Call Options

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Changing Jobs and 401K Plan
So you've accepted a lucrative position at another company within your industry. Perhaps you're in the middle of a career change. Maybe you're uprooting and heading to greener pastures somewhere else. Whatever the reason, you're changing jobs. Out with the old, in with the new.

Amidst the hassles of moving, finding the kids a new school, and settling in to your new position and communit... Read personal finance article



Money - Your Best Two Sources
Money is something that everyone needs to pay their bills. Gone are the days when we could get by without money. Everything revolves around how much money you have as to what you can have. What kind of lifestyle are you living? How many cars are in your driveway? Are the cars in your driveway less than 2 years old and is at least one a top of the line BMW, etc. They used to say, ''Money is not eve... Read personal finance article



Call Options
Bearish investors have two common strategies at their disposal: short selling and put options.

Short selling is the most aggressive bearish strategy characterized by the highest degree of risk. Used by hedge funds, institutions and retail investors, it has developed into a popular strategy for profiting from market declines. Another strategy for bearish investors entails the use of options.

There is, however, a third and lesser-known bearish strategy that combines stocks and options. Known as a "Hedged Short Sale" or "Synthetic Put," this strategy simply involves the shorting of a stock and the simultaneous buying of "Protective" call options. In this strategy, you artificially create a security with put-like characteristics and limited risk.

As discussed in the previous article, short selling implies that the investor borrows a specific stock that he or she does not own and sells it in the market at the prevailing price.

Profits arise when the shorted stock declines to a level that covers the transaction fees paid to initiate the strategy. Once at the preferred level, the short seller would buy back the stock and return it to the registered holder.

But as you may recall, the maximum risk of a short selling strategy is unlimited in theory since the stock price has no upper bounds. In reality, however, losses are generally limited by the short seller's inability to maintain the adequate margin required as the stock rises in price.

In a put option strategy, the maximum risk is limited to the premium paid for establishing the position.

The most significant difference between short selling and put options is the time element involved for the strategy to pan out. Bearish investors often favor short selling because there are no time limits, other than a possible situation when the registered holder calls in the borrowed stock. Short selling has time on its side whereas put options have a limited life.

Given this, for investors favoring short selling, risk can be minimized by initiating a Synthetic Put. This short-term strategy allows the bearish investor to profit when the stock declines to the downside, but at the same time, protects the short position in case the position goes against the short seller.

A Synthetic Put is also desired when a specific put option may not be available.

The use of a call option in a short selling strategy helps to minimize the risk of substantial losses that can arise.

In addition, be aware that should the call option expire prior to the stock moving down to where you want it, you could simply buy another call option to maintain the hedge.

Warning: Due to the higher risk inherent in options, I recommend you speak with an investment professional before deciding to employ any strategy involving options.

See you soon!

George Leong is the founder of http://www.investornomics.com - a provider of independent stock and option trading commentary. He has a degree in finance/economics and offers over 15 years of research experience in investing and trading.

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Global Banking Industry

Global banking involves similar operations as local banks do. However, global banking usually deals with money and foreign exchange; whereas local banks concentrate on lending, asset management and consulting services.

There are numerous ways in which you could segment the banking industry. One of the ways could be the sector in which the bank operates. For example, you could have agricultural banks (Credit Agricole) or employees bank (any credit union). You could also do the segmentation by fields of activities. Such as commercial banks (Citibank) or investment banks (Goldman Sachs). Commercial banking covers services such as cash management (money transfers, payroll services), credit services, deposit services and foreign exchange. Whereas, investment banking is in charge of services like asset securitization, coverage of mergers and acquisitions, securities underwriting, etc. However, because of the deregulation of the financial sector, some of the commercial and investment banking institutions are competing directly in money market operations, private placements, bonds underwriting, etc. It is, however, believed that all these segments are secondary to the geographical segmentation of the global banking industry.

When defining the geographical segmentation it is probably best to start with the main financial markets on the globe and its corresponding financial institutions. In Europe, for example, we have the ECB which is in charge of monitoring the monetary policies for the Euro zone. Thus, the initial function of the 12 national banks, that are members of the Euro Zone, is put in question. So, it is simply a matter of time until there are some few but powerful financial institutions that are going to monitor huge blocks of our financial globe. Even in the USA, where there is no national bank, there nonetheless is a strong will to centralize the various commercial banks, which at the moment are estimated to be around 8000. During the period 1984-1994, the number of US banks decreased by 30% due to successful mergers and acquisitions.

Moreover, a big change in the structure of the global banking industry is the development of world Islamic banking. 10 years ago Islamic banks accounted for only US $50million, now they are spread in 75 countries and account for US $250million, which represents 15% of the global banking industry.

Another trend in the structure evolution, which is worth mentioning, is the retailers and automobile -makers like Mitsubishi that become banks.

Innovation and product development:

Naturally, any change in the financial environment stimulates new innovations. One of these innovations is increasing liquidity. When a bank decides to go global, it is naturally catering to needs and demands of more customers. This induces a greater demand for liquidity. Yet, another change is the reduction of agency and transaction costs. As market size increases, the cost of transactions increases as well. Thus, minimizing costs will be a major issue for banks. One of the ways in which this might be achieved is by economies of scale. This means bundling together basic instruments such as funds of investors (creating mutual funds). Another way is to computerize majority of the systems. This falls under the Business Process Re-engineering. Virtual banking is also a big part of the cost cutting innovations.

Another innovation that banks need to use is circumventing regulations and internal constraints. One way to bypass the reserve requirement constraint was to establish money market mutual funds. These are not considered as deposits and thus require no interest payments. Hence, they are not subject to reserve requirements. The restrictions on interests can be leapfrogged in the same way.

With innovation the arrival of new products is inevitable. Banks are engaging heavily to attract customers with their new products and opportunities. Retail and clients' services are listed right at the top of a modern banks priority. As said before clients are becoming more and more demanding and force the banks into finding new ways of satisfying them. What is new today is standard tomorrow. Such new products include the arriving of ATM machines and their evolution from cash-dispensing machines into financial service depots, and telephone baking, which allows customers to arrange from their phone for account balance statements, transfers,, time deposit transactions and application for a variety of banking transactions. Some banks have even cut the time for loan approval. The Bank of Ryukyus, Japan approves a loan in 15 minutes. Banks are also keeping a look out on asset management since this is proving to be a rather prosperous market. People of today are much more aware of how they can use their assets to create a greater wealth; hence banks need to readjust their product line. However, there are numerous other products that banks are starting to integrate into the markets now. Such as trading and positioning (e.g. Commercial Bank), risk management products or financial engineering and structured finance (hedge funding).

Challenges:

As clients are becoming more and more demanding, the banks need to think today of the challenges of tomorrow. With respect to centralizing financial institutions, a commonly accepted approach needs to be found, because the issue of giving up sovereignty is definitely the issue. On a more micro perspective banks will surely need to start developing their services to a higher level. This could vary from a 24 hour service, more ATM machines, international acceptance of credit cards to lessen transaction cost, etc...

Furthermore, will banks need to product profitability in one form or another? A lot of banks are already looking closely into their hit ratios while considering the customer environment and pensions. With the help of this research banks can use the automation to develop new products tailored to specific customers.

On the marketing side banks have started to really hit it off in the late 90s. The fact that banks are now developing customer Information Systems enables them to create specific advertisement campaigns for specific clients. This is especially important for smaller banks since they often don't have the luxury of a large promotional budget. On a similar token banks are also forced to use customer databases to minimize their loan risk. Especially in times of economical hardship banks need to be extremely careful to avoid bad debt. Hence the Customer Information Systems will need to be integrated into the banks loan system.

Furthermore, banking should be following the pace of globalization of the world. Banks are expanding internationally by creating branches in host countries. However, there should be a better coordination between home and host country branches to make financial processes more effective and efficient. With the increase of international trade, the banks, as an intermediary, should develop instruments to better serve exporters, importers and shipping companies.

Although, some of these points seem pretty obvious, they are none the less points that need to be thought about, especially when penetrating new markets

The article was produced by the member of masterpapers.com. Sharon White is a senior writer and writers consultant at term papers. Get some useful tips for thesis and term paper writing .




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