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Finance: What is a Derivative? 23 Views


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Description:

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.

Language:
English Language

Transcript

00:00

finance a la shmoop what is a derivative? well it's derived it's a something taken

00:10

from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]

00:16

hunger is well you know crankiness that's diva thing you get there...

00:20

derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah

00:26

yeah discount double shmoop yeah look for it be on there with aaron

00:30

and a derivative of a stock or bond or other security is a something which

00:35

derives its value based on the performance of that underlying security

00:40

there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]

00:44

sell a security at a given price over a given time period and a call option, ie

00:49

right to buy a security at a given price over a given time period

00:52

well the price of that option is derived from the price of the security and a few

00:59

other factors like strike prices and duration and all that stuff

01:05

colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]

01:10

for 25 bucks a share a derivative of its share price is sold in the form of a

01:15

call option with a $30 strike price expiring about 90 days from now on the

01:19

third Friday of the end of that month well investors pay a price albeit

01:24

probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]

01:29

electric at any time in the next 90 ish days until that option expires making the bet

01:34

that the stock will go well above 30 bucks a share in that time period that

01:39

call option is thus a derivative of the colonel electric primary stock price got

01:45

it if you really want to get personal well here's the ultimate form of

01:49

derivative [Baby laying down]

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