Quoted:
Quoted: Housing prices don't RISE during a depression. They and other prices fall as jobs and money become scarce and it becomes a buyer's market.
If you want to hedge against fuel prices then buy a call option or two. If the price of oil and gasoline rises, the call option will appreciate in value and offset the higher costs you have to pay at the pump.
Otherwise, don't worry. The economy was in pretty good shape even during the high oil prices, and what is a $30b disaster to a country with a GNP of $17t-$18t?
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What's a call option?
never heard of that!
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A call option is a right to buy something for a predetermined price, regardless of that item's price at the current time.
In other words. Think of it like this. Say you go to the gas station to buy a call option. You might pay them 50 cents for the right to buy a gallon of gas at $3.00 at any time before the option expires (say 1 year)
Then in two months, if gas is at $4.00 you excercise the option, and the gas station gives you the gallon of gas for $3.00. Your total cost is $3.50, you just saved $.50
But if the price of gas is $3.00 anyway, you did not gain anything, and lost the $.50 premium you paid for the option.
Usually, you can buy options on equities, commodities, almost anything. But, options are very standardized. So, say for gasoline, it may be for 1000 gallons, and you may have to arrange for delivery.
Now, the other thing to consider is that most options are not exercised. They are usually traded. So If you bought your $3.00 call option on gas for $.50 and the next month the price of the gas goes to $4.00, you have an intrinsic value of $1.00 So you could sell if for $1.00. Another part of the value is the time value of the option. In other words the farther away in time it is for the option to expire, then the more time value it has. Basically, if it expires next week, and the price of gas is $4.00 there is not much chance it will go higher, so not much time value. But if it expires in 10 months, there is alot of time to go buy, where the price of gas could rise, so the option has more value, thereby getting a higher price on a sale.
Hope this helps, if you need anything clarified, let me know.
TXL