When you have enough money, it's the ability to spend the rest of your life hanging out on a beach in Bermuda.
It's also the name of a position you can take in the options market. Bermuda options combine aspects of so-called American and European options (See: Atlantic Spread). Where else would Europeans and Americans choose to meet each other except Bermuda? (Rio perhaps? L.A.? Certainly not Greenland...)
In brief, a European option can be exercised only on a specific, pre-set date. Meanwhile, an American option can be exercised at any time before its set expiration. A Bermuda option has multiple potential exercise points, though they come at regular intervals.
Think of a European option as driving a car down a straight road that only goes between two points, like a remote desert highway ("cool wind in my hair/warm smell of colitas, rising up through the air"). Meanwhile, an American option is like having an all-terrain vehicle on the same highway. You can't go beyond the final destination, but you can get off the road any time, at any place ("you can check out any time you like/but you can never leave").
Now, a Bermuda option is like a driving on a highway with regular off ramps (no "Hotel California" lyrics really fit here, so we'll just say "so I called up the captain/'please bring me my wine'" just because it's fun to order wine). You can't go offroading anywhere you want, but you have choices as to when/where you leave the road.
Related or Semi-related Video
Finance: What is a greenshoe option?15 Views
finance a la shmoop what is a greenshoe option. oh you should be so lucky
green shoes on leprechauns and investment bankers are such a good thing. [leprechaun smiles]
why? well because when there is so much excess money laying all over the floor
your shoes turn green from the bills as you take whatever money you can carry
and run. that's how the name happened anyway a greenshoe option is a deal term
that an investment bank negotiates for in an IPO they run. and that IPO remember
is an initial public offering of stock. this can apply also to secondary
offerings and other kinds of offerings but we're focused on an IPO here as a
green shoe lives. if that IPO is marketed so well and there is so much demand for
shares in the company from the public that the bank believes it can raise the
IPO price and sell more shares to the public then that IPO was a huge winner.
the bank will exercise its greenshoe option and instead of selling 30 million [money falls from the sky]
shares of Chucky LARM calm to the public at 12 bucks a share well it'll bring the
company public at 15 bucks a share and sell 40 million shares. the math? it
raises 600 million bucks in the latter green shoe field option versus 360
million bucks in the former. the green shoe is the extra 10 million shares that
the bank can sell and get commission on while doing so. and if you think about
that world as a 5% kind of Commission world well the banks go from 18 million
in total Commission's to 30 million. yeah nice freakin bump especially when
there's a basic fixed cost of maybe 10 million dollars in either case. so you
make a lot more profit on the 30 million story here yeah? all right and having
more shares out there trading is a good thing for the company because its shares
are then more liquid. it's easier to buy and sell larger blocks of stock and the [stocks being sold in a graphic]
big institutions like that. they tend to then take a lot more
interest in the stock and usually that leads to higher stock prices down the
line. and all that liquidity or movement shares trading back and forth well
that's more Commission dollars in the future for the bank. so check your shoes
if they're green well you're either in the money or you should really get Rover
to the vet. [green poo on a wood floor]
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