As-You-Like-It Option
Think: Custom option…one living outside of the normal strictures of the way in which options are daily traded.
Options are common investing tools. A quick bit of info if you're new to trading: a trader can enter a contract in which he or she can buy or sell a stock at a certain price within a certain time period. For example, if a stock trades for $60 a share now and you think it will go up, said trader can purchase the right to buy (call) it with a strike price of $70 (the already agreed to price that allows option exercise). The trader then profits from the difference in the strike price and the actual price that the stock has gone up to when you sell the stock.
If you are long a put, you're betting that the price is going to go down in value below the strike. If you long a call, you're betting that it will go up. Traders use options to test the waters while they're waiting for a specific outcome. You don't have to exercise your option, which is another upside to options. You can even unload the option if someone else is interested in buying it. When it comes to the as-you-like-it option, this is what is known as an exotic option (as opposed to a vanilla option). Basically, this gives the trader a time-specified option to go with a call (buy) or a put (sell). You can choose from either one, just like choosing between chocolate and vanilla ice cream. But you are limited to the time frame specified in your contract.
Related or Semi-related Video
Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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