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The Investment Process

(1) Top Down Approach

Asset Allocation Process
  • Commonly used method by Fund Managers
  • Determine sectors or industries, i.e. Global Industry Classification Standard (GICS)
    1. Communication Services
    2. Consumer Discretionary
    3. Consumer Staples
    4. Energy
    5. Financials
    6. Health Care
    7. Industrials
    8. Information Technology
    9. Materials
    10. Real Estate
    11. Utilities
  • Determine assets for sectors (industries)

 

 

(2) Bottom Up Approach

Security Selection Process
  • Commonly used method by Hedge Fund Managers

 


Efficient Markets

  • Active Management
  • Passive Management

Central Banks

 

 

Commercial Banks, Credit Unions and Building Societies

 

  • ABS Building Society (a division of Greater Building Society Ltd)
  • Adelaide Bank (a division of Bendigo and Adelaide Bank Limited)
  • Advance Bank Australia (a division of Westpac Banking Corp)
  • AMP Bank Limited
  • Arab Bank Australia Limited
  • Australia & New Zealand Banking Group Limited
  • Australia Post (Money Orders)
  • Australian Military Bank Limited
  • Australian Settlements Limited
  • Auswide Bank Ltd
  • B&E Limited
  • Bank of America National Association
  • Bank of China
  • Bank of China (Australia) Limited
  • Bank of Communications Co. Ltd Sydney Branch
  • Bank of Melbourne (a division of Westpac Banking Corp)
  • Bank of Queensland Limited
  • Bank of Sydney Ltd
  • Bank of Tokyo-Mitsubishi UFJ Ltd (The)
  • Bankers Trust Australia (a division of Westpac Banking Corp)
  • Bankwest (a division of Commonwealth Bank of Australia)
  • Bendigo and Adelaide Bank Limited
  • Beyond Bank Australia (a trading name of Community CPS Australia Limited)
  • Big Sky Building Society Limited
  • BNP Paribas
  • BNP Paribas Securities Services
  • BOM Bank of Melbourne (a division of Westpac Banking Corp)
  • BOQ Specialist (a division of Bank of Queensland Limited)
  • BSA BankSA (a division of Westpac Banking Corp)
  • Capricornian Ltd (The)
  • China Construction Bank Corporation Sydney Branch
  • Citibank N.A.
  • Citigroup Pty Limited
  • Commonwealth Bank of Australia
  • Community First Credit Union Limited
  • Community Mutual Ltd
  • Credit Union Australia Limited
  • Cuscal Limited
  • Defence Bank Limited
  • Delphi Bank (a division of Bendigo and Adelaide Bank Limited)
  • Deutsche Bank Aktiengesellschaft
  • ECU Australia Ltd
  • Encompass Credit Union Ltd
  • G&C Mutual Bank (a trading name of SGE Mutual Limited)
  • Gateway Credit Union Limited
  • Greater Building Society Ltd
  • Heritage Bank Limited
  • Heritage Isle Credit Union Ltd
  • Holiday Coast Credit Union Ltd
  • Home Building Society (a division of Bank of Queensland Limited)
  • Hongkong & Shanghai Banking Corporation Limited (The) Australian Branch
  • HSBC Bank Australia Limited
  • Hume Bank Limited
  • IMB Ltd
  • Indue Ltd
  • Industrial and Commercial Bank of China Limited
  • ING Bank (Australia) Limited
  • ING Bank NV (Sydney Branch)
  • JP Morgan Chase Bank National Association
  • Macquarie Bank Limited
  • Maitland Mutual Building Society Limited
  • Maritime Mining & Power Credit Union Ltd
  • Mecu Limited (trading as Bank Australia)
  • Mega International Commercial Bank Co Ltd
  • Members Equity Pty Limited
  • Mizuho Bank Ltd
  • National Australia Bank Limited
  • Newcastle Permanent Building Society Ltd
  • Oversea-Chinese Banking Corporation Limited
  • Police & Nurses Limited
  • Police Bank Ltd (trading as Police Bank)
  • QT Mutual Bank Ltd
  • Rabobank Australia Limited
  • Railways Credit Union Limited t/a myMOVE
  • Rock The (a division of MyState Bank Limited)
  • Royal Bank of Scotland PLC Australia Branch (The)
  • Select Credit Union Ltd
  • Southern Cross Credit Union Ltd
  • St.George Bank (a division of Westpac Banking Corp)
  • State Street Bank and Trust Company
  • STG St.George Bank (a division of Westpac Banking Corp)
  • Sumitomo Mitsui Banking Corporation
  • Summerland Credit Union Ltd
  • Suncorp-Metway Limited
  • Sutherland Credit Union Ltd
  • Taiwan Business Bank Sydney Branch
  • TBT Commonwealth Bank of Australia
  • Teachers Mutual Bank Limited
  • Tyro Payments Limited
  • UBS AG Australia Branch
  • United Overseas Bank Limited
  • Uniting Financial Services
  • Warwick Credit Union Ltd
  • Westpac Banking Corporation

Associations

 

 

Regulatory Authorities

 

Credit Rating Agencies

Investment Banks

Front Office

  • Trading
  • Investment Banking
  • Research and Investment Management

 

Middle Office

  • Risk Measurement
  • Risk Management
  • Reporting

 

Back Office

  • Accounting
  • Bookkeeping
  • Auditing
  • Compliance

 

Other

  • Off-Balance Sheet Advisory Services

 


Links

Registries

 

 

 

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Options

 

Notes

 

Options are contracts where you have the right but not the obligation to either buy (call ) or sell (put) financial instruments at the exercise (strike) price on or before a predetermined date.

 


Types

 

  1. American
      • Can exercise the option any time up to the expiration date.
      • Higher risk to the seller (writer).
      • More expensive (premium) than the European type option.
      • Options traded on the ASX are predominantly American type.
  2. European
      • Can exercise the option only on the contract expiration date.
      • Lower risk to the seller (writer).
      • Less expensive (premium) than the American type option.

 


Strategies

 

  • Vertical Bull Spread
  • Call Bull Spread
  • Vertical Bear Spread
  • Put Bear Spread
  • Straddle
      • Long Straddle
      • Short Straddle
  • Strangle
      • Long Strangle
      • Short Strangle
  • Barrier Option
      • Knock-Out
      • Knock-In

 


 

  • 1 Option Contract: 100 Shares
  • Seller (Writer):
  • Buyer (Taker):
  • Call (Buy) Option: The right but not obligation to buy the financial instrument at the exercise (strike) price.
  • Put (Sell) Option: The right but not obligation to sell the financial instrument at the exercise (strike) price.
  • Premium:
      • How much you pay for the contract.
      • The level of risk is reflected in the premium of the option.
  • Exercise (Strike) Price: The agreed price on the contract.
  • Moneyness:
      • In The Money (ITM): Profit
      • The Strike Price of a CALL OPTION is below the market price.
      • At The Money (ATM): Break-Even
      • Out of The Money (OTM): Loss
      • Deep In The Money: Large Gain
      • An option that would lead to a large profit if it were exercised
  • Covered Option: The writer owns stock to be able to fulfill the contract.
  • Naked Call Option: The writer does not own stock to fulfill the contract which is underwritten by a third party.
  • Option Contracts:
      1. Exchange Traded Options (ETOs)
      2. Over-The-Counter (OTC)
  • Intrinsic Value
  • Price Volatility

 


 

  • Issued By:
  • Issued To:
  • Type of Security:
  • Duration:
  • Source:
  • Market:
  • Return:
  • Principle:
  • Liquidity:
  • Risk Level:

 


Calculation

 

$$V = max(S-X, 0)-P $$

 


Long Call

 

 


Short Call

 

 


Long Put

 

 


Short Put

 

 


Long Straddle

 

  • Strategy: Neutral
  • Conditions: High Volatility
  • Buy:
      • 1 ATM CALL
      • 1 ATM PUT
  • Time Decay: Negative impact
  • Break Even Points: Long Call – Premium, Long Call + Premium
  • Max. Loss: Limited
  • Max. Profit: Unlimited

 

 


Short Straddle

 

  • Strategy: Neutral
  • Conditions: Low Volatility
  • Sell:
      • 1 ATM CALL
      • 1 ATM PUT
  • Time Decay:
  • Break Even Points:
  • Max. Loss: Unlmited
  • Max. Profit: Limited

 

 


Long Strangle

 

With this strategy, a trader is looking for a major move; either up or down in the underlying stock before expiration. This market neutral strategy is specifically designed for high volatility conditions where stocks are swinging wildly back and forth.

 

  • Strategy: Neutral
  • Conditions: High Volatility
  • Buy:
      • 1 OTM CALL
      • 1 OTM PUT
  • Time Decay:
  • Break Even Points:
  • Max. Loss: Limited
  • Max. Profit: Unlimited

 

 

 


Short Strangle

 

  • Strategy: Neutral
  • Conditions: Low Volatility
  • Sell:
      • 1 OTM CALL
      • 1 OTM PUT
  • Time Decay:
  • Break Even Points:
  • Max. Loss: Unlimited
  • Max. Profit: Limited

 

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