Questions tagged [derivatives]

This tag is to be used for any question on derivatives. It should typically be used in conjuction with the actual instrument being used like futures, options, swaps, etc.

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How do I bet that a stock price will not move?

If I believe a stock will go up, I buy the stock. If I believe a stock will go down, I short the stock. If I believe a stock will neither go up nor down, what do I do? How do I profit from a non-...
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19 votes
3 answers
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What happens if I do not honor a futures contract?

I have little knowledge about futures contracts. The recent negative price of crude oil spurred my curiosity about this stuff. I read this post about buying/selling futures contracts. According to ...
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13 votes
5 answers
18k views

Buying a small amount (e.g. $50) of stock via eToro "Social Trading Network" using a "CFD"?

On LinkedIn I saw an ad claiming I could buy some AAPL stock for as little as $50. I clicked and came to a site called eToro that calls themselves a "Social Trading Network". It appears the buying of ...
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11 votes
4 answers
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Why trade futures if you have options?

This article explains the difference between futures and options. It seems a futures contract is an obligation, while an option is a right (not an obligation). If this is true, why would anybody ever ...
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11 votes
1 answer
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Is there a catch on this structured derivative product?

I have a friend who is looking at purchasing this derivative product from JPMorgan. It looks more or less like it's pretty difficult to lose ( ie. not do better than investing in a plain s&p ...
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9 votes
2 answers
5k views

Deep in the money put options

I'm trying to make sense of this option: Type: put Expiry: 2021-02-05 (= this week's Friday) Bid: 580.4 Ask: 584.9 Contract size: 100 Strike: 800 The underlying's last price is $225. Buying this put ...
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  • 205
9 votes
5 answers
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Is there a way to bet on the trade volume of a stock?

Say, stock ABC trades 100,000 shares per day. I feel strongly that in the near future it will trade 200,000 shares per day. Is there an instrument I can buy to profit on this? To be clear, I don't ...
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8 votes
4 answers
2k views

What exactly is a "derivative"?

I haven't been able to find exactly what a derivative means. It seems to be some sort of cross of insurance, stock, and lay-a-way. When I try to look it up, all I find is all the problems not ...
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8 votes
3 answers
325 views

Does a high demand for long commodities Futures push up the underlying spot price?

Let's take a commodity as an example - oil. Suppose there is suddenly a high demand for a 30-day oil futures contract. Will that push up the spot price on oil? I would guess that this would affect ...
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8 votes
2 answers
833 views

Do physical ETFs possess the same problems as CDOs?

Today Michael Burry explained to Bloomberg that ETFs are comparible to subprime CDOs, in that investors are buying securities that aren't backed by any real value: Passive investing has removed ...
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7 votes
2 answers
516 views

What are futures and how are they different from options?

As a form of investment there are contracts to buy commodities at a specific time in the future or at a specific price. How is this different from an option to buy a share?
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7 votes
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How are futures contracts setup at an exchange?

I'm having a hard time wrapping my head around how the actual contracts are structured at an exchange. Here are my questions: If an exchange facilitates the trading of futures contracts and nobody ...
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7 votes
3 answers
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Fund or ETF that simulates the investment goals of an options "straddle" strategy?

With all the market volatility of late, I was thinking that it might be a good short term strategy to employ a straddle approach. For those not familiar with Options trading: This is a strategy ...
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6 votes
5 answers
973 views

Where does the money go?

I've studied the derivatives market, and I've heard of a number of huge losses by firms; I've heard of individuals forewarning against investing in this market. I never hear about the big winners. ...
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6 votes
4 answers
334 views

Is it illegal to buy derivatives on your own assets?

Is it illegal to buy derivatives on your own assets? Such as student loans you owe, or your own mortgage?
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6 votes
1 answer
5k views

How can the writer of an option cancel or reverse the position & obligation before exercise or expiration?

How can the writer of, say, a call option cancel or reverse the position and its obligation (to deliver shares) before the option is exercised or the expiration date reached? Can an option that has ...
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6 votes
1 answer
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Reasons for a warrant's intrinsic value and price not adding up?

I'm looking at a specific (American-style) warrant of a company and let's say I see something like the following: Warrant Bid/Ask: 0.30$/0.35$ Strike Price: 15$ Current stock price: 16$ Expiration ...
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  • 163
6 votes
1 answer
275 views

How can I gamble in a "lottery" by using financial instruments?

I noticed that some financial instruments have lottery-like payoffs. If that is really the case, I am planning to play the "lottery" using financial instruments instead of the lotteries ...
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6 votes
1 answer
184 views

Is there a financial product that allows speculation on GDP?

is there an financial product linked to the GDP of the US (or other countries)? There are plenty of derivatives and certificates whose underlying equity is the Dow Jones, which makes it possible to ...
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5 votes
4 answers
5k views

Why is XYZ $70.5 strike call more expensive than $68 strike call?

The link below shows the February 16 call option listing for company XYZ. I used to think that, the higher the strike price, the cheaper the call option. Obviously, the price pattern for this ...
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  • 486
5 votes
2 answers
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What is the Meaning of the Black-Scholes Value?

We are currently learning about the Black-Scholes Merton Model. I understand the process of finding the call option. However, I'm wondering what the answer actually means. For example: Stock Price = ...
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5 votes
1 answer
430 views

When entering a Futures contract, must the margin deposit be idle or can I profit from it?

Let's say I am trading in a Reg-T Margin account. When entering a Futures contract, a certain amount of cash is needed as collateral (usually 5%-15%). I'd like to see that collateral generate income ...
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5 votes
0 answers
181 views

How might ETFs accelerate a "crash" [closed]

I am editing my question to pose the inquiries first in order to hopefully emphasize their objective, rather than subjective nature upfront. Here is my question: Am I correctly understanding the ...
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4 votes
3 answers
308 views

Margin when entered into a derivative contract

From Wikipedia In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty (most often their broker ...
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4 votes
2 answers
154 views

How to make an investment in a single company's stock while remaining market-neutral?

Supposing that I "believe" in one particular company, but I'm worried that the stock market may be in a bubble overall. How can I invest accordingly? How can I invest in one particular company, while ...
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4 votes
1 answer
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How do I find the value of British Energy Nuclear Power Notes?

I purchased British Energy shares when the company was floated on the stock exchange back in the late 90's. Now, many years on, I have ended up with Nuclear Power notes. I receive a quarterly ...
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4 votes
2 answers
436 views

Advice for a beginner investor interested in trading stocks and derivatives online?

I wanted to start an E-Trade account more or less just to fool around with. The goal is always to make money obviously, but at first I just kind of want to experiment and get familiar with the ...
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4 votes
2 answers
125 views

What is the options industry changing about option symbols in February, 2010?

I've heard that the options industry and options exchanges are making changes to options symbols effective February, 2010. What are the specific changes to stock option symbols? Why are the changes ...
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4 votes
3 answers
210 views

How do derivative prices react so quickly to changes in underlying prices?

Just trying to understand something with the market pricing and how it works. There are literally thousands, if not millions of derivatives tied to say an index fund (which in turn are composed of a ...
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  • 165
4 votes
3 answers
1k views

Short an option - random assignment?

I'm still really new to options but I'm trying to understand this concept of assignment. Let’s say I’m short a call of Microsoft at a strike of 80 set to expire in a quarter. Microsoft surges for ...
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  • 141
4 votes
1 answer
462 views

What is credit default swap rate?

I understand that for a credit default swap (CDS), its CDS spread is the rate of payments that the buyer of the CDS makes to the seller in each year. I also heard of "CDS rate". I wonder how it is ...
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4 votes
2 answers
3k views

How far into the future is a stock future? How do stock futures work?

I have been looking at the markets recently and most of the time, I see similar articles on how the market is going to do depending on how futures did. I am not that familiar with futures, but how ...
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3 votes
4 answers
11k views

"Derivative" and "asset-backed security": Same concept, or related?

Derivative and asset-backed security seem to be similar, as both are based on some other assets. So I wonder if they are the same concept?
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3 votes
3 answers
2k views

What is the best way to make a bet that a certain stock will go up in the medium term?

If I want to make a $1000 bet that, say, a share of AAPL will be $1000 in a year's time, what's the best way to do that? AAPL is over $600 today, so with my $1000 I can only afford to buy one share. ...
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3 votes
2 answers
526 views

Are leverage/ko products the only reasonable way to trade stocks?

As a small investor, there is a number of advantages to buying leverage derivatives instead of the actual stock: fixed stop-loss Once the KO barrier is hit, your money is gone - and you do not ...
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3 votes
3 answers
562 views

Several questions on Bitcoin futures

I have been reading news on crypto-currencies. As a developer, I understand well how Bitcoin works. I also have a basic understanding of finance in general and stocks in particular. I understand how ...
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3 votes
3 answers
1k views

What, exactly, are the "S&P 500 index swaps" held by UPRO?

I've thought about investing in UPRO, the ProShares UltraPro S&P500 3x leveraged ETF. But, of course, I don't want to invest in it until I have a good understanding of it, including its historical ...
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3 votes
1 answer
2k views

How does delta and gamma change in relationship to distance between strike and underlying price?

Would be great if someone can provide a graphical explanation to show changes in gamma and delta as price goes toward in the money and away as further out the money. Are there differences that I ...
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3 votes
2 answers
3k views

Can heavy demand for options drive up or down a stock price?

I understand the market maker is the one quite frequently on the other side of my buy or sell option order (to make sure their is liquidity in the market, and offering the bid / ask spread as "...
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3 votes
1 answer
254 views

Does the current Dodd-Frank Act ban speculation in OTC swaps?

Does the current version of the Dodd-Frank Act ban speculative positions in non-exchange cleared (OTC) swaps? It does not refer to any specific type of swap, but my current understanding of the bill ...
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3 votes
2 answers
170 views

How to continuously plot futures data

Since futures trade on a contract by contract basis, how can you plot the price over an extended period of time? As a reference I have included a plot of VX futures (VIX CBOE volatility index) from ...
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3 votes
1 answer
143 views

Is the market maker for a particular stock also the market maker for that stock's options?

Is the market maker for a particular stock also the market maker for that stock's options? ... or is it a different person entirely that makes the options markets for that stock? If it's 2 different ...
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3 votes
2 answers
9k views

Difference between Black-Scholes, Binomial models and Market price in European index options?

Need some help! I have calculated the theoretical price of an index option using BS and Binomial models and are now comparing the three. While BS and Binomial have approximately the same value, ...
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3 votes
3 answers
5k views

What is a negotiable security and how are they related to derivatives?

From Wikipedia, security is defined as: A security is generally a fungible, negotiable financial instrument representing financial value.1 Securities are broadly categorized into: * debt ...
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3 votes
0 answers
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UK taxation for options and futures trading

I live in UK and I see that there are 2 taxes when trading: CGT to be paid on capital gain and is 18% or 28% depending if you are basic tax payer or not income tax on any interest or dividend ...
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2 votes
5 answers
16k views

What is the meaning of "writing put options"?

From Wikipedia: A long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price ...
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2 votes
1 answer
396 views

Could an individual make money off of oil futures? [duplicate]

There was another post about this but oil is going for -32 dollars a barrel. What if I acquired A million barrels of oil. I’d be sitting on 32 million with which I could theoretically use to buy an ...
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2 votes
3 answers
129 views

Does an equivalent to stock "options" exist for CDs?

I was curious if an individual is able to purchase the option to get a CD at a particular rate in the future? Or alternatively defer the purchase of a CD and lock in the existing rate.
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2 votes
4 answers
12k views

Buy or sell futures contracts

I cannot find a clear and unambiguous definition of the terms "selling futures contract" or "buying futures contract". From Hull's book: [...] a futures contract is an agreement between two ...
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2 votes
2 answers
774 views

Can a warrant be "cancelled" by its issuer?

I am wondering if a bank that sells derivatives (Warrants, Turbos ...) can "cancel" their products after a very bad event. Example : Today, I buy 5000 PUT warrants. Then tomorrow, a market crash ...
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