If you say that ** options and the like are a little far away from your old iron's life, then I will give you another example closer to life to help you understand.
Take buying a house as an example, if I want to buy a house, the current **3 million, I don't have so much money in hand at present, but my ** house price will rise in the future, and it will become 4 million in a year.
In order to seize this once-in-a-lifetime opportunity, I cheekily went to the landlord, so I signed an agreement with himI agreed that after a year, no matter how the house price changes, I can buy this house for 3 million.
Some Lao Tie asked, why did the landlord agree to sign this contract?
Two reasons:1.The landlord's judgment of the house price is different from mine, he thinks that the house price will only be 2 million after a year;
2.In order to sign this agreement, I had to pay a contract fee of 300,000 yuan (which is the entrance fee mentioned in the previous article), and the landlord will not refund me this right fee, regardless of whether I buy the house in a year.
So the landlord is still profitable.
And after a year, two things can happen:
1.As I expected, the house price rose to 4 million;
I still use 3 million ** for this house, and I make a net profit of 700,000 (400-300-30 = 700,000).
It is equivalent to me locking in the future income of 1 million (400-300 = 1 million) with an entrance fee of 300,000.
2.As the landlord expected, the house price fell to 2 million;
At this time, if I exercise the option at the contract price of 3 million, then my brain will be in water.
Rationally, I decided to give up the exercise of my rights, and the contract fee of 300,000 yuan was all wasted, paying for my young and willful mistakes.
In this example, the contract I signed with the landlord is a "derivative financial instrument", betting on the future house price, and the value of the contract will change with the change of house price, and I only need to pay 300,000 yuan to participate in this house price game at the beginning, and the final result of the game will be known in a year.
Your product, your fine product, is it perfectly in line with the three characteristics of derivative financial instruments?