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Financial terms in "Futures"

1. rating

2. Daily trading limit

3. CUSIP number

4. exchange-traded derivative

5. contract for differences (CFD)

6. delivery price

7. Commodity Futures Trading Commission

8. Malaysia Commodity Exchange (MCE)

9. futures spread

10. locked limit up

11. NYSE

12. Farm Price Index (FPI)

13. futures bundle

14. Platinum

15. corn/hog ratio

16. CUSIP

17. convergence

18. futures price

19. The Clearing Corporation

20. fast tape

21. NFA Compliance Rule 2-43b

22. Italian Derivatives Market (IDEM)

23. nearest month

24. Exchange

25. Market Basket

26. Prospectus

27. price limit

28. feed ratio

29. Actuals

30. options on physicals

31. Series 3

32. bookout

33. first board

34. not rated

35. BUGS Index (HUI)

36. limit down

37. investment security

38. next futures contract

39. notice day

40. exchange for futures

41. gasoline

42. dry bulk commodity

43. cost of tender

44. class

45. fixation

46. non-equity option

47. Coffee, Sugar, And Cocoa Exchange (CSCE)

48. international clearing system

49. roll yield

50. Commodity Research Bureau

51. intermediate goods

52. covered interest rate arbitrage

53. low exercise price option (LEPO)

54. digested security

55. Australian Future Fund

56. cash price

57. floating exchange currency

58. lock-limit

59. Rating service

60. unlimited risk

61. commodities exchange

62. single stock futures

63. upside

64. locked limit down

65. risk disclosure document

66. delivery point

67. basket

68. cash forward contract

69. Long Position

70. actual market

71. grading certificate

72. reporting level

73. sugar no.11

74. Minneapolis Grain Exchange (MGEX)

75. IDEM

76. sell

77. currency futures option

78. Chicago Mercantile Exchange

79. Restricted security

80. associated person

81. convenience yield

82. listed

83. intraday limit

84. FUTOP

85. large trader

86. International Commodities Clearing House

87. Commodity Trading Advisor

88. long

89. out-of-favor

90. Dusseldorf Stock Exchange (DUS)

91. limit move

92. nearby month

93. warehouse report

94. buying hedge

95. nearby delivery month

96. forward points

97. Commodity Research Bureau Index (CRB)

98. commercial hedger

99. futures brokers

100. bid/ask spread

Note: Maximum 100 records reached. Please narrow your search.

Featured term of the day

Definition / Meaning of

Tracking Stock

Categories: Investing and Trading, Stocks,

Best defined with an example. Suppose Company A purchases a business from Company B and pays B with 1 million shares of A's stock. The agreement provides that B cannot sell the 1 million shares for 60 days, and also prohibits B from hedging by purchasing put options on A's shares or short-selling A's shares. B is worried that the market may fall in the next 60 days. B could hedge by purchasing put options or selling the futures on the s&p 500. However, it is possible that A's business is much more cyclical than the s&p 500. One solution to this problem is to find a tracking stock. This is a stock that has high correlation with A. Let us call it Company C. The solution is to sell short or buy protective put options on this tracking stock C. This protects B from fluctuations in the price of A's stock over the next 60 days. Because the degree of the protection is related to the correlation of A and C's stock, it is extremely unlikely that the protection is perfect. Multidivisional firms have used a form of restructuring called tracking stock since 1984 to segment the performance of a particular division -- similar to a spin-off or carve-out, except that the parent firm does not relinquish control of the tracked division. Previously, this was known as alphabet stock, but the technically correct name is tracking stock (e.g., EDS traded for years as a tracking stock of GM). This is a way to reward managers for good divisional performance with an equity that is tied to their division-rather than potentially penalizing them compensation for bad performance in a division they have no control over.

Most popular terms

1. Other Structures: Homeowners Policy
2. Lump-sum Distribution
3. Weighted Stock Index
4. Brokerage Firm
5. Price-to-earnings Ratio (P/E)
6. Money Market Mutual Fund
7. Absolute Exclusions
8. Health Savings Account (HSA)
9. Sublimit
10. Statute Of Limitations

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