They have this, legally, in Amsterdam. But that's a different story.
We’ve just hung up from a very interesting monthly phone call with our personal psychic, Madame Enigmatia. She told us that, by the time we have our next phone call 30 days from now, the price of our most beloved healing crystal company’s stock will increase by no less than 10%. The tea leaves didn’t tell her how long the price would stay that high, but its hazy aura suggests it won’t last forever.
So what are we supposed to do with this information? Well, one idea is to purchase a one-touch option contract. A “one-touch option” is a binary option that pays us a premium if a security hits a certain strike price before the option expires.
So...let’s say the current price of Mind Minerals stock is $15.00 per share, and according to Madame Enigmata, it should hit at least $16.50 within the next 30 days. So we buy a one-touch option which basically says just that: we expect the price to hit $16.50 within the next 30 days. We pay $30 for the option, which will pay a premium of $50. If Madame Enigmata’s prediction is correct, we’ll make a profit of $20 (the amount of the premium minus the price of the option). If she’s wrong, we’ll be out $30…and we’ll be in the market for a new psychic.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...
What is a call option? A call option is a type of contract that lets the investor buy shares of a stock at a certain price and within a window of t...