Eldora Gold Resources News-Gold s Insurance Cost Index Explained
Eldora Gold Resources News-By Brad Zigler.
We ve expounded on the option market insurance
model in this column before.
In their most basic utility, options offer investors protection from...
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Eldora Gold Resources News-Gold s Insurance Cost Index Explained
Eldora Gold Resources News-By Brad Zigler.
We ve expounded on the option market insurance
model in this column before.
In their most basic utility, options offer investors protection from
catastrophic changes in asset values, just like homeowners, automobile and — gulp! — life
insurance contracts.
And just like other insurance markets, option prices are determined in part by the issuers
perception of risk.
When the odds of a payout increase — because of increased fire hazards, a
poor driving record, disease or wobbly asset values — the cost of protection rises.
For years now, professional traders have gauged risk in the investment market by metering the
volatility assumptions embedded in option prices.
The Volatility Index (VIX) measures the
expected variance in the stock market over the ensuing 30 days by extracting the implied
volatility of near-term options on the SPDR Depository Receipts (SPY).
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