See: Spot. See: Spot Rate. But don't see: Spot Run. (Not in union bylaws, that running thing.)
The spot price of an asset is the price at which it can be bought (or sold) right now.
Isn’t that just the regular price, you ask? Sure it is, for stocks and simpler securities...but not for derivatives and futures contracts. These more advanced vehicles often have both a spot price and a future price. The spot price is the right-now price, while the future price is a predetermined price that two parties agree on paying in the future for future delivery.
For instance, say the spot price for Spot at the dog shelter was $100. The dog shelter told you that, if you weren’t sure you wanted to adopt Spot, you could come back in a week, and they’d give you Spot for $80 if he was still at the shelter.
Why the lower future price? Because times are tough, and the shelter wants people do adopt doggos. Excess supply leads to lower prices. If the future price was higher, it means there would be an expectation of an increase in demand relative to the supply.
Why are we talking so much about future prices? Because future prices start with the spot price: the now-price. Companies that have to buy a lot of a commodity, like steel, might opt into a futures contract to lock-in a certain amount of steel at a certain price.
Even if the spot price ends up being lower, suppliers are willing to pay that premium for the stability of supply. But it always starts with the spot price. And Spot...because you haven’t started living if you’ve never had a dog. Life’s ruff without Spot...better snag him at the spot price.
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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]
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