Why would an investor be interested in convertible securities? (What do they offer to the investor?)
A convertible bond is a bond that can be converted into a pre-determined number of shares of stock. This would happen during the life of the bond. The number of shares it can be converted to is determined by the issuer of the bond, the corporation. Convertible bonds are an attractive investment. They offer the for potential market appreciation like an equity. They also offer the conservative nature and safety of a bond. A convertible bond pays you interest and gives you the option to convert it to shares of stock.
A convertible bond has a face value of $1,000, and the conversion price is $50 per share. The stock is selling at $42 per…show more content… They can also be tailored to meet expectations that go beyond a simple "the stock will go up" or "the stock will go down". Once you move beyond learning options terminology, you need to develop a thorough understanding of risk to trade options successfully. The value of calls and puts are affected by changes in the underlying stock price in a relatively straightforward manner. When the stock price goes up, calls should gain in value and puts should decrease. Put options should increase in value and calls should drop as the stock price falls.
Look at the option quotes in Table 14–2 on page 368. * What is the closing price of the common stock of SINGLE Systems?
* What is the highest strike price listed?
* What is the price of a December 20 call option?
* What is the price of a January 22.50 put option?
How does the concept of margin on a commodities contract differ from that of margin on a stock purchase?
Margin requirements on commodities contracts (2-10 percent) are much lower than those on stock transactions, where 50 percent of the purchase price has been the requirement since 1974. Furthermore, in the commodities market, the margin payment is merely considered to be a good-faith payment against losses. There is no actual borrowing or interest to be paid.