AI For Trading Of stocks (1)
Common and Preferred Stock
Note that for this Nanodegree program, when we discuss stocks, we’re primarily referring to common stock as opposed to preferred stock. This is because preferred stock actually behaves more like a bond (which we’ll cover next), so preferred stock prices may tend to be more stable relative to common stock of the same company. Usually when you see stock data and financial news, it’s referring to common stock.
Options: calls, puts, American, European
Options give the owner the right to buy or sell at the strike price (a fixed price that is determined when the option is created), on or before an expiration date.
The most common are call options and put options。
Call options give the right to buy at the strike price; put options give the owner the right to sell at a fixed price
Some options allow the holder to “exercise” (buy or sell) at the strike price any time up to the expiration date
·These are called “American options” by convention, even though this doesn’t mean that the options are traded in the Americas
Another class of options only allows the holder to exercise the option at the expiration date, but not earlier. These are called “European options” by convention, but again, European options don’t necessarily have to be traded in Europe.
Forwards and Futures
Futures and forwards contracts are similar, in that a buyer and seller both agree to make a future transaction at a predetermined price.
Futures are standardized contracts that can be traded on a futures exchange, so this may be what people think of when discussing “forwards and futures”.
Forward contracts are usually privately determined contracts between two parties. So an investor can trade futures contracts, but forward contracts are not designed to be traded like futures.
Public versus private equity
Public equity refers to stocks that can be traded on a stock exchange. Private equity refers to ownership in private companies, so the owners of private equity do not trade their shares on a stock exchange.
Our course is primarily focused on public equity, which we’ll refer to as stocks, since the ability to buy and sell freely enables us to adjust our investments based on new or time-sensitive information.
A recent example of a bubble is bitcoin, which rose from from under $1,000 per coin in January of 2017, to over $17,000 per coin by December of the same year, before dropping to about $6,000 by June of 2018.