The elevator to your 11th floor apartment is broken. You asked the super how you're supposed to get to your place. He suggests what he calls "the ladder option." (You immediately start googling rental options in your neighborhood.)
Actually, this term has to do with the options market. A normal option grants its holder the right, but not the obligation, to buy or sell some underlying asset (like a stock or a commodity) at a set price during a pre-set time period. The pre-set price is known as the strike price. Traditional, vanilla options have a single strike price.
So you might hold an option to buy 100 barrels of oil at $75 a barrel, with the option expiring in May. The $75 represents the one and only stock price for that option.
In contrast, a ladder option has a series of strike prices. Like a ladder, it has numerous rungs, leading up or down (depending on whether you have a call or a put, betting either that the price of the underlying asset would go up or down).
If you buy a ladder option, you get some profit if the first strike price level is meant, and then additional profit with each additional level reached.
Related or Semi-related Video
Finance: What is Intrinsic Value (of An ...6 Views
Finance allah shmoop what is the intrinsic value of an
option All right this is brandi She owns a twelve
dollars strike price call option toe buy a share of
my fifteen minutes are up dot com a retirement home
chain for reality tv stars who recently gained self awareness
Well the stock is trading for fifteen bucks a share
of this moment Her strike price is twelve so the
intrinsic value of that option is fifteen minutes twelve or
three bucks that is it is three dollars in the
money and if brandy converted it into a share this
moment and then immediately sold the stock for fifteen dollars
in cash well she'd make three bucks But there's a
catch per call option doesn't expire for five weeks so
that three dollars in the money is actually worth more
than three dollars because she has data or time yet
to exercise and convert or just sell the option itself
So it's worth mohr because well a stock might go
up from fifteen dollars in overtime Stocks go up so
in the next five weeks well couldn't go up a
dime twenty cents twenty five cents and make that three
Dollars worth three ten three twenty three Twenty five Sure
sure it could happen So yeah that's The difference between
actual value and intrinsic value You get seita kickers in
there making the option's worth more than just converting them
into stock and selling them right there And yeah it
looks like our one and a half minutes are up
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...
What is a call option? A call option is a type of contract that lets the investor buy shares of a stock at a certain price and within a window of t...
What are stock options? Stock options are derivative contracts, each representing 100 shares, that give the holder the right to buy (call) or sell...