Financial Instruments

Dividends

 

Notes

A payment paid regularly by a company to its shareholders out of its profits (or reserves). Interim dividends are generally paid out of surplus profits (reserved) of the previous years, whereas final dividends are declared and paid out on an annual basis after the earnings are known for that financial year. Additionally, companies may pay a bonus dividend.

 

• Interim Dividend
• Bonus Dividend
• Final Dividend

 

A company typically divides its profits between itself and its shareholders. Distributions represent a portion of the profits a company decides to give to its shareholders, while retained earnings represent the portion of profits that a company chooses to keep. Companies choose to share profits in the form of dividends because it encourages shareholders to continue investing in the company. Understanding the transactions pertaining to dividends and retained earnings helps you know the effects of the transactions on a company’s financial statements.

 

 

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Ex-Dividend Date

The ex-dividend date occurs one business day before the company’s Record Date.

Important: To be entitled to the dividend, the buyer needs to purchase the shares prior to the ex-dividend date! If you purchase shares on the ex-dividend date, the seller will be entitled to the dividend payment.

 

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Record Date

The record date is 5.00pm on the date a company closes its share register to determine which shareholders are entitled to receive the current dividend. It is the date where all changes to registration details must be finalised.

 

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Dividend Entitlement

 

 

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Formula

 

$$\begin{aligned} Dividend\;Yield\; &=\;\left [ (Interim\;Dividend + Final\;Dividend) \over Current\;Share\;Price\right ] \;*\;100\;\\\\\ &= \;\left [ Dividends \over Current\;Share\;Price \right ] \;*\;100\;\end{aligned}$$

 

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Dividend Yield

 

 

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See also: Franking (Imputation) Credits

Dow Jones Industrial Average (DJIA)

 

Notes

• Foundation: 16 February 1885
• Operator: S&P Dow Jones Indices
• Exchanges: New York Stock Exchange (NYSE), NASDAQ (NAS)
• Trading Symbol:  ^DJI
• Constituents:  30
• Type:  Large Cap
• Market Cap: US$19.43 trillion (Nov. 2024)
• Weighting Method:  Price-Weighted Index
• Website:  S&P Dow Jones Indices

 

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Index

Rank	Symbol	Name	Market Capitalisation (USD$ Billions)
1	NVDA	NVIDIA Corporation	3,563.23
2	AAPL	Apple Inc.	3,389.42
3	MSFT	Microsoft Corporation	3,107.85
4	AMZN	Amazon.com, Inc.	2,174.92
5	WMT	Walmart Inc.	676.90
6	JPM	JPMorgan Chase & Co.	673.68
7	V	Visa Inc.	590.13
8	UNH	UnitedHealth Group Incorporated	575.41
9	HD	The Home Depot, Inc.	405.55
10	PG	The Procter & Gamble Company	391.01
11	JNJ	Johnson & Johnson	373.28
12	CRM	Salesforce, Inc.	326.69
13	CVX	Chevron Corporation	281.24
14	KO	The Coca-Cola Company	272.94
15	MRK	Merck & Co., Inc.	254.81
16	CSCO	Cisco Systems, Inc.	233.98
17	MCD	McDonald's Corporation	216.08
18	AXP	American Express Company	206.38
19	GS	The Goldman Sachs Group, Inc.	198.30
20	IBM	International Business Machines Corporation	197.48
21	CAT	Caterpillar Inc.	191.45
22	DIS	The Walt Disney Company	183.16
23	AMGN	Amgen Inc.	172.98
24	VZ	Verizon Communications Inc.	170.24
25	HON	Honeywell International Inc.	146.46
26	NKE	NIKE, Inc.	114.02
27	BA	The Boeing Company	111.36
28	SHW	The Sherwin-Williams Company	97.70
29	MMM	3M Company	72.43
30	TRV	The Travelers Companies, Inc.	58.65

 

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.

 

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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.

 

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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

 

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• 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. 1. Exchange Traded Options (ETOs)
     2. Over-The-Counter (OTC)
• Intrinsic Value
• Price Volatility

 

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

 

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Calculation

 

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

 

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Long Call

 

 

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Short Call

 

 

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Long Put

 

 

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Short Put

 

 

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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

 

 

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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

 

 

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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

 

 

 

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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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Financial Performance Indicators

Profitability

• Earnings Before Interest and Tax (EBIT) to Total Funds Ratio

 

• Earnings Per Share (EPS)

Good for measuring company performance over time. However, not recommended for benchmarking against other company EPS values.

Indices

 

Region	Country	Index
Africa	Botswana	BSE DCI - Botswana Stock Exchange Domestic Company Index
Africa	Botswana	BSE FCI - Botswana Stock Exchange Foreign Company Index
Africa	Egypt	EGX 30 Index
Africa	Ghana	GSE All-Share Index
Africa	Morocco	MADEX Index (Moroccan Most Active Shares Index)
Africa	Morocco	MASI index (Moroccan All Shares Index)
Africa	Nigeria	NSE 30 Index
Africa	Nigeria	NSE All Share Index
Africa	South Africa	JSE - Johannesburg Stock Exchange Domestic Company Index
Africa	Zambia	LASI -LuSE All shares Index
Africa	Zimbabwe	Zimbabwe Industrial Index
Africa	Zimbabwe	Zimbabwe Mining Index
Americas	Argentina	MERVAL - 12 Companies
Americas	Brazil	IBOVESPA - Bovespa Index
Americas	Canada	S&P/TSX 60
Americas	Canada	S&P/TSX Composite Index
Americas	Canada	S&P/TSX Venture Composite Index
Americas	Chile	IPSA
Americas	Colombia	COLCAP
Americas	Colombia	IGBC
Americas	Haiti
Americas	Jamaica
Americas	Mexico	Indice de Precios y Cotizaciones (IPC) (Bolsa Index)
Americas	Peru	SPBLPGPT
Americas	Trinidad and Tobago
Americas	United States	Barron's 400 Index
Americas	United States	CBOE DJIA BuyWrite Index (BXD)
Americas	United States	CBOE NASDAQ-100 BuyWrite Index (BXN)
Americas	United States	CBOE NASDAQ-100 Volatility Index (VXN)
Americas	United States	CBOE S&P 500 BuyWrite Index (BXM)
Americas	United States	CBOE Volatility Index (VIX)
Americas	United States	DJIA - Dow Jones Industrial Average
Americas	United States	Dow Jones Transportation Average
Americas	United States	Dow Jones Utility Average
Americas	United States	NASDAQ Composite
Americas	United States	NASDAQ-100
Americas	United States	NYSE Arca Major Market Index
Americas	United States	Russell 1000
Americas	United States	Russell 2500
Americas	United States	Russell 3000
Americas	United States	Russell MidCap
Americas	United States	Russell Small Cap Completeness
Americas	United States	Russell Top 200
Americas	United States	S&P 100
Americas	United States	S&P 500 (GSPC, INX, SPX)
Americas	United States	S&P Midcap 400
Americas	United States	S&P Midcap 400/BARRA Growth
Americas	United States	S&P Midcap 400/BARRA Value
Americas	United States	S&P SmallCap 600
Americas	United States	S&P SmallCap 600/BARRA Growth
Americas	United States	S&P SmallCap 600/BARRA Value
Americas	United States	Wilshire 4500
Americas	United States	Wilshire 5000
Americas	Venezuela	Índice Bursátil Caracas (IBC)
Asia	Bangladesh	CASPI
Asia	Bangladesh	CSC X
Asia	Bangladesh	CSE 30
Asia	Bangladesh	CSE50
Asia	Bangladesh	CSI
Asia	Bangladesh	DSE
Asia	Bangladesh	DSEX
Asia	China	CSI 100 Index
Asia	China	CSI 300 Index
Asia	China	CSI 300 Index
Asia	China	SSE 180 Index
Asia	China	SSE 50 Index
Asia	China	SSE Composite Index
Asia	China	SZSE 100 Index
Asia	China	SZSE 200 Index
Asia	China	SZSE 300 Index
Asia	China	SZSE Component Index
Asia	Hong Kong	Hang Seng China Enterprises Index
Asia	Hong Kong	Hang Seng China H-Financials Index
Asia	Hong Kong	Hang Seng China-Affiliated Corporations Index
Asia	Hong Kong	Hang Seng Index
Asia	India	Bombay Stock Exchange (BSE) - Sensex
Asia	India	National Stock Exchange (NSE) - Nifty50
Asia	India	NIFTY BANK
Asia	India	NIFTY MIDCAP 100
Asia	India	NIFTY NEXT 50
Asia	India	NIFTY SMALLCAP 100
Asia	India	S&P BSE 500
Asia	Indonesia	IDX Composite
Asia	Indonesia	JII - Jakarta Islamic Index
Asia	Indonesia	LQ-45
Asia	Iran	TEPIX
Asia	Israel	TA-125 Index (Tel Aviv 125)
Asia	Israel	TA-35 Index
Asia	Israel	TA-90
Asia	Japan	Nikkei 225
Asia	Jordan	ASE Weighted Index
Asia	Kazakhstan	KASE
Asia	Malaysia	FTSE Bursa Malaysia Index
Asia	Malaysia	Kuala Lumpur Composite Index
Asia	Malaysia	MESDAQ
Asia	Nepal	NEPSE Index
Asia	Oman	MSM-30
Asia	Pakistan	KMI 30 Index
Asia	Pakistan	KSE 100 Index
Asia	Pakistan	KSE All Share Index
Asia	Pakistan	KSE-30 Index
Asia	Philippines	PSE All Shares Index
Asia	Philippines	PSE Financials Index
Asia	Philippines	PSE Mining and Oil Index
Asia	Philippines	PSEi - PSE Index
Asia	Qatar	DSM-200
Asia	Saudi Arabia	TASI - Tadawul All Share Index
Asia	Singapore	STI - Straits Times Index
Asia	South Korea	KOSDAQ (for small cap companies)
Asia	South Korea	KOSPI
Asia	Sri Lanka	All Share Price Index (ASPI)
Asia	Sri Lanka	Colombo Stock Exchange Sector indices (CSE Sectors)
Asia	Sri Lanka	Milanka Price Index (MPI) - (Discontinued)
Asia	Taiwan	TAIEX - Taiwan Capitalization Weighted Stock Index
Asia	Thailand	SET Index
Asia	Thailand	SET100 Index
Asia	Thailand	SET50 Index
Asia	Vietnam	CBV Index
Asia	Vietnam	S&P Vietnam 10 Index
Europe	Austria	ATX
Europe	Belgium	BEL20
Europe	Bosnia and Herzegovina	BIRS
Europe	Bosnia and Herzegovina	ERS10
Europe	Bosnia and Herzegovina	FIRS
Europe	Bulgaria	SOFIX
Europe	Croatia	CROBEX
Europe	Croatia	CROBIS
Europe	Czech Republic	PX Index
Europe	Denmark	OMXC20 - OMX Copenhagen 20
Europe	Finland	OMXH25 - OMX Helsinki 25
Europe	France	CAC 40
Europe	France	CAC All Share
Europe	France	CAC All-Tradable
Europe	France	CAC Large 60
Europe	France	CAC Mid & Small
Europe	France	CAC Mid 60
Europe	France	CAC Next 20
Europe	France	CAC Small
Europe	France	SBF 120
Europe	Germany	DAX- 30
Europe	Germany	MDAX (Mid Cap)
Europe	Germany	SDAX (Small Cap)
Europe	Germany	TecDAX
Europe	Greece	Athex 20
Europe	Hungary	BUMIX Mid Cap
Europe	Hungary	BUX Large Cap
Europe	Hungary	Central European Blue Chip Index Regional Large Cap
Europe	Iceland	OMX Iceland 15 (Discontinued)
Europe	Iceland	OMX Iceland 6
Europe	Ireland	ISEQ 20
Europe	Italy	FTSE Italia Mid Cap
Europe	Italy	FTSE MIB
Europe	Italy	MIBTel
Europe	Lithuania	OMVX - OMX Vilnius
Europe	Luxembourg	LuxX Index - Luxembourg Stock Exchange
Europe	Netherlands	AEX index
Europe	Netherlands	AMX index (Midcap)
Europe	Netherlands	AScX index (Small Cap)
Europe	Norway	OBX Index
Europe	Poland	WIG
Europe	Poland	WIG30
Europe	Portugal	PSI-20
Europe	Portugal	PSI-GERAL
Europe	Romania	BET-10
Europe	Russia	MICEX - Moscow Interbank Currency Exchange
Europe	Russia	RTSI - RTS Index
Europe	Serbia	BELEX15
Europe	Serbia	BELEXline
Europe	Slovakia	Slovak Share Index
Europe	Spain	IBEX 35
Europe	Spain	Madrid Stock Exchange General Index
Europe	Sweden	OMXS30 - OMX Stockholm 30
Europe	Sweden	OMXSPI - OMX Stockholm PI
Europe	Switzerland	SLI - Swiss Leader Index
Europe	Switzerland	SMI - Swiss Market Index
Europe	Switzerland	SMI Expanded
Europe	Switzerland	SMI MID
Europe	Switzerland	SPI - Swiss Performance Index
Europe	Ukraine	PFTS Index
Europe	United Kingdom	FT30 Index
Europe	United Kingdom	FTSE 100 Index
Europe	United Kingdom	FTSE 350 Index
Europe	United Kingdom	FTSE AIM All-Share Index
Europe	United Kingdom	FTSE AIM UK 50 Index
Europe	United Kingdom	FTSE All-Share Index
Europe	United Kingdom	FTSE Fledgling Index
Europe	United Kingdom	FTSE MID 250 Index
Europe	United Kingdom	FTSE SmallCap Index
Europe	United Kingdom	FTSE techMark Index
Global	N/A	Dow Jones Global Titans 50
Global	N/A	FTSE All-World Index Series
Global	N/A	MSCI ACWI Index
Global	N/A	MSCI World
Global	N/A	OTCM QX ADR 30 Index
Global	N/A	S&P Global 100
Global	N/A	S&P Global 1200
Global	N/A	The Global Dow - Global Version of the Dow Jones Industrial Average
Oceania	Australia	All Ordinaries
Oceania	Australia	S&P/ASX 20
Oceania	Australia	S&P/ASX 200
Oceania	Australia	S&P/ASX 300
Oceania	Australia	S&P/ASX 50
Oceania	New Zealand	NZX 50 Index

Reconstruction

 

Notes

A reconstruction may be a Share Split (increase the number of shares) or Share Consolidation (decrease the number of shares).

If the share price of a company is too high the company may consider splitting the number of shares to ensure the share price is more affordable and liquid in the market.

Any orders present in the market are purged at the end of the trading day prior to the reconstruction.

 

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1. Share Split (Stock Split)

A share split occurs when a company issues more shares to its existing shareholders, increasing the total number of shares outstanding while maintaining the overall value of the investment. The value of each share is adjusted accordingly, so the total market value of the investment remains the same.

• Purpose: The main reason a company may do a stock split is to make its shares more affordable for small investors if the price per share has become too high. It often happens when a company’s share price rises significantly, and the company wants to make shares more accessible.
• Example:
  • If a company announces a 2-for-1 share split, it means that each shareholder will receive one additional share for every share they already own. If you held 100 shares priced at $100 each, after the split, you would have 200 shares priced at $50 each.
  • The total value of your investment is still $10,000 (100 x $100 = 10,000, and after the split, 200 x $50 = 10,000), but you now have more shares.

 

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2. Share Consolidation (Reverse Stock Split)

A share consolidation, or reverse stock split, is the opposite of a share split. In this case, a company reduces the number of its outstanding shares by consolidating multiple shares into one. The price per share increases proportionally, so the total value of the investment remains unchanged.

• Purpose: Companies often do this when their stock price is very low and they want to increase the share price to make it look more attractive or to meet listing requirements on a stock exchange.
• Example:
  • If a company announces a 1-for-2 reverse stock split, it means that shareholders will exchange every two shares for one new share. If you held 100 shares priced at $2 each, after the consolidation, you would have 50 shares priced at $4 each.
  • The total value of your investment remains the same (100 x $2 = 200, and after the consolidation, 50 x $4 = 200).

 

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Summary

• Share Split: Increases the number of shares while reducing the price per share.
• Share Consolidation: Reduces the number of shares while increasing the price per share.

Both actions don’t change the total value of a shareholder’s investment, but they can have significant effects on a company’s stock price and appeal to different types of investors.

 

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Reconstruction