Recap of finance game scenarios

Here's the price changes that happened in our game today if you need to calculate or recalculate your results.

1. CDs 2%, Bonds $100, Stocks $50.

2. CDS 2, Bs 99, Ss 55

3. CDs 1, Bs 101, Ss 49

4. CDs 3, Bs 95, Ss 60.

5. CDs 4, Bs 94, Ss 65. Options at $10 dollars to Buy Bs at 98, sell Bs at 90, Buy Ss at 70, Sell Ss at 60. (All contracts are for 100 stocks or bonds).

6. No change in prices. Options expire.

7. CDs 0, Bs 108, Ss 45.

More background info: In the actual financial pages, you'll see the following terminology. It would have just made things more difficult today, but it's good to know what this stuff means for the future.

The option to sell something is called a "put," the option to buy is called a "call." The price at which you agree to buy or sell is called the "strike."

So you may see something like this in the Newspaper:

January 20xx Calls, Strike 65, $5.67

Which means you can buy for $5.67 an option that expires in January 20xx to buy something at $65.

Options that would yield a big profit right away are called "in the money," and sell for much more. So let's say stock prices are 70. An option to buy 100 shares at 68.5 would sell for more than $150. Such an option would be "deep in the money."

"Out of the money" options are cheap, because they will not yield a profit unless there is a big price change. So an option to buy at 78 while the current price is 70 would probably be very cheap as long as the price of the stock tends not to fluctuate too much.

"Out of the money" options work better as insurance policies against sudden, unexpected changes. Slightly "In the money" options, although often more expensive, are more volatile, which may allow for higher returns if someone feels confident about the movement of prices.

In the Podcast, they mentioned the notion of the "Greenspan Put." What this means is that there was a general consensus that the Federal Reserve would not let stock prices fall very far. In essence, all market participants were given for free an implicit "put" contract, which let them still make money if the price of stocks fell a certain amount. The Federal Reserve would stimulate the economy until stock prices went back up, just as if everyone had been given Put contracts that let them protect themselves against sudden downturns.