Embedded option
An embedded option is a special feature or "extra" that is included within a financial contract. It is like a secret power-up in a video game that you can use at a certain point.
Let's imagine that you have a piece of candy, but there is a little toy surprise hidden inside. The candy is like the financial contract, and the toy surprise is the embedded option.
Now, there are different types of embedded options, just like there are different types of toys surprises. One type is called a "call option." This means that you have the option to "call" or buy something in the future at a set price. It's like having the option to buy a cool toy with your candy in the future if you want.
Another type is called a "put option." This means that you have the option to "put" or sell something in the future at a set price. It's like being able to sell your candy with the toy surprise to someone else if you want.
So, let's say you have this special candy with a toy surprise inside, and you also have the option to either buy a toy or sell your candy. You can decide to use this option if it's in your best interest. For example, if the price of the toy goes up, you can decide to buy it and sell it for more money. Or, if the price of the toy goes down, you can decide to sell your candy to someone else and get your money back.
Just like having a secret power-up in a video game, having an embedded option in a financial contract gives you extra choices and flexibility. It's like having a surprise inside your candy that can help you make a better decision in the future.
Let's imagine that you have a piece of candy, but there is a little toy surprise hidden inside. The candy is like the financial contract, and the toy surprise is the embedded option.
Now, there are different types of embedded options, just like there are different types of toys surprises. One type is called a "call option." This means that you have the option to "call" or buy something in the future at a set price. It's like having the option to buy a cool toy with your candy in the future if you want.
Another type is called a "put option." This means that you have the option to "put" or sell something in the future at a set price. It's like being able to sell your candy with the toy surprise to someone else if you want.
So, let's say you have this special candy with a toy surprise inside, and you also have the option to either buy a toy or sell your candy. You can decide to use this option if it's in your best interest. For example, if the price of the toy goes up, you can decide to buy it and sell it for more money. Or, if the price of the toy goes down, you can decide to sell your candy to someone else and get your money back.
Just like having a secret power-up in a video game, having an embedded option in a financial contract gives you extra choices and flexibility. It's like having a surprise inside your candy that can help you make a better decision in the future.