You buy a house with elaborate topiaries...bushes shaped to look like dragons and centaurs. Legacy hedges.
In finance, the term applies to a hedge position a company has held for a long time. Firms often use the derivatives market to protect themselves against unfriendly market shifts. When an organization holds one of these positions for an extended time frame, it's considered a legacy hedge.
You own a small airline ferrying people from Fairbanks, Alaska, to the Kamchatka Peninsula in Russia. If jet fuel prices get too high, you can’t operate profitably. So you set a hedge that pays off if oil prices rise above $100 a barrel, the point where fuel prices get too steep for your airline to operate.
Luckily, oil prices have held well below the $100 level for several years now. But you keep the hedge in place, just in case. That's a legacy hedge.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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The intrinsic value of an option is the share price of a stock minus its strike price - i.e. the "in the money" amount.
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...