When you get to the party, everybody's going to put their car keys into the empty fish bowl. At the end of the evening...
Er, okay. In the finance world, it represents a certain type of futures contract in the energy sector.
Most futures contracts come with fairly specific parameters. You buy a contract for 100 barrels of oil with a strike price of $70 a barrel, with delivery set for August.
A swing option gives more leeway. The buyer has some degree of choice about both the amount of energy delivered and the time it gets delivered.
The option stipulates a range for the amount of product that should be delivered. It gives a high and low amount. The deal also exists over a period of time (rather than being executed on a single set day in the future). So a buyer can choose to take some amount each day or each month. The amounts can vary (or swing) depending on the recipient's need.
Meanwhile, the strike price for the option is set. Both sides know what the per-unit cost will be. The contract allows buyers to lock in a price, while providing some flexibility about how much they will receive, allowing them to react to spikes and lags in demand.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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A derivative of a security is a "something" which derives its value based on the performance of that security... either a put option or a call option.
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...