Asian Option
This is an exotic option that is based on the average value of an underlying asset as opposed to the current price (spot price) at the time you buy or sell an asset. The dates of actual valuation (when prices are recorded for averaging purposes) would be laid out in your contract (hint: you should read it).
Generally, Asian options will be less expensive than standard (American or European) options because averaging the prices of an underlying asset takes out the upside of volatility. In other words, you’re missing out on the benefit of a big climb or drop in price because you’re stuck with the average of a whole bunch of prices.
Of course, this is a good thing if you want to avoid potential financial losses due to the one-stop-shop spot price. Asian options are also helpful if you’re worried about volatility, or if there’s a reason the price of an asset could drastically change.
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...
Up Next
A swaption is a type of option that gives you the choice to swap the currency in which payments are made. No word on whether Monopoly money is acce...
The intrinsic value of an option is the share price of a stock minus its strike price - i.e. the "in the money" amount.