Naked Trust
Categories: Derivatives, Trading
World’s best corporate team-building exercise. Or the world's most unpleasant. It depends on your coworkers’ overall fitness levels.
When you think of trusts (as in “trust fund baby”), the naked trust structure probably comes to your mind first. (We know...in any situation, the naked version comes to your mind first; in this case, that's actually appropriate.)
Basically, it works like this: you put assets in a trust. Then, at some predetermined point in the future, those assets transfer to your designated beneficiaries. It's a vehicle to pass assets on to someone else, making this form of trust especially useful in estate planning.
You hate your kids. But you really love your grandchildren. You'd rather your grandkids get all your assets when you die...but you're worried that they will be too young when that happens. So you put everything in a naked trust. It's set up so that each grandkid gets their share when they turn 18.
It's called a "naked trust," or sometimes "dry trust" or "passive trust," because, structurally speaking, the trustee doesn't have a lot to do. There's not a lot of adornment to the process. The trustee just has to give the assets over to the beneficiary at the proper time.
Related or Semi-related Video
Finance: What is a naked option/position...7 Views
Finance a la shmoop what is a naked option or naked option position? alright
warning you're going to be disappointed in this video it's not nearly as hot as [Censored man jumps into lake]
you probably hope naked options are just options that you sell or buy without
having enough of the underlying security to cover your if the price changes in
the wrong direction all right well they're an investment
that stands on their own but with extreme amounts of risk.....You invest [Man discussing investment in a lake]
$10,000 in coca-cola stock at 40 bucks a share buying 250 shares the stock goes
up $2 in a year or 5% not a bad score and you've made a whopping five percent on
your money or about five hundred bucks you bought the stock not the option and
remember when you own the stock you can own it forever there's no clock ticking [Clock ticking by]
in the background like there is with an option okay but let's say you had spent
that same 10 grand worth of naked coca-cola call options on options with a
strike price of 42.50 expiring in four months well the stock remains at 42.50
the whole time doesn't budge well guess what you've lost all of your money [Man with empty jean pockets]
had the stock under $45 however that 10 grand invested in those call options
which bought you exposure to some 20,000 shares would have made you something
like 250 a share that's of in-the-money value on those options times 20,000
shares or 50 grand yeah way more than your boring experience of just owning
the stock and making a whopping 500 bucks but you'll also risk losing
everything and this kind of foot's with whole notion of risk and reward being [Man in between reward and risk]
married in some unholy alliance where they kind of wrestle and yell at each
other all the time right so you took a lot of risk in buying
call options with nothing behind them you bought em naked
you could have made a fortune but you didn't because he played it safe and
bought the stock well in reality professional investors rarely just buy
naked options alone because they are so risky and so volatile but every now and [Ball spinning on roulette wheel]
then somebody bets the ranch on 22 black it comes up they make 36 times their
money in a week and everyone asked them for the best way to angle their thumb
when they're trying to flip a head on a quarter and we actually have a whole
video on that you should watch it it's kind of depressing...