There are a lot of financial terms containing the word "basket." The common thread between them? Things are grouped together (duh).
For a basket option, the underlying asset would be a collection of assets, currencies, securities, etc. The holder is not obligated, but has the right to sell or purchase an asset at a particular price within a specified timeframe. An advantage to the basket option is that it's less expensive than multiple individual option transactions, since multiple assets are "basketed" together in one transaction.
Related or Semi-related Video
Finance: What Rights Does a Public Stock...67 Views
Finance, a la Shmoop. What rights do you have as a common [intro screen]
stock public shareholder? All right, so you've saved your newspaper delivery money now [question on chalk board]
for a year, saved over two grand, and you've had your
eye on a hundred shares of whatever.com, which conveniently hit exactly 20 bucks [person buys shares]
a share today, including commissions, if you want to sell it. So you buy a hundred
shares for two grand. Now what? What rights do you have? Well, you always have
your right to party... old song, ask your parents. All right, but that won't help you [people party]
here. The company does wonderfully over the next few years and hits 40 bucks a
share. Well, you have a right to sell the stock, book your profit, pay your taxes... [share price graph]
yeah. And the same would be true if the company did horribly. Yeah, you could sell
it at 12 bucks, book your losses, come back to fight another day after crying. [sad words]
But as a minority shareholder in whatever.com where you own a hundred
shares out of the total 20 million they have outstanding, you own 100/20 million, [tiny person with lots of shares]
or 0.000005% of the company. So what rights should you
have? You're not exactly the control shareholder. Well, as a common shareholder, [person realizes his own insignificance in this cruel world]
American law gives you only a few rights, the biggest of which is to be able to
vote for the board of directors. You know, who then hires the CEO. So that's it. [person votes for board]
That's your big right that you have as a public shareholder. You can vote for
the board. And yes, you will cast a fraction 100/20 million of the [really tiny pie sliver]
votes, a very small percentage. About like voting for your local congressman, you'll
have some impact but not much. The key take away? Well, you don't have many [person talks to congressman]
rights. If they pay a dividend, you'll get that, and there are some other little
legal things, but don't hold your breath without a big oxygen bottle. So before [person with oxygen mask]
you hop into bed with a given stock investment, be pretty comfy that you have
confidence in the lunatics running the asylum. Yeah, or it could end up [people in asylum]
being a very bad investment.
Up Next
What is a Country Basket (Index Fund)? Investing internationally can be a challenge, as foreign exchange, different accounting rules, time zones an...
Who invests in stocks? 401k plans, pension funds, institutional investors, banks, traders, clients of Schwab, Fidelity, and Franklin. Joe Blow buys...
What is a pension? Pensions are just retirement plans. Employers provide them and pay into funds as an investment for their employees. Once employe...
What is Capital Gains Distribution? Owners of equity based mutual funds which are successful in investing will inevitably be the recipients of thei...