FIN-309

• Capital Market Operations – lecture 2

 Learning outcomes
• To understand the basic terminology of stock
market.

• To understand the basic for tracking a particular

stock.
 Latest News
(stock in focus)
 Basic Terminology
• Averaging:
The process of gradually buying more and more
securities in a declining market (or selling in a rising
market) in order to level out the purchase (or sale)
price
• Bear Trap:
A false signal indicating that the rising trend of a
stock or index has reversed when in fact it has
not. This can occur during a bear market
reversal when short sellers believe the markets
will sink back to its declining ways. If the market
continues to rise, the shorters get trapped and
are forced to cover their position at higher prices
• Benchmark index:
Indicators used to provide a point of reference for
evaluating a fund’s performance.

• Beta:
A measure of the volatility of a stock relative to the market
index in which the stock is included. A low beta indicates
relatively low risk; a high beta indicates a high risk.
• Bid – Ask spread:
The difference between the bid price and the ask
price.

• Relevance of Bid-ask Spread

The bid-ask spread is therefore a signal of the levels where
buyers will buy and sellers will sell. A tight bid-ask spread
can indicate an actively traded security with
good liquidity. Meanwhile, a wide bid-ask spread may
indicate just the opposite.
If there is a significant supply or
demand imbalance and lower liquidity, the
bid-ask spread will expand substantially. So,
popular securities will have a lower spread
(e.g. Apple, Netflix, or Google stock), while a
stock that is not readily traded may have a
wider spread.
 Example of Bid-ask spread
For example, assume Morgan Stanley
Capital International (MSCI) wants to
purchase 1,000 shares of XYZ stock at $10,
and Merrill Lynch wants to sell 1,500 shares
at $10.25. The spread is the difference
between the asking price of $10.25 and the
bid price of $10, or 25 cents.
• Book Value:
The net amount shown in the books or in the
accounts for any asset, liability or owners’ equity
item. In the case of a fixed asset, it is equal to
the cost or revalued amount of the asset less
accumulated depreciation. Also called carrying
value.
• Bubble:
A speculative sharp rise in share prices which like
the bubble is expected to suddenly burst.

Market capitalization:
The market value of a company, calculated by
multiplying the number of shares issued and
outstanding by their current market price.
 Identification of Small and Mid
cap
• The stocks with a market cap of Rs
10,000 crore or more are large cap
stocks.
• Company stocks with a
market cap between Rs 2 crore and 10
crore are mid cap stocks
• Those less than Rs 2 crore
market cap are small cap stocks.
• Market Price:
The last reported sale price for an exchange
traded security.

• Last Traded Price

Last traded price of the day is the actual last
traded price.
 LTP vs Closing Price
• The Last traded price (LTP) usually differs from
the closing price of the day. This because
the closing price of the day on NSE is the
weighted average price of the last 30 mins of
trading. Last traded price of the day is the actual
last traded price.

• Due to this the LTP will not match the close on

the daily charts 
• Volume of Trading
The total number of shares which changes hands
in a particular company’s securities. This
information is useful in explaining and
interpreting fluctuation in share prices.
 Relevance of Volume
• It represents the overall activity of a
security or a market. Investors often use
trading volume to confirm the existence, or
a continuation, of a trend or trend reversal.

• Essentially, trading volume can legitimize

a security's price action, which can then
aid an investor in their decision to either
buy or sell that security.
52 week chart
1 day chart
End of Lecture