I'm writing a book that has a theme about a high school student learning about how to run a business though his experiences selling Marijuana. He takes a business studies class and the teacher is a self made millionaire. I have a chapter where he wants to teach the kids about options and investing. He flat out says his examples are very simple and that real options are much more intricate and complex, he's just going over the basics of Puts and Calls. Does this sound believable?
He's just explained that instead of buying a candy bar for 9 dollars he can get a call to buy the candy bar in a month for ten, knowing that by then the price of a candy bar will go up to 11 letting him make a profit. A student asks why not just buy the candy bar for 9 and hold it until it's 11 and make profit that way.
“Let’s say we only have nine dollars to invest, so buying that one candy bar ties up all my capital. Forget about buying the candy bar, instead of spending nine dollars buying a candy bar, I will instead use my capital to buy one hundred and eighty options to buy the candy bar in one month at five cents a piece,” Mr. Bergman began to write out another equation, “So if I profit one dollar off of every option, and I buy one hundred and eighty of them, when the price goes to eleven, I borrow money from the bank to buy the candy bars for ten dollars then sell them for a eleven and off of my nine dollar investment I have just made one hundred and eighty dollars giving me a 2000% return on my investment,” he said smiling as he turned back to the class, “Sounds much more impressive then 22% doesn’t it?”
If this sounds accurate enough I will do the same with Puts, and then when a student asks what if you're wrong, he explains how that's when you lose your shirt. Then there's a little bit about Wingspread strategies when the Main Character deduces there is a way to minimize risk by combining them.
I'm looking for an explanation that's simple enough for a layman reader to understand without it being a boring lesson about investing that would go over their head.
Submitted February 02, 2019 at 10:18AM by authorrobertgemmell http://bit.ly/2D0uUlo
