October 20, 2010. 1. Investing Framework 2. Options Briefing 3. Market Update - Earnings 4. Market...
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Transcript of October 20, 2010. 1. Investing Framework 2. Options Briefing 3. Market Update - Earnings 4. Market...
Agenda
1. Investing Framework2. Options Briefing3. Market Update - Earnings4. Market Update - Commodities
Meeting Schedule
Scheduled meetings for the rest of the term:
Wednesday, November 10th
Wednesday, December 1st
GDS Room 304
Table of Contents
Framework for Thinking
Etymology: Investing – Latin’s vestir (to dress up) Equity – 14th century’s Courts of Equity
What does a share’s price represent?
Why doesn’t the relative prices of two shares matter? Why does it?
EMH and Behavioural Finance
Efficient Markets Hypothesis: financial markets reflect all publicly-available information The very best investors don't even
try to forecast the future. Rather, they seize such opportunities as the present affords them – they are opportunists
Behavioural Finance: human behaviour causes inefficiencies And these mispricings can be
exploited
Investing Quotes
“Markets can remain irrational longer than you or I can remain solvent” – J.M. Keynes
The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high.“ – Dennis Gartman
Implications: Catching a falling knife analogy Greater Fool Theory Uncertainty & the quest for the “Truth”
J.M. Keynes
Derivatives - Options
Call Contracts
A call contract gives the holder the right, not the obligation to buy the underlying securities at a predetermined price within a specified time period in the future
Put Contracts
A put contract gives the holder the right, not the obligation to sell the underlying securities at a predetermined price within a specified time period in the future
Strike Price: “Predetermined price where the underlying securities change hands
Exercising: Activation/usage of the option contracts – the securities change hands
Expiration Date: The last date in which the options can be exercised
Writing/Buying: When writing options, a premium is generally charged to the buyer
Options – Cont’d
Payoff GraphsTypes
American: Can be exercised on any trading day before or on expiration, majority of exchange-traded options are American
European: Can be exercised on expiration
Bermudan: Can be exercised on specific agreed upon dates before and on expiration
Exotic Vs. Vanilla
Valuation
Black-Scholes Model- Delta (change in price), Vega
(volatility), Theta (time), Rho (risk-free rate), Gamma
Binomial Options Pricing Model
Recent Earnings Reports
Apple – shares down 3.4% (lower than expected profits)
Yahoo – Lack-luster profits (slightly lower profits)
Google earnings – lift tech stocks (rose 32 cents a share)
Bank of America posted Q3 profit losses JP Morgan profits rise 23% but recorded
the lowest profit and return on equity in years in the IB division
Goldman Sachs reported earnings in IB division
Morgan Stanley – hiring freeze and expected to report lower earnings today
Look out for Boeing, eBay, Altria Group, Morgan Stanley, M&T Bank, Wells Fargo, United Technologies today
Oil and Natural GasII. Who We Are
Natural Gas Price Oil Price
• Natural gas prices are quoted in $/MMBtu (million British thermal units)
• Currently hovering between $3 and $4
• Oil prices are quoted in $/bbl (barrel) • Currently around $82
Source: Henry Hub
• Large Canadian Oil&Gas players are Suncor (SU), Canadian Natural Resources (CNQ), EnCana Corporation (ECA) and Imperial Oil (IMO)
GoldII. Who We Are
Price A Case For Gold
• Gold is priced in $USD and prices are set on the world market
Source: Kitco
• Demand for store of value to hedge against currencies
• Increase in money supply => inflation• Increase in foreign demand• Supply remains static
5 largest Canadian gold producers PP Reserves (M. oz)
Annual Production (M. oz)
Goldcorp (G) 48.8 2.4 Yamana (YRI) 17.6 1.2 Barrick (ABX) 138.5 8 Kinross (K) 45.6 2.2 IAMGOLD (IMG) 14.3 0.95
• Gold ETF’S: SPDR GLD Trust (GLD)