What is an Iron Butterfly? An iron butterfly is an options trade that uses four different contracts as part of a strategy to benefit from stocks or futures prices that move within a defined range. The trade is also constructed to benefit from a decline in implied volatility. The key to using this trade as
What Is an Iron Condor? An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices
What Is Internal Rate of Return (IRR)? The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula
What Is Irrational Exuberance? Irrational exuberance refers to investor enthusiasm that drives asset prices higher than those assets’ fundamentals justify. The term was popularized by former Fed chair Alan Greenspan in a 1996 speech, “The Challenge of Central Banking in a Democratic Society.” The speech was given near the beginning of the 1990s dot-com bubble
What Is the Irrelevance Proposition Theorem? The irrelevance proposition theorem is a theory of corporate capital structure that posits financial leverage does not affect the value of a company if income tax and distress costs are not present in the business environment. The irrelevance proposition theorem was developed by Merton Miller and Franco Modigliani, and
What Is an Irrelevant Cost? Irrelevant costs are costs, either positive or negative, that would not be affected by a management decision. Irrelevant costs, such as fixed overhead and sunk costs, are therefore ignored when that decision is made. However, it’s critical for a manager to be able to distinguish an irrelevant cost in order
What Is an Irrevocable Income-Only Trust (IIOT)? An irrevocable income-only trust is a type of living trust often used for Medicaid planning. It protects assets from being sold to pay for nursing home and other long-term care expenses so that the assets can be passed on to beneficiaries. (A beneficiary – any person or entity
What Is the Investment Industry Regulatory Organization of Canada (IIROC)? The Investment Industry Regulatory Organization of Canada (IIROC) is an organization charged with overseeing investment dealers, brokers, and trading activity in debt and equity markets in Canada. The organization has a mandate to protect investors and is granted various powers toward that end. Understanding the
What Is Investment in the Contract? Investment in the contract, as it is applied to annuities, is the principal amount the holder has invested. It can be made by payments or a lump sum. This term generally applies to fixed, indexed, and variable annuities alike. Generally speaking, investment in the contract is the total amount
What Is Investment Management? Investment management refers to the handling of financial assets and other investments—not only buying and selling them. Management includes devising a short- or long-term strategy for acquiring and disposing of portfolio holdings. It can also include banking, budgeting, and tax services and duties, as well. The term most often refers to
