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Finance GlossaryVIX (Volatility Index)
VIX (Volatility Index)
Definition of VIX (Volatility Index)
The VIX, often called the “fear index,” measures market expectations of near-term volatility based on options pricing. When the VIX rises sharply, it indicates increased investor anxiety, such as during market crashes or geopolitical events, while a low VIX suggests stable and confident market conditions.
Related Terms
Adjusted Closing Price
The adjusted closing price of stock accounts for any changes that happen due to corporate actions like dividends, stock splits, and others after trading hours.
Institutional Investor
Institutional Investor refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.
This privileged access to confidential information is termed “Institutional Investor” because information is generally sourced through insiders or employees working at a publicly traded firm.
This privileged access to confidential information is termed “Institutional Investor” because information is generally sourced through insiders or employees working at a publicly traded firm.
Bought Out Deal
A bought-out deal is a stock offering where an investment bank buys the entire issue of shares from a company. In turn, the investment bank will attempt to sell the shares to other investors. A deal of this kind has two benefits:
- The company need not worry about subscription as the investment bank will purchase the entire offering
-
The investment bank can negotiate with the company and get the shares at a discount
That said, there are risks to a bought out deal like:
- It is up to the investment bank to sell the shares to investors in order to recoup the principal or make a profit
- The investment bank also runs the risk of receiving no interest in the shares from other investors
- Guarantee purchase
If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.
Common Stocks
A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:
- Get higher returns
- A part of the assets left after a company is liquidated (in case of default)
Pair Trading
Pair Trading is a market-neutral trading strategy that involves taking opposite positions in two highly correlated securities. The aim is to make a profit from the temporary difference in the prices. A trader may purchase the relatively underperforming stock (the 'long' position) and short-sell the relatively outperforming stock (the 'short' position) in the pair. The expectation is that the prices will eventually return to their historical mean relationship (convergence).
Foreign Portfolio Investment
A Foreign Portfolio Investment includes stocks, bonds, ETFs, derivatives, and other financial instruments from another country. Generally, FPIs do not give an investor the right to ownership or a controlling stake in any organization.
Instead, FPIs act as a passive income vehicle. That’s why FPIs are different to Foreign Direct Investment (FDI) in which an ownership stake is acquired with the intention of controlling and influencing business decisions.
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