Fugit

Some words are just fun to say. Some words look like they might be slang for certain expletive expressions. And some words, like fugit, are both.

Fugit is a calculation made by investors when they’re trying to figure out whether or not to exercise an option early. When we buy options, they have an expiration date; once that date comes, we’re committed to whatever call or put we’ve purchased. Some folks get itchy about commitment, so they’ll do some figuring to decide if it would be beneficial to exercise an option before its expiration date. They use binomial trees to get specific about the if’s and when’s.

Spoiler alert: it’s usually not beneficial to exercise options early. Really, the only time it works out is if the strike price is way higher (if we’ve got a put option) or way lower (if we’ve got a call option) than the market price of the security. “Fugit” comes from the Latin “tempus fugit,” which translates to “time flies.”

We see what they did there (if we want to exercise options early, we’ve only got so much time to do it in), but most of the time, it’s usually a better financial idea to fugit and forget it.