Crazy Exotic Derivative of the Week #23 July 10, 2007
Posted by James Webster in : finance , trackbackOne of the bizarrest aspects of the world of derivatives is the wild names dreamt up for some of the products that are offered. For example, the magic potion passport option. A passport option is an option where the underlying instrument is the balance of an account used for securities trading. From the Global Derivatives website:
Beginning to sound like a computer game, we come across to magic potion passports - which enables investors to drink the magic potion and make part of his or her trading history disappear. For example, after 6 settlement periods, the investor thinks that erasing the history between periods 5 and 6 will improve their overall gain. These options can be useful for investors who do not have a tuned perception of the market, or beginners who are prone to mistakes.
Needless to say, you can expect the premium on passport options of all sorts to be very high. More on passport options here.
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