The most basic or standard version of a financial instrument, usually options, bonds, futures and swaps. Plain vanilla is the opposite of an exotic instrument, which alters the components of a traditional financial instrument, resulting in a more complex security. For example, a plain vanilla option is the standard type of option, one with a simple expiration date and strike price and no additional features. With an exotic option, such as a knock-in option, an additional contingency is added so that the option only becomes active once the underlying stock hits a set price point.
One of the four types of compound options, this is a "put" option on an underlying "call" option. The buyer of a put on a call has the right but not the obligation to sell the underlying call option on the expiration date. This type of option is used when leverage is desired, and the trader is bearish on the underlying asset. The value of a put on a call changes in inverse proportion to the price of the underlying asset, i.e. it decreases as the asset price increases, and increases as the asset price decreases. Also known as a split-fee option. A put on a call has two strike prices and two expiration dates, one for the initial put option and the other for the underlying call option. Note that compound options are generally European-style exercise, which means that they can only be exercised on the expiration date. Since one of the variables that determines the cost of an option is the price of the underlying asset, the cost of a put on a call option will generally be much lower than the cost of a put on the corresponding asset. It can therefore provide a great deal of leverage to the options trader.
An option strategy: -Buy one put option contract with 90 days or more until expiration-Sell one put option contract (at the same strike price) with 45 days or less until expiration-In 45 days, sell another 45-day put option contract at the same strike price-Hold the long position until expiration if it appears that market will be profitable. Otherwise, sell it. Profits can be realized since the price decay of the 45-day contract declines at a faster rate than the long option. The difference in premium decays allows investors to make money on the spread. The inherent risk in this strategy arises if prices rise in the short term and then increase thereafter.
The additional amount of service years that Canadian pensioners can purchase to go towards their pension account. Pensioners may purchase additional service time to cover service absences for reasons such as authorized leave without pay (including maternity or paternity leave), military service and long-term disability waiting period. Pensioners may make up for lost contributions to pension plans in the event that they spent a period of time working in a service for which they were not eligible to receive pension benefits. Often, the cost of the purchased service is equal to the required employee contributions for the period of service being purchased; in some cases, the costs are higher. Purchases of service can occur as a lump sum payment - by check, money order, or the direct transfer of funds from a Registered Retirement Savings Plan or other registered savings plan, or through payroll deductions, which would occur in addition to any regular pension contributions.
A risk-management strategy that investors can use to guard against the loss of unrealized gains. The put option acts like an insurance policy - it costs money, which reduces the investor's potential gains from owning the security, but it also reduces his risk of losing money if the security declines in value. If an investor purchased a stock for $10 that is now worth $20 but he has not sold it, he has unrealized gains of $10. If he doesn't want to sell the stock yet (perhaps because he thinks it will appreciate further) but he wants to make sure he doesn't lose the $10 in unrealized gains, he can purchase a put option for that same stock (called the "underlying stock") that will protect him for as long as the option contract is in force. If the stock continues to increase in price, say, going up to $30, the investor can benefit from the increase. If the stock declines from $20 to $15 or even to $1, the investor is able to limit his losses because of the protective put.
An obligation made by one company to secure the declining value of another company's assets through the commitment of shares. Made famous by Enron, this method of backing a company's declining assets helps to inflate the value of a troubled company by hiding losses. Furthermore, due to the volatile nature of the stock market, devaluations in price of the securing company directly relates to a commitment of more shares and thus a dilution occurs.
1. The total cost of an option. 2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.3. The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required. 1. The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium. 2. If a fixed-income security (bond) is purchased at a premium, existing interest rates are lower than the coupon rate. Investors pay a premium for an investment that will return an amount greater than existing interest rates.3. A common example of an insurance premium comes from auto insurance. A vehicle owner can insure the value of his or her vehicle against loss resulting from accident, theft and other potential problems. The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any economic losses incurred under the scope of the agreement.
1. In investing, income that is earned through the sale of an option. The writer of an option earns premium income; the buyer of the option pays the writer a premium in order to have the right (but not the obligation) to exercise the option at a fixed price and specified date. 2. In insurance, revenues that an insurer receives as premiums paid by its customers for insurance products. When a customer purchases an insurance product, such as a health insurance policy, the customers cost for a specified term of the policy is called the premium. 1. An option's original sales price is referred to as its premium; this is the price that the buyer of a put or call must pay to the seller (writer) of an options contract. Investors can profit by writing covered options contracts when the underlying stock is owned; or by writing a naked option if the underlying is not owned. If the option expires without being exercised, the option writer profits by the full premium amount. 2. An insurance company's premium income is revenue that is derived from premiums paid by customers. Premiums are paid for all types of insurance policies including health, automobile and home. A premium is the cost paid for coverage under the policy for a certain period of time. This excludes other sources of revenue such as investment income.
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