26 lines
1.6 KiB
Plaintext
26 lines
1.6 KiB
Plaintext
CHAPTER 2
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Greek Philosophy
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My wife, Kathleen, is not an options trader. Au contraire. However, she,
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like just about everyone, uses them from time to time—though without
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really thinking about it. She was on eBay the other day bidding on a pair of
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shoes. The bid was $45 with three days left to go. She was concerned about
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the price rising too much and missing the chance to buy them at what she
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thought was a good price. She noticed, though, that someone else was
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selling the same shoes with a buy-it-now price of $49—a good-enough
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price in her opinion. Kathleen was effectively afforded a call option. She
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had the opportunity to buy the shoes at (the strike price of) $49, a right she
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could exercise until the offer expired.
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The biggest difference between the option in the eBay scenario and the
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sort of options discussed in this book is transferability. Actual options are
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tradable—they can be bought and sold. And it is the contract itself that has
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value—there is one more iteration of pricing.
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For example, imagine the $49 opportunity was a coupon or certificate that
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guaranteed the price of $49, which could be passed along from one person
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to another. And there was the chance that the $49-price guarantee could
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represent a discount on the price paid for the shoes—maybe a big discount
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—should the price of the shoes rise in the eBay auction. The certificate
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guaranteeing the $49 would have value. Anyone planning to buy the shoes
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would want the safety of knowing they were guaranteed not to pay more
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than $49 for the shoes. In fact, some people would even consider paying to
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buy the certificate itself if they thought the price of the shoes might rise
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significantly. |