Apparently, there's a Tapo District in Peru. There's also a Tapo language, which is spoken in sections of Ethopia. None of that has anything to do with this definition, however. We were just planning our next vacation and had all these Tapo-related notes ready to go.
This TAPO has to do with the options market. The name stands for "traded average price option."
To explain how it works, let's take a look at how regular options work. Most options pay off based on the difference between the price of an underlying asset and the strike price of the option.
You hold an option to buy 100 shares of AAPL at $200 a share. The day the option expires, AAPL finishes at $220. The $20 difference defines the the profit from the option. That situation describes the usual setup.
A TAPO works differently. Instead of the single trading price for the asset, the profit and loss get determined using an average price. For a TAPO, it doesn't really matter much that AAPL traded at $220 at expiration. If it had an average price of $190 over the course of the time period in question, the option would be worthless. You'd just let it expire without exercising it.
The option's value gets determined by the difference between the strike price and the average price. So if AAPL closes at expiration at $220, but has an average trading price of $210, then the profit for that option is $10...not $20. The key stat is the average price, compared to the strike 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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