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Money In The Movies Second Reel- Dark Knight rises
Hello and welcome to Money In The Movies Second reel, I’m Peter Bielagus.
On this show, we go a bit more in depth about a subject discussed in a Money in the movies
episode. Today I am going to talk about my review of The Dark Knight Rises and the topic
of put options.
Remember in the film, Bane uses Bruce Wayne’s fingerprint to sell a large number of put
options on the Gotham City future’s exchange. So what exactly does that mean?
First off, what the heck is a put option? An option is a high risk investment, where
you purchase the right to buy a stock at a certain price, for a certain period of time.
There are two types of options: call options and put options, which are the ones Bane used
in the film.
When someone buys a call option on a stock they are hoping the stock price will go up.
The way you can remember this is you call your friend up. When someone buys a put option,
they are hoping the price of the stock goes down. The way you remember this is you put
your foot down. Call your friend up, put your foot down. Get it? Got it. Good.
So imagine if shares in Wayne enterprises were trading at $100 per share. I think the
price is going to go up, so I buy a call option to buy the stock at $100 per share anytime
over the next 3 months. This call option might cost me $5.
And for all you option trader geeks out there I am just using these numbers as examples.
So I don’t own Wayne Enterprises Stock, what I own is the right to BUY the stock at
$100 per share ANYTIME over the next 3 months. That option cost me $5 per share.
So let’s say the stock goes to $150 per share. Well my option is “In the money”
because I hold the right to buy the stock for $100 even though it is currently trading
for $150. Everybody else has to pay $150, I can buy it for $100. In this case my profit
is $45 per share. $150 is what I get, minus my buying price of $100, minus the $5 for
the option equals $45.
If I bought a put option on Wayne Enterprises I am hoping the stock would go down.
Now typically when a stock goes down, it is a painful thing. But not if you have a put
option. A put option is the right to SELL a stock at a certain price for a certain period
of time. It is a way to make money, when the stock market goes down.
I might buy the right to SELL Wayne enterprises at $100 for a fee of $5 per share. If the
price goes down to $50 per share, well I have the right to sell it to a pre agreed buyer
for $100, making me a profit of $45 per share. $100 minus $50 for the cost of the stock,
minus $5 for the cost of the option is again a $45 profit.
Put options do exist so this part of the film is accurate. What Bain apparently did is SOLD
a large # of put options using Bruce Wayne’s fingerprints. So what he did was he sold the
right, to sell Wayne Enterprises stock at a certain price for a certain period of time.
When a normal person does this with their own stock, they believe the stock price is
not going to go down but up. Selling put options, on your own stock, is a way for people to
make money in two places at once. They make money from their stock going up, and they
also make money from the option fees. Of course, this only works, if the stock goes up.
If the stock goes down, basically you are OBLIGATED to buy the stock at a price higher
than what it is currently trading for. You must come up with the money to buy something
that the stock market believes is
currently overvalued.
While the film is a bit unclear as to exactly what Bane did, it appears he used Bruce Wayne’s
finger print to sell a large number of put options and then the price went down. Now
Bruce Wayne must “cover” his position by buying back Wayne Enterprise Stock at a
price higher than market value. When you are forced to buy something for more than it is
worth, you will quickly lose all your money.
So a quick review. An option is the right to buy or sell a stock. There are two types:
call options and put options. When you buy a call option you want the stock to go up.
Remember call your friend up. When you buy a put option you want the stock to go down.
Remember put your foot down.
But when you sell a call option or sell a put option these objectives get reversed.
If I sell a call option, I want the stock to go down. If I sell a put option I want
the stock to go up. Bane sold put options on Wayne Enterprises’ stock and when the
stock went down, Wayne lost everything.
I’m Peter Bielagus and thanks
for watching
money
in the movies, second reel.