Option Strategies for Earnings Announcements: A Comprehensive, Empirical Analysis

12. Market Capitalization

A stock’s market capitalization, or market cap, is the total value of its common equity based on its current market price—the stock price multiplied by the number of common shares outstanding. Although other metrics such as total assets, sales, and earnings are also used to measure a firm’s size, market cap is the only market-based metric. (The others are accounting-based.) Stocks are often classified into different groups based on their market cap. There is no definitive rule on how a firm is assigned into a particular market-cap group, however.

In the U.S. stock market, “large cap” stocks typically have more than $10 billion market cap, and “small cap” stocks usually have less than $2 billion market cap. Large-cap ...