Mountain Range Options
Categories: Charts
See: Everest Options.
Imagine a mountain range. A jagged collection of peaks off in the distance...a majestic series of mountains lined up along the horizon. Now, keep that picture in your mind for a second, while we drone on for a bit about options.
A typical option is based on a single underlying asset. You purchase an option to buy 200 shares of MSFT at $130 a share, expiring in July. The value of your option is based on the price of MSFT stock. If shares rise above $130, you are in the money...you can cash it in for a profit. If the share price stays below $130, you let the option expire and eat the cost of the contract.
Now, back to that mountain range. A mountain range option involves multiple underlying assets. Like that vista you conjured in your mind of the multiple peaks. Each of those peaks represents a different stock, or a different commodity.
In other words, the performance of a mountain range option is based on the performance of a basket of assets. Not just the one stock, but multiple stocks. (The asset doesn't have to be stocks; it could be commodities or whatever other assets you want.)
There is a bunch of common varieties of mountain range options, each named after a particular mountain or mountain-related term. These include Everest, Altiplano, and Annapurna.
