Month: April 2020

A volatility smile is a common graph shape that results from plotting the strike price and implied volatility of a group of options with the same underlying asset and expiration date. The volatility smile is so named because it looks like a smiling mouth. Implied volatility rises when the underlying asset of an option is further out of the money (OTM) or in the money (ITM), compared to at the money (ATM). The volatility smile does not apply to all options.

A growing-equity mortgage (GEM) is a type of fixed rate mortgage where the monthly payments increase over time according to a set schedule, rather than remaining fixed and equal over the loan term. The interest rate on the loan does not change, and there is never any negative amortization. Instead, the first payment is a fully-amortizing payment and as the payment amount increases over time, the additional amount above and beyond what would be a fully amortizing payment is applied directly to the remaining principal balance of the mortgage, shortening the life of the mortgage and increasing overall interest savings. read more

A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. Forward markets are used for trading a range of instruments, but the term is primarily used with reference to the foreign exchange market. It can also apply to markets for securities and interest rates as well as commodities.

The winner’s curse is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item. The gap in auctioned vs. intrinsic value can typically be attributed to incomplete information, bidders, emotions, or a variety of other subjective factors that can influence bidders. In general, subjective factors usually create a value gap because the bidder faces a difficult time determining and rationalizing an item’s true intrinsic value. As a result, the largest overestimation of an item’s value ends up winning the auction. read more

Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing and purchasing new inventory.

Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain. Vertical integration benefits companies by allowing them to control the process, reduce costs, and improve efficiencies. However, vertical integration has its disadvantages, including the significant amounts of capital investment required.

Private investment in public equity (PIPE) is the buying of shares of publicly traded stock at a price below the current market value (CMV) per share. This buying method is a practice of investment firms, mutual funds, and other large, accredited investors. A traditional PIPE is one in which common or preferred stock is issued at a set price to the investor—a structured PIPE issue common or preferred shares of convertible debt.

A warranty is a type of guarantee that a manufacturer or similar party makes regarding the condition of its product. It also refers to the terms and situations in which repairs or exchanges will be made in the event that the product does not function as originally described or intended.