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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.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
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- Life Skills / Finance Definitions
- Finance / Personal Finance
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- Subjects / Finance and Economics
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- Terms and Concepts / Bonds
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- Terms and Concepts / Derivatives
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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
Full Transcript
- 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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