
      hedge funds. They will also offer Research to Investors and this is
      known as the sell-side. Finally they will offer to manage the assets of a
      high net worth individual, and this is known as Private Client Services.
   – Insurance/Public Institutions/Rating Agencies – as investors in
      mutual funds and hedge funds, they will research companies to insure
       profitable investments, and they will create their own mutual funds.

                                MBA Career Management                               17
Career Paths within Investment Management

•   Mutual Fund/Hedge Fund
     – Analyst: analyze companies by industry, sector, etc using modeling,
        interviewing, etc. and make recommendations for stocks to be included or
        not from portfolios.
     – Portfolio Manager: Manage a portfolio of stocks insuring that they will
        outperform a benchmark while managing the risk.
     – Director of Research
     – Chief Investment Office
•   Equity Research – Investment Bank (Sell Side Research)
     – Analyst: analyze companies by sectors using modeling, interviewing, etc.
        and make recommendations to the mutual funds or hedge funds to buy or
        sell the stocks.
     – Sell side analysts act as service providers rather than principals
•   Private Wealth Management
     – Associate: research individual’s assets and offer them products and
        services to increase their assets. Very entrepreneurial as the goal is to
        build up a “book” of clients.
                               MBA Career Management                                18
    What are the Key Skills Recruiters Look For?

•   Strong academic track record, quantitative skills
•   Leadership
•   Teamwork
•   Analytical problem solving skills
•   Ability to drive change/make positive impact
•   Project Management
•   Strong oral communication skills/presence
•   Client relationship/management skills
•   Evidence of interest in the industry/function of private equity
•   Diverse, interesting person (airport test)
•   In some but not all cases, relevant industry/functional experience


     Keep these skills in mind as you network, develop your
     resume and write your cover letters!

                            MBA Career Management                        19
Addendum: Hedge Fund Glossary                                                           A-B

A
    Arbitrage: The simultaneous purchase and sale of similar commodities in different markets to take advantage of price discrepancy.
    Asset Allocation: Investing your assets in such a way as to build an investment portfolio that minimizes risk while maximizing return.
    Associated Person (AP): An individual who solicits orders, customers or customer funds (or who supervises persons performing such duties) on behalf
    of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor or a Commodity Pool Operator.
    At-the-Market: An order to buy or sell at the best price possible at the time an order reaches the trading pit.
    At-the-Money: In options, when the strike price equals the price of the underlying futures.

B
    Basis: The difference between the price of a futures contract and the underlying commodity's spot (or cash) price.
    Bear: Someone who thinks market prices will decline.
    Bear Market: A period of declining market prices.
    Bid: A trade, subject to immediate acceptance, made on the floor of an exchange to buy a definite number of futures contracts at a specified price.
    Broker: A person or organization that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.
    Brokerage Fee: A fee charged by a broker for executing a transaction.
    Brokerage House: A person or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or
    other assets from customers to support such orders. Also referred to as "commission house" or "wire house."
    Bull: Someone who thinks market prices will rise.
    Bull Market: A period of rising market prices.
    Buy on Close: To buy at the end of the trading session at a price within the closing range.
    Buy on Opening: To buy at the beginning of a trading session at a price within the opening range.




                                                     MBA Career Management                                                                                    20
Hedge Fund Glossary                                                                                                           C

C
    Call Option: An option that gives the buyer the right, but not the obligation, to purchase (go "long") the underlying futures contract at the strike price
    on or before the expiration date.
    Cash Commodity: The actual physical product on which a futures contract is based. This product can include agricultural commodities, financial
    instruments and the cash equivalents of index futures.
    Cash Market: A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc. Spot usually refers to a cash market price for a
    physical commodity that is available for immediate delivery. A forward contract is a cash contract in which a seller agrees to deliver a specific cash
    commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.
    Cash Settlement: Transactions generally involving index-based futures contracts that are settled in cash based on the actual value of the index on the
    last trading day, in contrast to those that specify the delivery of a commodity or financial instrument.
    Clearing Corporation: An independent corporation that settles all trades acting as a guarantor for all trades cleared by it, reconciles all clearing
    member firm accounts each day to ensure that all gains have been credited and all losses have been collected, and sets and adjusts clearing member firm
    margins for changing market conditions.
    Clearing Margin: An amount of money deposited by both buyers and sellers of futures contracts and by sellers of options contracts to ensure
    performance of the terms of the contract (the making or taking delivery of the commodity or the cancellation of the position by a subsequent offsetting
    trade). Margin in commodities is not a down payment, as in securities, but rather a perfomance bond.
    Clearing Member: A member of an exchange clearinghouse. Memberships in clearing organizations are usually held by companies. Clearing members
    are responsible for the financial commitments of customers that clear through their firm.
    Clearinghouse: An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and
    maintaining margin monies, regulating delivery, and reporting trading data. Clearinghouses act as third parties to all futures and options contracts; i.e.,
    acting as a buyer to every clearing member seller and a seller to every clearing member buyer.
    Close: The period at the end of the trading session officially designated by the exchange during which all transactions are considered made "at the
    close."
    Closing Price: The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm's net gains or losses, margin
    requirements, and the next day's price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the
    settlement price is determined by averaging those prices. Also referred to as settlement or settlement price.
    Commission Fee: A fee charged by a broker for executing a transaction. Also referred to as brokerage fee.




                                                     MBA Career Management                                                                                       21
Hedge Fund Glossary                                                                                  C

  Commission House: An organization that solicits or accepts orders to buy or sell futures contracts or options on futures and
  accepts money or other assets from customers to support such orders. Also referred to as "wire house."
  Commodity Futures Trading Commission (CFTC): A federal regulatory agency established under the Commodity Futures
  Trading Commission Act, as amended in 1974, that oversees futures trading in the United States. The commission is
  comprised of five commissioners, one of whom is designated as chairman, all appointed by the President subject to Senate
  confirmation, and is independent of all cabinet departments.
  Commodity Pool: An enterprise in which funds contributed by a number of persons are combined for the purpose of trading
  futures contracts or commodity options.
  Commodity Pool Operator: A person or organization that operates or solicits funds for a commodity pool.
  Commodity Trading Advisor: A person or organization that, for compensation or profit, directly or indirectly advises others
  as to the value or the advisability of buying or selling futures contracts or commodity options. Advising indirectly includes
  exercising trading authority over a customer's account as well as providing recommendations through written publications or
  other media.
  Consumer Price Index (CPI): A major inflation measure computed by the U.S. Department of Commerce. It measures the
  change in prices of a fixed market basket of some 385 goods and services in the previous month.
  Convergence: A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the
  futures contract nears expiration.
  Cross Hedge: When a cash commodity is hedged by using futures contracts based on another commodity.
  Current Yield: The ratio of the coupon to the current market price of the debt instrument.




                                          MBA Career Management                                                                   22
Hedge Fund Glossary                                                                                                                      D-F

D
    Daily Trading Limit: The maximum price range set by the exchange each day for a contract.
    Day Orders: Orders at a limited price which are understood to be good for the day unless expressly designated as an open order or "good-till-canceled" order.
    Day Traders: Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.
    Delivery: The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for
    delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.
    Delivery Month: A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month.
    Delta: A measure of how much an option premium changes, given a unit change in the underlying futures price. Delta often is interpreted as the probability that the
    option will be in-the-money by expiration.
    Discount Rate: The interest rate charged on loans by the Federal Reserve Bank.
    Diversification: Achieved by mixing your assets between various types of stocks, bonds and other investment vehicles, such as alternative investments like managed
    futures, in an attempt to minimize your risk while attempting to maximize your returns. Diversification is no guarantee of a successful investment portfolio.
E
    Euro: The name for the composite monetary unit that has replaced national currencies in several European countries. It was introduced in January 1999 and went into
    general circulation in January 2002.
    Eurodollars: U.S. dollars on deposit with a bank outside of the United States and, consequently, outside the jurisdiction of the United States. The bank could be either
    a foreign bank or a subsidiary of a U.S. bank.
F
    Federal Funds: Member bank deposits at the Federal Reserve; these funds are loaned by member banks to other member banks.
    Federal Funds Rate: The rate of interest charged for the use of federal funds.
    Federal Reserve System: A central banking system in the United States, created by the Federal Reserve Act in 1913, designed to assist the nation in attaining its
    economic and financial goals. The structure of the Federal Reserve System includes a Board of Governors, the Federal Open Market Committee and 12 Federal Reserve
    Banks.
    Financial Futures: Futures contracts based on interest rate instruments (T-bonds, T-bills, etc.), foreign currencies and indicies.
    Financial Instrument: There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back funds with interest; and (2) an equity security,
    which is a share or stock in a company.




                                                          MBA Career Management                                                                                                23
Hedge Fund Glossary                                                                                                       F-G

    Floor Broker (FB): An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market
    for any other person.
    Floor Trader (FT): An individual who executes trades for the purchase or sale of any commodity futures or options contract on any contract market
    for such individual's own account.
    Foreign Exchange Market: An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means
    of communication. Also referred to as the forex market.
    Forex Market: An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of
    communication. Also referred to as the foreign exchange market.
    Forward Contract: A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward
    contracts, in contrast to futures contracts, are privately negotiated and are not standardized.
    Fundamental Analysis: An approach to market forecasting that emphasizes the analysis of factors affecting supply and demand (opposite of technical
    analysis).
    Futures Commission Merchant (FCM): A person or organization that solicits or accepts orders to buy or sell futures contracts or options on futures
    and accepts money or other assets from customers to support such orders. Also referred to as "commission house" or "wire house."
    Futures Contract: A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument
    sometime in the future. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity. The
    only variable is price, which is discovered on an exchange trading floor.
    Futures Exchange: A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures
    contracts.
    Futures Funds: Usually limited partnerships or trusts for investors who prefer to participate in the futures market by buying units in a fund managed
    by professional traders or commodity trading advisors.

G
    Gross Domestic Product: The value of all final goods and services produced by an economy over a particular time period, normally a year.
    Gross National Product: Gross Domestic Product plus the income accruing to domestic residents as a result of investments abroad less income
    earned in domestic markets accruing to foreigners abroad.




                                                    MBA Career Management                                                                                   24
Hedge Fund Glossary                                                                                                          H-I

H
    Hedge: A sale of futures contracts to offset the ownership or purchase of the underlying cash commodity in order to protect it against adverse price
    moves; or, conversely, a purchase of futures contracts to offset the sale of the underlying cash commodity, again for protection against adverse price
    moves.
    Hedger: A person or organization owning or planning to own a cash commodity - corn, soybeans, wheat, U.S. Treasury bonds, notes, bills, etc.- and
    concerned that the cost of the commodity may change before either buying or selling it in the cash market. A hedger achieves protection against
    changing cash prices by purchasing (or selling) futures contracts of the same or similar commodity and later offsetting that position by selling (or
    purchasing) futures contracts of the same quantity and type as the initial transaction.
    Hedging: The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market.
    Hedgers use the futures markets to protect their business from adverse price changes.
    High: The highest price of the day for a particular futures contract.


I
    In-the-Money: In call options, when the strike price is below the price of the underlying futures. In put options, when the strike price is above the
    price of the underlying futures. In-the-money options are the most expensive options because the premium includes intrinsic value.
    Inception: The month and year a program began investing client assets.
    Index Futures: Futures contracts based on indexes such as the S&P 500 or Value Line Index. These are cash settlement contracts.
    Initial Margin: The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures
    contract. Also referred to as original margin.
    Intrinsic Value: For in-the-money call and put options, the difference between the strike price and the underlying futures price.
    Introducing Broker: A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not
    accept money or other assets from customers to support such orders.




                                                     MBA Career Management                                                                                    25
Hedge Fund Glossary                                                                                                                                        L-M

L
    Leverage: The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.
    Limit Order: An order given to a broker by a customer which has some restrictions upon its execution, such as price or time.
    Limits: The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is
    traded. Also referred to as trading limit. The maximum advance or decline - from the previous day's settlement - permitted for a contract in one trading session by the rules of the exchange.
    According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.
    Liquidation: A transaction made in reducing or closing out a long or short position, but more often used by the trade to mean a reduction or closing out of a long position.
    Liquidity: A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are
    inclined to seek out liquid investments so that their trading activity will not influence the market price.
    Local: Independent trader who trades his or her own money on the floor of the exchanges. Some locals act as brokers as well, but are subject to certain rules that protect customer orders.
    Long: One who has bought futures contracts or owns a cash commodity.
    Low: The lowest price of the day for a particular futures contract.

M
    Maintenance: A set minimum margin (per outstanding futures contract) that a customer must maintain in his or her margin account.
    Managed Account: An account for which the holder gives his or her broker, commodity trading advisor or someone else the authority to buy or sell securities, either absolutely or subject to
    certain restrictions.
    Managed Futures: Represents an industry comprised of professional money managers known as commodity trading advisors who manage client assets using global futures, forward and
    swap markets as an investment medium.
    Margin: An amount of money deposited by both buyers and sellers of futures contracts and by sellers of options contracts to ensure performance of the terms of the contract (the making or
    taking delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). Margin in commodities is not a down payment, as in securities, but rather a
    performance bond.
    Margin Call: A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.
    Market Order: An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.
    Mark-to-Market: To debit or credit on a daily basis a margin account based on the close of that day's trading session. In this way, buyers and sellers are protected against the possibility of
    contract default.
    Minimum Price Fluctuation: The smallest allowable increment of price movement for a contract.
    Modern Portfolio Theory: Financial theory developed in 1952 by Professor H. Markowitz that revolutionized portfolio investment over the past 40 years. Simply stated, Dr. Markowitz
    demonstrated that a group of positive yielding, non-correlating investments will, over time, produce a better risk adjusted rate of return than any of the individual components.
    Moving-Average Charts: A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days
    and then dividing by the number of days.




                                                                 MBA Career Management                                                                                                                26
Hedge Fund Glossary                                                                                                                                         N-P

N
    National Futures Association (NFA): An industry wide, industry-supported, self-regulatory organization for futures and options markets. The primary responsibilities of the NFA are to
    enforce ethical standards and customer protection rules, screen futures professionals for membership, audit and monitor professionals for financial and general compliance rules, and provide
    for arbitration of futures-related disputes.
    Net Position: The difference between the open contracts long and the open contracts short held in any one commodity by any individual or group.
O
    Offer: An expression indicating one's desire to sell a commodity at a given price; opposite of bid.
    Offset: Taking a second futures or options position opposite to the initial or opening position. Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during
    an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract.
    On Opening: A term used to specify execution of an order during the opening.
    Open Contracts: Contracts which have been bought or sold without the transaction having been completed by subsequent sale, repurchase, or actual delivery or receipt of commodity.
    Opening: The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the opening."
    Opening Range: A range of prices at which buy and sell transactions took place during the opening of the market.
    Open Interest: The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the
    commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.
    Open Order: An order which is good until canceled.
    Open Outcry: Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.
    Original Margin: The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial
    margin.
    Out-of-the-Money: Option calls with strike prices above the price of the underlying futures, and puts with strike prices below the price of the underlying futures.
    Over-the-Counter Market: A market where products such as stocks, foreign currencies, and other cash or forward contracts or swaps items are bought and sold by telephone and other means
    of communications.
P
    Pit: The area on the trading floor where futures and options on futures contracts are bought and sold. Pits are usually raised octagonal platforms with steps descending on the inside that permit
    buyers and sellers of contracts to see each other.
    Point: The minimum unit in which changes in futures prices may be expressed (minimum price fluctuation may be in multiples of points).
    Position: A market commitment. A buyer of a futures contract is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.
    Position Limit: The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the
    contract is traded. Also referred to as trading limit.
    Premium: The amount by which a given futures contract's price or commodity's quality exceeds that of another contract or commodity (opposite of discount). In options, the price of a call or
    put, which the buyer initially pays to the option writer (seller).




                                                                 MBA Career Management                                                                                                                 27
Hedge Fund Glossary                                                                                                                                P-S

Price Discovery: The generation of information about "future" cash market prices through the futures markets.
       Price Limit: The maximum advance or decline, from the previous day's settlement, permitted for a contract in one trading session by the rules of the exchange.
       According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.
       Producer Price Index (PPI): An index that shows the cost of resources needed to produce manufactured goods during the previous month. PPI is considered a
       measure of inflation.
       Purchase and Sale Statement: A statement sent by the FCM to a customer when his futures position has been reduced or closed out (also called "P and S").
       Purchasing (Long) Hedge: Buying futures contracts to protect against a possible price increase of cash commodities that will be purchased in the future. At the time
       the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased.
       Also referred to as a buying hedge.
       Put: In options, the buyer of a put has the right to acquire a short position in the underlying futures contract at the strike price until the option expires; the seller (writer)
       of the put obligates himself to take a long position in the futures at the strike price if the buyer exercises his put.

R
       Range: The difference between the high and low price of the futures contract during a given period.
       Ratio Hedging: Hedging a cash position with futures on a less or more than one-for-one basis.
       Reaction: The downward tendency of a commodity after an advance.
       Resistance: A level above which prices have had difficulty penetrating.
       Round-Turn: The execution for the same customer of a purchase transaction and a sales transaction which offset each other.
       Round-Turn Commission: The cost to the customer for executing a futures contract which is charged only when the position is liquidated.
S

       Scalping: For floor traders, the practice of trading in and out of contracts throughout the trading day in hopes of making a series of small profits.
       Secondary Market: Market where previously issued securities are bought and sold.
       Security: Common or preferred stock; a bond of a corporation, government or quasi-government body.
       Selling (Short) Hedge: Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash
       commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. The practice of
       offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market.




                                                               MBA Career Management                                                                                                        28
Hedge Fund Glossary                                                                                                          S

  Settlement Price: The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm's net gains or losses,
  margin requirements and the next day's price limits, based on each futures and options contract settlement price. If there is a closing range of prices,
  the settlement price is determined by averaging those prices. Also referred to as settlement or closing price.
  Sharpe Ratio: A way to measure investment risk in relationship to investment returns. It shows how much more investment value a fund or portfolio
  is giving an investor while taking into consideration the level of volatility or risk the portfolio contains. The equation is: (portfolio realized return -
  risk free rate)/standard deviation of the portfolio. The risk free rate is typically measured by the 90 day T-Bill rate. The Sharpe Ratio is a common
  measure of the efficiency of an investment portfolio. The higher the number the better.
  Short (noun): One who has sold futures contracts or plans to purchase a cash commodity. (verb) Selling futures contracts or initiating a cash forward
  contract sale without offsetting a particular market position.
  Speculator: A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements.
  Speculators assume market price risk and add liquidity and capital to the futures markets.
  Spot: Usually refers to a cash market price for a physical commodity that is available for immediate delivery.
  Spot Month: The futures contract month closest to expiration. Also referred to as nearby delivery month.
  Spread: Usually refers to a simultaneous purchase of a contract and sale of another. Spreads can be transacted between contracts with the same
  underlying commodity but different months; the same month but different commodities; or the same month and commodity but traded on different
  exchanges.
  Standard Deviation: Measures the variability of a probability distribution and is widely used as a measure of risk. Figures are annualized using the
  monthly rates of return on a compounded basis for the past 12, 36 or 60 months, or since inception of the program.
  Stock Index: An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market
  depends on its composition, the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish an index.
  Stop-Limit Order: A variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is
  held until the stated price or better is reached again.
  Stop Order: An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures
  contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or
  below the stop price.
  Striking Price: The price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to
  buyer.
  Support: The place on a chart where the buying of futures contracts is sufficient to halt a price decline.




                                                    MBA Career Management                                                                                       29
Hedge Fund Glossary                                                                                                            T-W

T
    Technical Analysis: Anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price
    patterns.
    Tick: The smallest allowable increment of price movement for a contract.
    Time Value: In options, the value of the premium is based on the amount of time left before the contract expires and the volatility of the underlying
    futures contract. Time value represents that portion of the premium in excess of intrinsic value. Time value diminishes as the expiration of the option
    draws near and/or if the underlying futures becomes less volatile.
    Trading Limit: The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission
    and/or the exchange upon which the contract is traded. Also referred to as position limit.
U
    U.S. Treasury Bill: A Treasury bill is a short-term U.S. government obligation with an original maturity of one year or less. Unlike a bond or note, a
    bill does not pay a semi-annual, fixed rate coupon. A bill is typically issued at a price below its par value and is therefore a discounted instrument. The
    level of the discount depends on the level of prevailing interest rates. In general, the higher short-term interest rates are, the greater the discount. The
    return to an investor in bills is simply the difference between the issue price and par value.
    U.S. Treasury Bond: Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.
    U.S. Treasury Note: Government-debt security with a coupon and original maturity of one to 10 years.
V
    VAMI: The Value Added Monthly Index or VAMI is calculated by multiplying the rate of return by the prior period VAMI and then adding this
    number to the prior period VAMI.
    Volatility: A measurement of the change in price over a given period. It is often expressed as a percentage and computed as the annualized standard
    deviation of the percentage change in daily price.
    Volume of Trading (or Sales): A simple addition of successive futures transactions (a transaction consists of a purchase and matching sale).
W
    Wire House: An organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets
    from customers to support such orders. Also referred to as "commission house" or Futures Commission Merchant (FCM).
    Writer: The seller of an option who collects the premium payment from the buyer.




                                                      MBA Career Management                                                                                        30

				
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