The Practical Guide to Wall Street Equities and Derivatives

by Tagliani, Matthew

• ISBN13: 9780470383728
• ISBN10: 0470383720
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-04-06
• Publisher: Wiley

Summary

The Practical Guide to Wall Street is an indispensable resource for anyone who aspires to a front-office sales or trading position on Wall Street and an essential desk reference for market practitioners and those who interact with this exciting but widely misunderstood industry. Written by an experienced trader in a clear, conversational style and assuming no previous background in finance, The Practical Guide to Wall Street provides a thorough schooling in the core curriculum of the equity and equity derivatives sales and trading business - exactly what you would learn from sitting beside the traders at a tier-one Wall Street investment bank (except that in practice, traders rarely have time to provide such detailed explanations!) Topics covered include: Clear, detailed and intuitive explanations of all major products, their function, pricing and risks (several of which are unavailable anywhere else despite producing billions of dollars in annual revenue for Wall St.) The layout of the trading floor, the roles and responsibilities of the different sales and trading groups and how they interact to service the client business An overview of the structure of the macro-economy and the trader's perspective on the significance of economic data releases and their impact on the financial markets A review of those concepts from fundamental valuation and financial statement analysis of greatest relevance on the trading floor (as opposed to abstract valuation models) Practical details of the structure and functioning of the equity and derivative markets including translations of trader jargon, Bloomberg tips, market conventions, liquidity and risk considerations and much more...This book provides the first comprehensive explanation of all aspects of the functioning of the equities division, with information, details and insights previously only available to those who already worked on a trading floor. The availability of this material in a format accessible to non-professionals fundamentally changes the level of industry knowledge employers in the financial services industry can expect of new hires.

Author Biography

Matthew Tagliani, CFA, has more than ten years of trading and risk management experience in equity swaps, ETFs, futures, and program trading. He has worked at Morgan Stanley, Goldman Sachs, and Credit Suisse and holds a master's degree in applied mathematics from the University of Massachusetts Amherst.

Table of Contents

Preface	p. xiii
A Comment on the Events of 2008	p. xxiii
Acknowledgments	p. xxv
What Is a Stock?	p. 1
Equity Fundamentals (Part 1): Introduction to Financial Statements	p. 3
Introduction	p. 3
Equity and Corporation	p. 4
Introduction to Financial Statements	p. 5
The Balance Sheet	p. 6
The Income Statement	p. 15
Statement of Cash Flows	p. 20
Summary	p. 24
Equity Fundamentals (Part 2): Financial Ratios, Valuation, and Corporate Actions	p. 27
Introduction	p. 27
Financial Ratios	p. 28
Growth and Value	p. 38
Bloomberg	p. 39
Valuation	p. 40
Technical Analysis	p. 51
Corporate Actions	p. 54
Summary	p. 64
Products and Services	p. 67
Cash Market	p. 69
Introduction	p. 69
How a Stock Exchange Functions	p. 69
Exchange Structure	p. 76
Order Types	p. 81
How the Cash Trading Business Works	p. 102
Communication	p. 112
Purchasing a Stock in a Foreign Currency	p. 115
Summary	p. 121
Equity Indices	p. 123
Introduction	p. 123
Index Construction	p. 125
What an Index Doesn't Tell Us	p. 129
Valuation and Calculation	p. 131
Replicating Portfolio	p. 134
Trading an Index Portfolio	p. 136
Index Changes	p. 139
Index Dividend Points	p. 142
Total Return Index Calculation	p. 144
Multicurrency Indices	p. 145
Equity Indices in Practice	p. 147
International Indices	p. 156
Summary	p. 165
Program Trading	p. 167
Introduction	p. 167
Explanation of a Sample Trade	p. 173
When Is Program Trading More Beneficial?	p. 182
Portfolio Analytics	p. 184
Transition Management	p. 189
Principal Trades	p. 191
Summary	p. 201
Exchange-Traded Funds (ETFs)	p. 203
Introduction	p. 203
Trading Mechanics	p. 205
Net Asset Value (NAV)	p. 207
Popularity	p. 208
Trading versus Holding	p. 212
ETFs in Practice	p. 214
Summary	p. 214
Forwards and Futures	p. 217
Introduction	p. 217
Calculation of Fair Value	p. 219
Futures	p. 223
Index Arbitrage	p. 233
The Futures Roll	p. 240
Exchange for Physical (EFP)	p. 245
Basis Trades	p. 254
Futures Contracts in Practice	p. 259
Technical Comment on the Accuracy of Approximations	p. 263
Summary	p. 264
Swaps	p. 267
Introduction	p. 267
Motivation for a Swap	p. 267
A Long Equity Swap Example	p. 269
The Swap in Detail: Definitions and Terminology	p. 272
Calculation of Payments	p. 277
Short Swap	p. 279
Back-to-Back Swaps	p. 280
Swaps as a Trading Tool	p. 281
A Comment on Hedging	p. 286
Swap Valuation: Accrual versus NPV	p. 287
Currency Exposure	p. 289
ISDA	p. 293
Risks and Other Considerations	p. 294
Summary	p. 296
Options (Part 1)	p. 299
Introduction	p. 299
Definitions and Terminology	p. 300
Payoff Structure	p. 301
Option Values Prior to Maturity	p. 311
Quantitative Considerations	p. 323
The Black-Scholes Derivation	p. 326
Types of Volatility	p. 337
Summary	p. 341
Options (Part 2)	p. 343
Volatility Trading	p. 343
Option Sensitivities: The "Greeks"	p. 354
Implied Volatility Revisited	p. 374
OTC and Exotic Options	p. 377
Summary	p. 383
The Trading Floor	p. 385
Introduction	p. 385
Organization of the Sales and Trading Businesses	p. 386
Other Groups	p. 390
Summary	p. 404
Economics	p. 405
Macroeconomics for Trading and Sales	p. 407
Introduction	p. 407
Capital Asset Pricing Model (CAPM)	p. 408
Overview of Macroeconomics	p. 408
The Fed	p. 417
Moving beyond the Big Three: Other Macroeconomic Concepts	p. 424
Other Variables	p. 426
A Final Observation	p. 428
Summary	p. 429
Economic Data Releases	p. 431
Introduction	p. 431
Preliminary Definitions	p. 433
Principal U.S. Economic Indicators	p. 436
Rest of the World Economics	p. 456
Europe	p. 457
European Economic Statistics	p. 462
Asia	p. 466
The Market's Reaction Function	p. 471
What the Market Tells Us about the Economy	p. 476
Summary	p. 480
Appendix: Mathematical Review	p. 481
Introduction	p. 481
Functions	p. 482
Compound Interest and Exponential Growth	p. 483
Calculus	p. 487
Random Variables, Probability, and Statistics	p. 494
Summary	p. 505
Notes	p. 507
About the Author	p. 519
Index	p. 521
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