Asset-Or-Nothing Call Option

  

Categories: Derivatives, Econ, Stocks

A commodities option. To put it simply, you get a certain amount of green stuff. Or you get nothing. At the expiration date of the option, you can’t exercise it unless the price of the underlying commodity has reached the strike price.  Example: You have a right to buy May corn at $3.80 and May corn trades for $3.79 at the expiration time. Your option is worthless.

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Finance: What Is a Call Option?25 Views

00:00

finance a la shmoop. what is a call option? option? option, where are you? okay

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yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]

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is the right to call or buy a security. the concept is easy the math is hard.

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you think Coca Cola's poised for a breakout as they go into the new low

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calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]

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call option for $1. well that call option buys you the right

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to then buy coke stock at 55 bucks a share anytime you want in the next

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hundred and 20 days. so let's say Coke announces its new sugarless drink flavor

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zero it's two weeks later and the stock skyrockets to fifty eight dollars a

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share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]

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so you buy the stock and you're all in now for fifty five dollars plus one or

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fifty six bucks a share and your total value is now fifty eight bucks. well you

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could turn around today and sell the bundle that moment, and you'll have

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turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]

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stock not skyrocketed so quickly well you would have lost everything. still you

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lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]

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options. as for Coke flavor zero turned out to be nothing more than canned water.

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