Russians are used to cold, frigid temps. The cold doesn’t phase them one bit. Neither does a Russian option: a type of perpetual put option that has no expiration date.
That’s right: a put option seller can give you the cold shoulder forever if they so desire.
Let’s break this down (like an ice block). If you need a refresher, put options are contracts where the contract holder has the right, but not the obligation, to sell their put (some stuff, like a certain commodity) at the best price the market’s ever seen.
Regular put options have expiration dates, and that’s when the holder has to decide to sell their commodity at a given price, or not. Then the contract is over. Current market prices of the commodity determine whether exercising that right to sell at the previously determined price is a good idea or not. If the commodity is more expensive on the market than in the contract, the put option holder should pass; they could sell their goods for more in the market. If the commodity price went down in the market, it means they locked in a higher selling price for their goods when they exercise the option. Cha-ching.
Russian put options can go on forever, since there’s no expiry. Time to pop open that handle of vodka, comrade. It might be awhile.
Since there’s no expiration date, Russian options are considered “exotic,” and you won’t see them very often. Not many want to be on either end of a “maybe-one-day” arrangement...like how it’s a bad idea to be on-again/off-again with a girlfriend or boyfriend indefinitely.
Since Russian options are a rare breed, you’ll only find them on over-the-counter markets. And they’re pricey; there are big potential payoffs for the option holder, since they can exercise the option whenever they want (or never).
Is it cold in here, or is it just us?
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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