Return expressed as if earned at a constant pace each year. It only makes sense over periods of at least a year: annualising a few weeks gives an estimate, not a result.
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Glossary
The terms we use in every thesis, explained plainly
See the thesesSearch a term
Anything with economic value: a share, a bond, a property. On a balance sheet, everything a company owns or controls that will generate future income.
Orders a company has already signed but not yet delivered or invoiced. It gives visibility on future revenue: a backlog growing faster than sales points to growth, though a signed order can still be cancelled or delayed.
A financial statement showing, at a given date, what a company owns (assets), what it owes (liabilities) and the difference between them, which is its equity.
An index or reference portfolio against which an investment's return is compared. Beating the benchmark means earning more than investing in it would have.
A measure of how much a share moves relative to the market. A beta of 1 rises and falls with the index; 1.5 moves 50% more; below 1, less. It measures market sensitivity, not total risk.
The difference between the best buying and selling prices for a security at a given moment. It is an implicit cost of trading, and widens as liquidity falls.
A mathematical model estimating the theoretical value of a European option from the underlying's price, the strike, the time to expiry, the interest rate and volatility. It underpins most warrant and option calculators.
A debt security: its buyer lends money to the issuer —a government or a company— in exchange for periodic interest, the coupon, and repayment of principal at maturity.
An authorised intermediary that executes clients' buy and sell orders on the markets and holds their securities in custody, charging commissions for it.
A bull market is a prolonged phase of rising prices; a bear market, one of falls, conventionally starting when an index drops 20% from its peak.
Compound annual growth rate: the constant yearly rate at which a figure would have had to grow to go from its starting value to its final one. It smooths out ups and downs and allows growth over different periods to be compared.
An option giving its buyer the right, but not the obligation, to buy the underlying at a set price, the strike, up to or on a given date. It gains value when the underlying rises.
A company's spending on fixed assets —machinery, facilities, technology— to maintain or expand its capacity. It is subtracted from operating cash flow to arrive at free cash flow.
The gain made by selling an asset for more than it cost. Until it is sold the gain is unrealised; on sale it is realised and taxed.
Issuing new shares to raise money. If existing shareholders do not take part, their stake in the company is diluted.
Capital asset pricing model: it estimates the return a share should be required to deliver by adding to the risk-free rate a market risk premium multiplied by its beta. It is the usual way to calculate the cost of equity within the WACC.
Spain's National Securities Market Commission: the body that supervises Spanish securities markets, protects investors and authorises firms that provide investment services.
What protects a company's profits from competitors: brand, lower costs, network effects, patents or what it costs customers to switch. The more durable it is, the more each euro it earns is worth.
The effect of reinvesting gains so they generate further gains. Over time growth stops being linear: 10% a year doubles capital in just over seven years.
The degree to which two assets move together, from -1 (opposite directions) to 1 (in lockstep). Combining weakly correlated assets is the basis of diversification.
The Greek measuring how much an option's price changes when the underlying moves by one unit. It ranges from 0 to 1 for calls and from -1 to 0 for puts, and is often read as the rough probability of finishing in the money.
The accounting allocation of an asset's cost over its useful life. It involves no cash outflow in the year it is recorded, which is why it is the gap between EBITDA and EBIT.
A financial instrument whose value depends on the price of another asset, the underlying. Options, futures and warrants are derivatives.
The reduced weight of each existing share when the company issues new ones, whether through a capital increase, an acquisition or share-based pay. Profit is spread across more shares.
A valuation method that projects the cash flows a company will generate and brings them to today's value with a discount rate, usually the WACC. The result is an estimate of its intrinsic value.
Spreading capital across different assets, sectors or regions so that one poor result does not weigh too heavily on the whole. It reduces the risk specific to each holding, not overall market risk.
The share of profit a company distributes to shareholders, usually in cash. It is not mandatory: it depends on each company's policy and on its general meeting's approval.
Annual dividend per share divided by the share price. It shows what percentage of the investment comes back as dividends each year.
The percentage fall from a peak to the subsequent trough. A portfolio's maximum drawdown shows how much someone who entered at the worst point would have lost at the worst moment.
A company's net profit divided by its number of shares. It is the denominator of the P/E ratio and the most direct way to see what the company earns for each share an investor holds.
Operating profit: revenue minus operating costs and depreciation, before interest and taxes. It measures what the business itself earns, regardless of how it is financed.
Earnings before interest, taxes, depreciation and amortisation. It approximates the cash the operations generate, though it ignores the investment needed to sustain them.
Market capitalisation plus net debt: what it would cost to buy the whole business, debts included. It underpins multiples such as EV/EBITDA.
The price at which a position is opened. In the Warrants & Co. portfolio it is the one stated in each thesis's company profile, and every result is measured against it.
An investment fund listed on an exchange like a share, usually tracking an index. It lets investors buy a diversified basket in a single trade at low cost.
A multiple dividing enterprise value by EBITDA. Because it includes debt, it compares companies with different capital structures better than the P/E ratio does.
The date a derivative expires or a bond is repaid. After it, an option or warrant that has not been exercised ceases to exist.
What an intermediary or manager charges for their services: to execute an order, hold securities or manage a fund. It reduces the final return, so it is worth knowing before trading.
The cash a company generates after paying for its operations and investments. It is the money genuinely left to pay dividends, buy back shares or reduce debt.
The portion of a company's capital held by the public and freely traded, excluding controlling shareholders' stakes. A low free float usually means less liquidity.
The study of a company's business —its accounts, competitive advantage, industry and management— to estimate what it is worth and compare that with its market price. It is the method behind every Warrants & Co. thesis.
A contract obliging the parties to buy or sell an asset at a set price on a future date. Unlike an option, both sides are bound to honour it.
The Greek measuring how much an option's delta changes when the underlying moves by one unit. It peaks at the money and close to expiry, when the option's price becomes most sensitive.
A jump in price between one session's close and the next session's open, skipping the prices in between. It can cause a stop loss to execute well below the intended level.
Measures of an option price's sensitivity to each of its drivers: delta (the underlying), gamma (the change in delta), theta (time decay), vega (volatility) and rho (interest rates).
The percentage of sales left after deducting the direct cost of what was sold. A high, stable gross margin often signals pricing power.
Forecasts a company's own management publishes about future results: sales, margins, earnings. Revising them up or down often moves the share price more than the quarter's figures.
A position opened to offset the risk of another. Buying a put on a share already held, for example, limits the loss if it falls.
The future volatility priced into an option. It is backed out of the option's price with a model such as Black-Scholes, and rises when the market expects large moves.
A financial statement recording a period's revenue and expenses and the resulting profit or loss. It runs from sales at the top to net profit at the bottom.
A general, sustained rise in prices that erodes money's purchasing power. An investment only truly gains if its return beats inflation.
The price of money: what is paid to borrow it or earned by lending it. When central banks raise it, valuations tend to fall, because future cash flows are worth less today.
What a company is worth based on the cash flows it will generate, regardless of today's price. Estimating it is the aim of fundamental analysis, and its gap with the price is the margin of safety.
What an option would be worth if exercised now: for a call, how far the underlying exceeds the strike; for a put, how far it is below. Out of the money it is zero.
A personalised recommendation to a specific client about transactions in financial instruments, taking their circumstances into account. In Spain it is a service regulated by the CNMV. Warrants & Co. theses are analysis for information purposes and do not constitute advice.
A pool of money from many investors that a professional manager invests according to a defined policy. Each investor owns a proportional share.
How long an investment is meant to be held. A fundamental thesis usually needs years to play out; judging it on a few weeks' performance is measuring it with the wrong ruler.
A reasoned argument for why a company is worth more than its price: what supports it, what it could be worth, what price to buy at and what would have to happen for it to be wrong.
Initial public offering: the sale of shares to the public through which a company starts trading on an exchange.
A twelve-character international code that uniquely identifies each security. Two warrants on the same share have different ISINs, and it is what to check before placing an order.
The entity that creates and sells a security: the company issuing shares or bonds, or the bank issuing a warrant. For warrants its creditworthiness matters, since it is the one liable for payment.
Using debt or derivatives to control a position larger than one's own capital. It magnifies gains and, in the same proportion, losses. For a warrant it is measured as the warrant's move for each 1% move in the underlying.
A buy or sell order with a maximum price when buying, or a minimum when selling. It protects the price but does not guarantee execution.
How easily an asset can be bought or sold without moving its price. In a portfolio, also the part of capital held in cash rather than invested.
Being long means holding a position that gains if the price rises; being short, one that gains if it falls, for instance by selling borrowed stock to buy it back cheaper later.
The gap between a company's estimated intrinsic value and the price paid. The wider it is, the more room there is to be wrong in the estimate without losing money.
The value the market places on a company: share price multiplied by the number of shares. By size, companies are described as small, mid or large caps.
A firm that continuously quotes buy and sell prices for a security so there is always a counterparty. For warrants it is usually the issuer itself.
An order executed immediately at the best available price. It guarantees execution but not the price, something to watch in illiquid securities.
The relationship between the underlying's price and an option's strike. A call is in the money (ITM) if the underlying trades above the strike, at the money (ATM) if they are level and out of the money (OTM) if below. For a put, the reverse.
A company's financial debt minus its cash and equivalents. If negative, the company holds more cash than debt. Divided by EBITDA, it shows how many years of operating earnings it would take to repay.
What remains of revenue after deducting all expenses: operating costs, depreciation, interest and taxes. It is the bottom line of the income statement.
EBIT divided by sales: how much operating profit each euro of revenue produces, after all business costs.
A contract giving its buyer the right, not the obligation, to buy (call) or sell (put) an asset at a set price up to or on a given date. That right costs a premium.
Share price divided by earnings per share: how many years of current earnings the market is paying for the company. A low P/E does not mean cheap if earnings are about to fall.
The percentage of profit a company pays out as dividends. A very high one leaves little room to invest or to sustain the dividend if earnings fall.
The set of positions an investor holds. The Warrants & Co. portfolio is public: each thesis opens a position with its entry price and weight, tracked with real quotes until it closes.
The percentage of total portfolio capital allocated to one position. At Warrants & Co. each thesis deploys a fraction of capital and the rest stays in cash.
Deciding how much capital to commit to each trade based on how much one accepts to lose, usually from the distance between the entry price and the stop.
The price an option or warrant buyer pays for the right acquired. It is the most they can lose: if exercising makes no sense at expiry, the whole premium is lost.
The price a share is expected to reach if the thesis plays out. In the Warrants & Co. portfolio, the first session the price touches it, the position closes at that price.
Market capitalisation divided by shareholders' equity. It compares what the market pays with what the accounts say; more useful for banks and insurers than for companies built on intangible assets.
An option giving its buyer the right, but not the obligation, to sell the underlying at a set price. It gains value when the underlying falls, which is why it is also used as insurance.
The accounts listed companies publish every quarter. How they compare with market expectations often triggers the sharpest share price moves.
The price at which a security trades at a given moment. Quotes shown on this site may be delayed relative to the current session, depending on the market.
The number of warrants needed for the right to one unit of the underlying. With a ratio of 10, each warrant corresponds to a tenth of a share, and its price scales accordingly.
An investment's gain or loss as a percentage of the amount invested. In this site's portfolio, return on total capital, cash included, is distinguished from ROIC, which looks only at capital deployed.
A share consolidation: the company exchanges several old shares for one new one, so the share count falls and the price rises in the same proportion, with no change in what the company is worth. It usually follows a steep price fall, and the market often reads it as a bad sign.
The possibility that an investment turns out worse than expected, including losing capital. It is measured in many ways —volatility, drawdown, beta— but none captures it completely.
Return on assets: net profit divided by total assets. It measures how much a company earns on everything it owns, and is especially useful for comparing banks and asset-heavy businesses.
Return on equity: net profit divided by shareholders' equity. It measures what the company earns on its shareholders' money, though debt can inflate it.
Return on investment: the gain or loss on an investment divided by its cost. It is the simplest measure of whether something was worth it, though it ignores how long it took to achieve.
Return on invested capital: after-tax operating profit divided by all the capital the business uses, whether equity or debt. In this site's portfolio, the same name measures the result on capital actually deployed, excluding the effect of cash.
A unit of ownership in a company's capital. Its holder becomes a part-owner: they share in profits through dividends, can vote at the general meeting and bear the risk that its value falls.
A company buying its own shares on the market. If it then cancels them, the share count falls and earnings per share rise for the remaining holders.
The difference between a company's assets and liabilities: what would belong to shareholders if everything were sold and all debts paid. It is its book value.
Return above that of a risk-free asset, divided by volatility. It shows how much was earned per unit of risk taken.
The percentage of freely traded shares that have been sold short. A high short float shows that many investors are betting against the company, and also that there is more fuel for a short squeeze.
A sharp rise in a heavily shorted share: as the price climbs, those betting on a fall have to buy back to cut their losses, and that buying pushes the price higher still.
An indicator summarising the performance of a group of securities, such as the IBEX 35 or the S&P 500. It serves as a market barometer and a benchmark for comparing results.
An order that automatically sells a position if the price falls to a set level, to limit the loss. If the session opens with a gap, it may execute below that level.
The price at which an option or warrant holder can buy (call) or sell (put) the underlying. Its distance from the current price determines whether it is in or out of the money.
An order or level set in advance to close a position at a profit when a price is reached. It turns the thesis's target into a rule rather than a last-minute decision.
An attempt to anticipate price movements from the price history itself: trends, support, resistance and volume. It looks at the chart's behaviour rather than the business behind it.
The Greek measuring how much value an option loses each day simply through the passage of time, all else equal. It works against the buyer and accelerates near expiry.
The abbreviation identifying a share on its exchange: NFLX for Netflix, ORCL for Oracle. It is the symbol shown on each thesis.
The part of an option's premium above its intrinsic value: what is paid for the chance that the underlying moves favourably before expiry. On the last day it reaches zero.
A verifiable history of results. The Warrants & Co. record includes every position, including those that went wrong, because a record with cherry-picked entries cannot be used to judge anyone.
The asset a derivative's value depends on: the share, index or currency on which an option or warrant is written.
A ratio relating a company's price or value to a business metric: earnings, sales, EBITDA. It is useful for quickly comparing similar companies, not as a valuation on its own.
The Greek measuring how much an option's price changes when implied volatility moves one point. Higher volatility makes both calls and puts more expensive.
A measure of how much an asset's price fluctuates, usually the annualised standard deviation of its returns. High volatility does not mean losing money: it means a bumpier path.
Weighted average cost of capital: what it costs a company to finance itself, combining the cost of its debt and the return its shareholders demand. It is the usual discount rate in a DCF; if ROIC exceeds it, the company creates value.
A listed derivative, similar to an option, giving the right to buy (call) or sell (put) an underlying at a set price until expiry. Issued by a financial institution, it trades on an exchange like a share and offers leverage for a small outlay.
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