You were amiably chatting with your travel agent, discussing another conventional cruise, or perhaps a repeat of last year's sojourn to Disney World, when he suddenly becomes quiet and thoughtful. The mood in the room turns first awkward and then slightly ominous. Eventually, he leans in, a conspiratorial glint in his eye. "You know," he says, his voice quiet. "If you're tired of the usual holiday doldrums, I have a suggestion for you..." He pauses theatrically, and then, his voice dripping with a sense of implied danger, whispers a dark invitation: "there's always...the exotic option."
Better leave the kids at home for that one.
In financial terms, "exotic options" refer to specific types of bets that can be made in the futures market.
In general, options provide people with the right, but not the obligation, to do something at some point in the future. You might acquire an option to buy stock in a month's time at $X a share, or to sell oil at $Y a barrel.
The plain, regular, decidedly-not-exotic types of these bets are known as "vanilla" options. The most common varieties are calls and puts.
Calls allow the buyer to purchase a certain asset, like a stock or a commodity, at a certain price at a certain point of time. Like, a call option to buy 100 shares of Apple at $190 a share a month from now.
A put is the opposite bet, giving the option to sell a stock (or whatever asset) at a certain price at certain point in time. Like a put for the sale of 200 barrels of oil at $72 a barrel.
Exotic options are the ones that get weird. Because the definition is basically "non-standard option," the category includes pretty much anything that's off the beaten track. Sometimes financial firms create options to order for particular clients. Sometimes, exotic options consist of a combination of other options (say, a call at one strike price and a put at a different price).
Exotic options tend to be more complex, and tend to point to more specific scenarios. Not just "I'll make money if the stock goes up above $25," but something like "I'll make money if the stock rises above $25 but doesn't reach $30, with a hedge in place if the stock falls anywhere below $20."
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Finance: What is a swap, and what is a s...41 Views
Finance allah shmoop what is a swap And what is
a swap Shin Um can we just say it's an
option to swap You know like microsoft is a micro
computer software thing or like the electrocution is electricity and
execution or the bromance is you know brother and romance
which is something totally different when dealing with gerbils Anyway
one day a guy was holding a swap turned a
corner wasn't looking where he was going then glam o
he ran into an option What came of it was
a super hybrid type of security were in a slop
like i swap you so many dollars for so many
euros is tacked onto an option You want the ability
to pay off your loan either in us dollars or
in euros assuming they still exist when your loan comes
due That whole brexit thing that issue have the option
to swap the flavor of payments you're making for the
hundred grand You borrowed no it's houses play out well
When the bond was issued one dollar bought you one
euro and the interest rate was eight percent So you
paid eight grand a year to rent that hundred for
ten years at which point you're going to pay it
all off simple but after five years the exchange rates
have drifted massively Magic fairy dust was sprinkled by wizards
all over europe They beat back the thirty two hour
work week Corruption unions and economic misery wrought by not
being able to compete with china russia in africa and
now amazingly the euro is a much stronger currency than
the u s dollar that's kind of a fictional story
here that we'll make enough In fact one euro buys
you two u s dollars like it when the euro
was first put out there So if you holding the
swap shin on the interest payment flavor of the hundred
grand you borrowed if you so choose you can pay
that eight grand in euros that is instead of the
eight thousand dollars a year in interest you can pay
for thousand euros It's almost a ziff your interest rate
was cut in half That's not really it's a value
is the same it's just the number of units were
cut have theirs You know that works And if you
live in europe and work in europe and we're paid
in euros Well it really is like a roman holiday
of interest rates of just want to focus on the
numbers But the values of the same there's No free 00:02:15.938 --> [endTime] lunch here even in swap shen lang
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