You are diffusing a bomb. You don't really know what you're doing, but you're on the phone with the bomb squad and they are walking you through the process. You ask, "what wire should I cut?" They respond, "the nearby wire." First, you might wonder whether English was their first language. But leaving the weird syntax aside, which wire would you cut?
Right...the one closest to you. The nearby wire.
Same logic applies to the term "nearby month." It's the month closest to us now. The one nearest in the future. The term comes up in derivatives trading, when you need to know which month has the closest expiration date.
Derivatives trading (like options or futures) involves contracts that have different expiration dates. You can buy an option that expires next month, or in two months, or three months, or...well, we assume you know how to count. You get the idea.
The nearby month is the most recent expiration for a derivatives contract...the most recent contract you can buy.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
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