Are Exotic Investments a Wise Investment for You and Your Company?

Are Exotic Investments a Wise Investment for You and Your Company?

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An ever-increasing number of companies are choosing to invest their profits in the stock market or other forms of speculative investment. As such, there are now entire sections of libraries dedicated to these supposed guides, which profess to offer that elusive fast and easy track straight to the peak of success as an entrepreneur. The reality, of course, is that even a particularly well written and researched book produced by an expert cannot guarantee its reader success any more than a book on the cessation of smoking is a surefire way to defeat the addiction.

That’s not to say that there isn’t useful advice and insight to be found from a variety of respectable and internationally recognized businessmen and women, however there are also a number of books whose overriding concern is for a large financial return rather than any feelings of altruism or concern for the success rate of the endeavor. The truth is that while it is certainly possible to learn and acquire business acumen, there are clear and increasingly recognized benefits to receiving a formal business qualification. There is also a prevalent belief that natural talents such as salesmanship and showmanship are equally essential.

Investing money is an art and it requires and equal blend of a grasp of business, razor sharp intuition, a measured level of ruthlessness and, especially in the early days of your company, the ability to make informed and considered choices about where to allocate your budget and how to justify your allocations to the appropriate members of your team. In short, the more cautiously you approach your initial investment opportunities and the more willing you are to learn, the more likely you are to maximize your profits.

What Are Exotic Investments?

Exotic investments, or exotic options, vary in structure from the traditionally encountered American and European options. The difference in structure is reflected in the fact that exotic options are generally much more complicated in their rules and regulations when compared to the American and European options. Exotic options are options that take a very different format than usual in terms of both structure and payout.

One of the more popular types of exotic option is the so-called ‘binary option’. Usually, investor payouts are proportional to the increase in value of the underlying asset. Should this value fall, the investor would find themselves losing money instead, which would also be proportional to the loss in value of the underlying asset. In a binary option, however, the payout is a flat sum which is paid as long as the option taker has correctly predicted the rise or fall of a stock from a baseline at a specific point in time. If you’re interested in finding out more about opportunities in exotic investments look for a service such as Stern Options.

What are the benefits?

Exotic investments differ greatly in structure and regulatory burden when compared with the so-called American or European styles. One example of this is compound options. Compound options are designed so that the owner (buyer) of the option has the right, but crucially is not obligated, to purchase another option at a precise price or by a specific date. The most common arena for compound options Is the foreign exchange and fixed income market. This is a perfect illustration of where greater freedom in structure and regulation pay off.

Barrier options are another commonly encountered form of exotic option taking, especially on the foreign exchange and equity markets. Under a barrier agreement, the price and payout structure is rather unique; the way in which the value of barrier options is pinned to their underlying assets means that the value of the option is extremely volatile, often rising and falling by considerable margins.

What Are the Alternatives?

If you are looking to increase your businesses visibility and profitability, the obvious questions are; how much money do you currently have to invest back into your company, and how can you most efficiently deploy it to maximize return? Investments and stock options are good ways to achieve this, but require a good deal of prior experience less the venture becomes more akin to gambling than a serious moneymaking exercise.

There are a number of other areas where investing your company’s surplus cash flow could prove beneficial in the short and long term. Employee training is always a good investment, but many managers are reluctant to pursue it too heavily for fear that their business will become a revolving door of young graduates looking for some free on-the-job training before settling for a career elsewhere. However, the realization of these fears, while a genuine concern, has been far less prevalent than was expected.  In fact, employee training is a fantastic way to build loyalty as well as give your company the ability the option to nurture the kind of talent that one day may change the face of an entire industry.

So Are Exotic Investments Worth it?

Whether exotic investments are the right move for your company is, of course, entirely your decision, but they are something that is definitely well worth considering, especially as a growing approach that was outside the standard business paradigm and is now slowly making its way in.

Exotic Investments are certainly not without their own set of drawbacks, though. For example, there is a perception that despite, or perhaps in spite of, the greater flexibility surrounding the rules and regulations for exotic investments, they tend to be much more risky and often much more demanding insurance wise. Another issue is that exotic investments are often considered disproportionately costly and time consuming to negotiate and implement.

There is no doubt that in some situations, these alternative option arrangements are hugely beneficial and contribute to the development of much needed public services and infrastructure in some parts of the United States. Certainly, in the future when considering how you could potentially invest some of your cash surplus, spare a thought for exotic options opportunities and seriously consider whether you could make a promising long term investment.

 

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