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Definition of Position

Position Image 1

Position

A market commitment; the number of contracts bought or sold for which no offsetting transaction
has been entered into. The buyer of a commodity is said to have a long position and the seller of a commodity
is said to have a short position . Related: open contracts



Related Terms:

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.


Clear a position

To eliminate a long or short position, leaving no ownership or obligation.


Composition

Voluntary arrangement to restructure a firm's debt, under which payment is reduced.


Deemed Disposition

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.


Fallacy of Composition

The incorrect conclusion that something that is true for an individual is necessarily true for the economy as a whole.



Financial Position

Status of a firm's assets, liabilities, and equity accounts as of a certain time, as shown in its financial statement.


Limitation on asset dispositions

A bond covenant that restricts in some way a firm's ability to sell major assets.


Position Image 2

Long position

An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).
Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock."
Related: Short position


Long position

Outright ownership of a security or financial instrument. The
owner expects the price to rise in order to make a profit on some future sale.


long position

Purchase of an investment.


MM dividend-irrelevance proposition

Theory that under ideal conditions, the value of the firm is unaffected by dividend policy.


MM's proposition I (debt irrelevance proposition)

The value of a firm is unaffected by its capital structure.


MM's proposition II

The required rate of return on equity increases as the firm’s debt-equity ratio increases.


Modigliani and Miller Proposition I

A proposition by Modigliani and Miller which states that a firm cannot
change the total value of its outstanding securities by changing its capital structure proportions. Also called
the irrelevance proposition.


Modigliani and Miller Proposition II

A proposition by Modigliani and Miller which states that the cost of
equity is a linear function of the firm's debt-equity-ratio.


Open position

A net long or short position whose value will change with a change in prices.


Position Image 3

Policy-Ineffectiveness Proposition

Theory that anticipated policy has no effect on output.


Position diagram

Diagram showing the possible payoffs from a derivative investment.



Short position

Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed,
before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the
transaction. This technique is used when an investor believes the stock price will go down.


short position

The sale of an investment, particularly by someone who does not yet own it.


Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.


Take a position

To buy or sell short; that is, to have some amount that is owned or owed on an asset or
derivative security.


Aggressive Cost Capitalization

Cost capitalization that stretches the flexibility within generally
accepted accounting principles beyond its intended limits, resulting in reporting as assets
items that more reasonably should have been expensed. The purpose of this activity is likely to
alter financial results and financial position in order to create a potentially misleading impression
of a firm's business performance or financial position.


Asset Coverage

Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.


authority

the right (usually by virtue of position or rank) to use resources to accomplish a task or achieve an objective


Balance Sheet

A financial statement showing the financial position of a business – its assets, liabilities and
capital – at the end of an accounting period.


Bank reconciliation

A comparison between the cash position recorded on a company’s
books and the position noted on the records of its bank, usually resulting in some
changes to the book balance to account for transactions that are recorded on the
bank’s records but not the company’s.


Bear raid

A situation in which large traders sell positions with the intention of driving prices down.



Book

A banker or trader's positions.


Book profit

The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.


Bridge financing

Interim financing of one sort or another used to solidify a position until more permanent
financing is arranged.


Buy

To purchase an asset; taking a long position.


Buy in

To cover, offset or close out a short position. Related: evening up, liquidation.


capital gain

The positive difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for more than you paid, you realize a capital gain.


capital loss

The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.


cash flow

the receipt or disbursement of cash; when related
to capital budgeting, cash flows arise from the purchase,
operation, and disposition of a capital asset


Closing purchase

A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.


Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.


confrontation strategy

an organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company
products through new features or to develop a price
leadership position by dropping prices, even though management
recognizes that competitors will rapidly bring out
similar products and match price changes; an organizational
strategy in which company management identifies
and exploits current opportunities for competitive advantage
in recognition of the fact that those opportunities will
soon be eliminated


cost leadership strategy

a plan to achieve the position in a
competitive environment of being the low cost producer of
a product or provider of a service; it provides one method
of avoiding competition


cost structure

the relative composition of an organization’s
fixed and variable costs


Cover

The purchase of a contract to offset a previously established short position.


Covered call

A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.


Covered or hedge option strategies

Strategies that involve a position in an option as well as a position in the
underlying stock, designed so that one position will help offset any unfavorable price movement in the other,
including covered call writing and protective put buying. Related: naked strategies


Covered Put

A put option position in which the option writer also is short the corresponding stock or has
deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the
option writer's risk because money or stock is already set aside. In the event that the holder of the put option
decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put
option.


Day trading

Refers to establishing and liquidating the same position or positions within one day's trading.


Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.


Delivery notice

The written notice given by the seller of his intention to make delivery against an open, short
futures position on a particular date. Related: notice day


Dynamic hedging

A strategy that involves rebalancing hedge positions as market conditions change; a
strategy that seeks to insure the value of a portfolio using a synthetic put option.


Equilibrium

A position in which there is no pressure for change, where demand and supply are equal.


Evening up

Buying or selling to offset an existing market position.


Exposure netting

Offsetting exposures in one currency with exposures in the same or another currency,
where exchange rates are expected to move in such a way that losses or gains on the first exposed position
should be offset by gains or losses on the second currency exposure.


Flat price risk

Taking a position either long or short that does not involve spreading.


Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.


Future-Oriented Financial Information

Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.


Hedge

A securities transaction that reduces or offsets the risk on an existing
investment position.


Hedged portfolio

A portfolio consisting of the long position in the stock and the short position in the call
option, so as to be riskless and produce a return that equals the risk-free interest rate.


hold mission

a mission that attempts to protect the business
unit’s market share and competitive position; typically pursued
by a business unit with a large market share in a
high-growth industry


Information services

Organizations that furnish investment and other types of information, such as
information that helps a firm monitor its cash position.


internal accounting controls

Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
and authority.


Limit price

Maximum price fluctuation
Limitation on asset dispositions A bond covenant that restricts in some way a firm's ability to sell major
assets.


Liquidation

When a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers
are distributed to shareholders. Any transaction that offsets or closes out a Long or short position. Related:
buy in, evening up, offsetliquidity.


Long

One who has bought a contract(s) to establish a market position and who has not yet closed out this
position through an offsetting sale; the opposite of short.


Long run

A period of time in which all costs are variable; greater than one year.
Long straddle A straddle in which a long position is taken in both a put and call option.


Long straddle

A straddle in which a long position is taken in both a put and call option.


Maintenance margin requirement

A sum, usually smaller than -but part of the original margin, which must
be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the
maintenance margin level, the broker must issue a margin call for the amount at money required to restore the
customer's equity in the account to the original margin level. Related: margin, margin call.


Management

Management refers to the individuals in an entity that have the authority and the responsibility to manage the entity. The positions of these individuals, and their titles, vary from one entity to another and, to some extent, from one country to another depending on the local laws and customs. Thus, when the context requires it, the term includes the board of directors or committees of the board which are designated to oversee certain matters (e.g., audit committee).


Margin requirement (Options)

The amount of cash an uncovered (naked) option writer is required to
deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.


Material review board

A company committee typically comprising members representing
multiple departments, which determines the disposition of inventory
items that will not be used in the normal manufacturing or distribution process.


Membership

or a seat on the exchange A limited number of exchange positions that enable the holder to
trade for the holder's own accounts and charge clients for the execution of trades for their accounts.


Merchant Bank

A financial institution that engages in investment banking functions, such as advising clients in mergers and acquisitions, underwriting securities and taking debt or equity positions.


Mortgage Insurance

Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
The cost of mortgage lender's insurance group coverage is based on a blended non-smoker/smoker rate, not having any advantage to either male or female. Mortgage lender's group insurance certificate specifies that it [the lender] is the sole beneficiary entitled to receive the death benefit. Mortgage lender's group insurance is not portable and is not guaranteed. Generally speaking, your coverage is void if you do not occupy the house for a period of time, rent the home, fall into arrears on the mortgage, and there are a few others which vary by institution. If, for example, you sell your home and buy another, your current mortgage insurance coverage ends and you will have to qualify for new coverage when you purchase your next home. Maybe you won't be able to qualify. Not being guaranteed means that it is possible for the lending institution's group insurance carrier to cancel all policy holder's coverages if they are experiencing too many death benefit claims.
Mortgage insurance purchased from a life insurance company, is priced, based on gender, smoking status, health and lifestyle of the purchaser. Once obtained, it is a unilateral contract in your favour, which cannot be cancelled by the insurance company unless you say so or unless you stop paying for it. It pays upon the death of the life insured to any "named beneficiary" you choose, tax free. If, instead of reducing term life insurance, you have purchased enough level or increasing life insurance coverage based on your projection of future need, you can buy as many new homes in the future as you want and you won't have to worry about coverage you might loose by renewing or increasing your mortgage.
It is worth mentioning mortgage creditor protection insurance since it is many times mistakenly referred to simply as mortgage insurance. If a home buyer has a limited amount of down payment towards a substantial home purchase price, he/she may qualify for a high ratio mortgage on a home purchase if a lump sum fee is paid for mortgage creditor protection insurance. The only Canadian mortgage lenders currently known to offer this option through the distribution system of banks and trust companies, are General Electric Capital [GE Capital] and Central Mortgage and Housing Corporation [CMHC]. The lump sum fee is mandatory when the mortgage is more than 75% of the value of the property being purchased. The lump sum fee is usually added onto the mortgage. It's important to realize that the only beneficiary of this type of coverage is the morgage lender, which is the bank or trust company through which the buyer arranged their mortgage. If the buyer for some reason defaults on this kind of high ratio mortgage and the value of the property has dropped since being purchased, the mortgage creditor protection insurance makes certain that the bank or trust company gets paid. However, this is not the end of the story, because whatever the difference is, between the disposition value of the property and whatever sum of unpaid mortgage money is outstanding to either GE Capital or CMHC will be the subject of collection procedures against the defaulting home buyer. Therefore, one should conclude that this kind of insurance offers protection only to the bank or trust company and absolutely no protection to the home buyer.


Mutual offset

A system, such as the arrangement between the CME and SIMEX, which allows trading
positions established on one exchange to be offset or transferred on another exchange.


Naked option strategies

An unhedged strategy making exclusive use of one of the following: Long call
strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying
put options ), and short put strategy (selling or writing put options). By themselves, these positions are called
naked strategies because they do not involve an offsetting or risk-reducing position in another option or the
underlying security.
Related: covered option strategies.


Offset

Elimination of a long or short position by making an opposite transaction. Related: liquidation.


Opening purchase

A transaction in which the purchaser's intention is to create or increase a long position in
a given series of options.


Opening sale

A transaction in which the seller's intention is to create or increase a short position in a given
series of options.


organization chart

a depiction of the functions, divisions,
and positions of the people/jobs in a company and how
they are related; it also indicates the lines of authority and
responsibility


Original margin

The margin needed to cover a specific new position. Related: Margin, security deposit (initial)


Overreaction hypothesis

The supposition that investors overreact to unanticipated news, resulting in
exaggerated movement in stock prices followed by corrections.


P&S (P and S)

Purchase and sale statement. A statement provided by the broker showing change in the customer's net
ledger balance after the offset of a previously established position(s).


Perfect hedge

A financial result in which the profit and loss from the underlying asset and the hedge position
are equal.


Performance attribution analysis

The decomposition of a money manager's performance results to explain
the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What
were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was
market timing statistically significant? And (4), Was security selection statistically significant?


Puke

Slang for a trader selling a position, usually a losing position, as in, "When in doubt, puke it out."


Purchase

To buy, to be long, to have an ownership position.


Replacement

This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
The most important policies to examine in detail are those which were issued in Canada prior to December 2, 1982. If you have a policy of this vintage with a significant cash surrender value, you may want to consider keeping it. It has special tax advantages over policies issued after December 2, 1982.
Basically, the difference is this. The cash surrender value of a pre December, 1982 policy can be converted to an annuity in accordance with the settlement options in the policy and as a result, the tax on any policy gain can be spread over the duration of the annuity. Since only the interest element of the annuity payment will be taxed, there will be less of a tax impact on the annuitant. Policies issued after December 2, 1982 which have their cash surrender value annuitized trigger a disposition and the annuitant must pay tax on the total policy gain immediately. If you still decide to replace existing coverage, don't cancel what you have until the new coverage has been issued.


Restructuring Charge

A special, nonrecurring charge taken in conjunction with a consolidation
or relocation of operations, or the disposition or abandonment of operations or productive
assets. Such charges may include impairment losses as well as other expenses, such as writedowns
of other assets including accounts receivable and inventory, and accruals of liabilities for
so-called exit costs, including such expenses as lease terminations, closure costs, severance pay,
benefits, and retraining.


Restructuring Charges

Costs associated with restructuring activities, including the consolidation and/or relocation of operations or the disposition or abandonment of operations or productive assets.
Such charges may be incurred in connection with a business combination, a change in an enterprise's strategic plan, or a managerial response to declines in demand, increasing costs, or other environmental factors.


Reversing trade

Entering the opposite side of a currently held futures position to close out the position.


Risk arbitrage

Speculation on perceived mispriced securities, usually in connection with merger and
acquisition deals. Mike Donatelli, John Demasi, Frank Cohane, and Scott Lewis are all hardcore arbs. They
had a huge BT/MCI position in the summer of 1997, and came out smelling like roses.


Round-turn

Procedure by which the Long or short position of an individual is offset by an opposite
transaction or by accepting or making delivery of the actual financial instrument or physical commodity.


Scale in

When a trader or investor gradually takes a position in a security or market over time.


Scalp

To trade for small gains. It normally involves establishing and liquidating a position quickly, usually
within the same day.


Short

One who has sold a contract to establish a market position and who has not yet closed out this position
through an offsetting purchase; the opposite of a long position. Related: Long.


Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.


Spectail

A dealer that does business with retail but that concentrates more on acquiring and financing its own
speculative positions.


Speculative motive

A desire to hold cash for the purpose of being in a position to exploit any attractive
investment opportunity requiring a cash expenditure that might arise.


Spread strategy

A strategy that involves a position in one or more options so that the cost of buying an
option is funded entirely or in part by selling another option in the same underlying. Also called spreading.


Structured Settlement

Historically, damages paid out during settlement of personal physical injury cases were distributed in the form of a lump-sum cash payment to the plaintiff. This windfall was intended to provide for a lifetime of medical and income needs. The claimant or his/her family was then forced into the position of becoming the manager of a large sum of money.
In an effort to create a more financially stable arrangement for the claimant, the Structured Settlement was developed. A Structured Settlement is an alternative to a lump sum cash payment in the resolution of personal physical injury, wrongful death, or workers’ compensation cases. The settlement usually consists of two components: an up-front cash payment to provide for immediate needs and a series of future periodic payments which are funded by the defendant’s purchase of one or more annuity policies. Those payors make payments directly to the claimant. In the unfortunate event of the claimant’s death, a guaranteed portion of the settlement may be directed to a beneficiary or his/her estate.
A Structured Settlement is a guaranteed source of funds paid to the claimant or his/her family on a tax-free basis.



 

 

 

 

 

 

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