Alpha: return above a reference over a period of time, e.g. alpha 5% = 5% higher returns than investing on an S&P500 index. Your true performance as an investor. #onAlpha
CDS or Credit Default Swap: agreement between someone who thinks a borrower will default (buyer of CDS) and someone, the insurer, who thinks they won’t default (seller of CDS). If the credit defaults in some way, the seller must pay the security’s value with interests.
Kelly formula: attempt to determine optimal amount of money to bet based on your beliefs of what’s going to happen.
Level I: shows bid price, bid size, ask price, ask size, last price and last size.
Level II: same as Level I, but shows 5-15 numbers, not just the top one.
Modified Dietz Formula: way to measure portfolio gain or loss taking into account cash flows timestamps. The non-modified Dietz formula ignores timestamps and takes avg.
Multiple Expansion: one of several valuation multiples goes up (e.g. company traded at PE 4 but is now trading at 8) without earnings necessarily growing. It usually means MrMarket considers the company to be of higher quality.
Portfolio turnover: rate at which you buy and sell assets.
Risk-on risk-off environment or asset: fancy alias for irrational market, people buying high and selling low.
Santa Claus rally: tendency of stock prices to raise during last 5 trading days in December and first 2 trading days in January.
SPAC (Special Purpose Acquisition Company): Publicly traded shell company created to raise money that will be later used to buy another company. Also called “blank check companies” because frequently there is no acquisition target at the time the SPAC IPOs.
Tail-risk fund: Collection of complicated options and CDSs. You pay a small bounded amount of money every day and if a major market crash happens, you make a lot of money. #nntaleb #ackman #covid19
Tax-Loss Harvesting: sell at a loss at end of year to reduce capital gains tax w/ the intention to buy again in early Jan.