Apparently, there's a Tapo District in Peru. There's also a Tapo language, which is spoken in sections of Ethopia. None of that has anything to do with this definition, however. We were just planning our next vacation and had all these Tapo-related notes ready to go.
This TAPO has to do with the options market. The name stands for "traded average price option."
To explain how it works, let's take a look at how regular options work. Most options pay off based on the difference between the price of an underlying asset and the strike price of the option.
You hold an option to buy 100 shares of AAPL at $200 a share. The day the option expires, AAPL finishes at $220. The $20 difference defines the the profit from the option. That situation describes the usual setup.
A TAPO works differently. Instead of the single trading price for the asset, the profit and loss get determined using an average price. For a TAPO, it doesn't really matter much that AAPL traded at $220 at expiration. If it had an average price of $190 over the course of the time period in question, the option would be worthless. You'd just let it expire without exercising it.
The option's value gets determined by the difference between the strike price and the average price. So if AAPL closes at expiration at $220, but has an average trading price of $210, then the profit for that option is $10...not $20. The key stat is the average price, compared to the strike price.
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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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