When you have enough money, it's the ability to spend the rest of your life hanging out on a beach in Bermuda.
It's also the name of a position you can take in the options market. Bermuda options combine aspects of so-called American and European options (See: Atlantic Spread). Where else would Europeans and Americans choose to meet each other except Bermuda? (Rio perhaps? L.A.? Certainly not Greenland...)
In brief, a European option can be exercised only on a specific, pre-set date. Meanwhile, an American option can be exercised at any time before its set expiration. A Bermuda option has multiple potential exercise points, though they come at regular intervals.
Think of a European option as driving a car down a straight road that only goes between two points, like a remote desert highway ("cool wind in my hair/warm smell of colitas, rising up through the air"). Meanwhile, an American option is like having an all-terrain vehicle on the same highway. You can't go beyond the final destination, but you can get off the road any time, at any place ("you can check out any time you like/but you can never leave").
Now, a Bermuda option is like a driving on a highway with regular off ramps (no "Hotel California" lyrics really fit here, so we'll just say "so I called up the captain/'please bring me my wine'" just because it's fun to order wine). You can't go offroading anywhere you want, but you have choices as to when/where you leave the road.
Related or Semi-related Video
Finance: What Is a Put Option?83 Views
finance a la shmoop what is a put option? hot potato hot potato
ow ow! yeah remember that game well nobody wanted the potato, poor thing. the
players wanted to put it in someone else's hands. well put options kind [glue put around a flaming potato]
of work the same way. a put option is the right or option or choice to sell a
stock or a bond at a given price to someone by a certain end date.
all right example time. you bought netflix stock at the IPO a zillion years
ago at $1 a share. that's you know splits adjusted. all right now it's a hundred
bucks a share. if you sell it you pay taxes on a gain of 99 dollars a share. in
California that would be a tax of something like almost 40 bucks. well the
stock was a hundred but you keep only something like 60. feels totally unfair.
right so you really don't want to sell your stock but you're nervous about the [graph shown]
next few months that Netflix will crater for a while and go down ten
maybe twenty dollars. longer term though you think it'll hit 300. so this is the
perfect setup to maybe look at buying some put options on Netflix. if the stock
goes down your put options go up. with Netflix volatile but at a hundred bucks
a share ,you look up the price of an $80 strike price put option expiring in
December, and you know that's mid-september now .for five bucks a share
you can protect your stock for the next few months .think about it like temporary [stocks placed in vault]
term life insurance. you pay the five dollars a share in the stock goes down
to 82 by mid December, worst of all worlds. well not only did you lose the $5
a share but your stock has lost $18 in value. but had Netflix really cratered
and gone to say $60 a share well you would have exercised your put and sold
your shares at 80 bucks. well those put options you paid $5 for
would be been worth 15 bucks a share. in buying that put option you've [equation shown]
guaranteed that your loss will be no more than a $75 value for your Netflix
position at least for that time period and ignoring taxes. well remember that
options expire after December whatever like the third Friday of the month it's
usually when options expire, you then have no protection and your shares float
along naked. naked? really who knew accounting could get so [paper put option goes "skinny dipping".]
raunchy. yeah well that's naked put options.
that's what they really are people.
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