ADRs can be a currency play. If so does this mean there is greater odds for profit if you buy an ADR as an option instead of the ADR itself because of the currency factor and its fluctuation? Say a long call or long put?
2007-03-19 10:42:19 · 2 answers · asked by westphalia1 2 in Business & Finance ➔ Investing
No. If more volatility is expected in a stock's future price, due to currency fluctuation or any other reason, the price of the stock's options will be higher.
2007-03-19 11:45:02 · answer #1 · answered by zman492 7 · 0⤊ 0⤋
You shouldn't view a typical ADRs as a currency play unless it only does business in a single country. Stocks are priced based on future earnings, and most large companies earn their profits globally. For example Exxon Mobil, a US company obviously, earns 70% of its profits overseas and then converts them to $$. A company like Sony sells most of its products here and then converts the earnings to yen. Most companies source and sell globally. And ADRs do not have higher average volatility - for example, consider the volatility of Yahoo vs HSBC.
Also there's no free lunch in options - all of the volatility is baked into the price of the option, so if an ADR did have higher volatility, the option would be priced higher and you wouldn't get any extra value from buying an option.
2007-03-25 08:24:14 · answer #2 · answered by tyates999 2 · 0⤊ 0⤋