Nearby Month

  

Categories: Derivatives

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 Call Option?25 Views

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finance a la shmoop. what is a call option? option? option, where are you? okay

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yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]

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is the right to call or buy a security. the concept is easy the math is hard.

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you think Coca Cola's poised for a breakout as they go into the new low

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calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]

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hundred and 20 days. so let's say Coke announces its new sugarless drink flavor

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zero it's two weeks later and the stock skyrockets to fifty eight dollars a

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share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]

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so you buy the stock and you're all in now for fifty five dollars plus one or

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fifty six bucks a share and your total value is now fifty eight bucks. well you

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could turn around today and sell the bundle that moment, and you'll have

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turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]

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stock not skyrocketed so quickly well you would have lost everything. still you

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options. as for Coke flavor zero turned out to be nothing more than canned water.

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