fina 3000 - test 2 current events

stock options

• option is the RIGHT to buy or sell shares at a SET PRICE

• call option “long”:

  • the right to buy shares a at set price

  • hope: share price goes up

• put option “short”:

  • the right to sell shares at a set price

  • hope: stock price goes down

short option vs. short selling

• short option:

  • you buy option & profit off price decrease

  • potential loss? price of option

• short selling:

  • hedge fund “borrows” shares from broker

  • immediately sell the shares

    • hope: share price DROPS

  • if price drops, buy shares @ lower price & return to broker

  • if price increases, unlimited losses

reddit discussion board: wall street bets

• noticed % of shares borrowed in GameStop (140%)

• pushed buying the stock which increased price

• short selling

  • 1. get out & take loss

    • buy shares to get out (short squeeze: getting out, increased price)

  • 2. ride it out

    • pay interest to broker until price decreases

• “meme stock”

  • increased price for no fundamental reason

• negative outcomes:

  • 1. Robinhood

    • halted trading on GameStop for 1 day

  • 2. last money in

VIX = volatility index

• option that trades in Chicago

• value is based on volatility of stock prices in market

  • increase risk in price = increase value of VIX

• “fear index”

  • typically, VIX traded 15-20

silicon valley bank (SVB)

• bank dedicated to tech sector

  • deposits from tech company employees

  • mortgage with tech employees

  • deposits from tech firm (Roku)

  • creative financing for startups

• FDIC: federal deposit insurance corporation

  • covers any deposit up to $250k

• Roku → $487 million

  • government provided liquidity until SVB could be sold

“banking rule 101”

• when a bank invests their deposits, they should be in short duration investments (liquidity)

SVB deposits in long-term US government debt (higher YTM or return)

• interest rate risk:

  • increased time till maturity, increased price change when rates change

• US economy:

  • 2022: increased rates, decreased bond price

  • SVB lost value on balance sheet

  • tech sector slowed down → layoffs → tech employees came for deposits

    • created bank run

    • insolvement

Nike earnings call

• current quarters earnings & revenues met expectations

• weak future outlook

  • sales will decline in next quarter

• major issues in China:

  • current quarter: decrease in sales by 10%

  • next quarter: decrease in sales by 20%

• other:

  • margins are down

  • excessive inventory

• questions about product rebranding

“shadow banking”

• refers to financial institutions that act like banks

• borrow/lend money like a bank but not regulated

  • (hedge funds, private equity, private credit fund)

• more flexible than banks because less lending standards

• lower standards → greater risk taking

• greater risk → greater chance of failure if economy tanks

• involved in 50% of global financing