Equities, Futures, & Options Equities – Shares of stock in corporations Large number of buyers and sellers Access to reliable information Market Efficiency – Cost of shares fluctuate due to a variety of circumstances  Number of shares  Expectations  Prospect for growth

Efficient Market Hypothesis –  The price of stocks is usually right  Bargains are not found easily  The EMH tries to explain this situation  Some investors believe that it does not matter which stocks you purchase  Portfolio Diversification – Do not put all your eggs in one basket – Buy stocks on the internet or use a stockbroker

Organized Stock Exchanges  Securities Exchanges – place where buyers and sellers trade securities.  NYSE – New York Stock Exchange Oldest, largest and most prestigious Located on Wall Street - More than 3,000 stocks Approx 1400 seats or memberships Members pay to join and vote on the rules and regulations Requirements relate to profitability and size

Organized Stock Exchanges  AMEX – American Stock Exchange Located in NYC – 1,000 Stocks Second largest Companies represented are smaller and more speculative  Regional Stock Exchanges – Larger and smaller corporations Chicago, Philadelphia, Boston, Memphis, and Pacific

Organized Stock Exchanges  Global Stock Exchanges – Sydney, Tokyo, Hong Kong Assisted by advances in technology  Over-the-Counter Market – Majority of stocks are traded here Electronic marketplace for securities National Market System – computer network NASDAQ – Buy and sell stocks in all markets (NYSE, AMEX, and OTC) Few OTC stocks pay dividends

Stock Performance  Dow-Jones Industrial Average – (DJIA) Most popular and widely used Average closing price of 30 sample stocks No longer a mathematical average Percentage change of the index is most important  Standard & Poor’s 500 – (S&P 500) Uses the price change of 500 stocks Reports on stocks listed on the NYSE, AMEX, and OTC

Stock Performance  Bull Market – Strong Market Prices move up  Bear Market – Mean Market Prices move down

Futures  Time is an attribute of a financial asset  Spot Market Immediate transaction at the prevailing price  Futures Market – Marketplace for futures contracts Futures Contract – agreement to buy or sell in the future at a predetermined price New York Mercantile Exchange

Options Market  Contracts to buy or sell financial assets in the future  Option exists to back out  Call Option – buy a share of stock at a specific price in the future  Put Option – sell a share of stock at a specific price in the future