In the world of commodities trading (think wheat, corn, pork bellies), there's a common sense call rule that the opening bid price of a particular cash commodity has to be on or near the closing price from the previous day. The call rule came about because naughty traders continued to make off-the-book deals after the markets closed, making it unfair to others and creating pricing chaos in the marketplace.
The rule was established in 1906 by the Chicago Board of Trade, following the lead of the Commodities Futures Trading Commission. So if on July 21 the price of potash is $59 a pound at the end of the trading day, that has to be the opening price on July 22 (or whatever the next trading day is, if it falls on a weekend or holiday).
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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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