14

Is the price you are quoting the bid, ask, or last? If this was the last, then the information could be days old. The bid or ask may be up to date pricing but the other side may have no interest at that price. This kind of thing often occurs when prices are drastically out of or in the money; or very close to expiration.


13

Unlike the stock market which offers growth long term, the derivatives market is a zero sum game. This phrase is how one describes a poker game. 7 people walk in, and walk out with the same total amount of money (note, the 7th guy is the 'house', and with nothing at risk, he gets his cut). No money is created, the total value doesn't change. When I buy ...


9

Remember writing a call is the same as being short a call, aka, selling-to-open. The correct method to cancel the obligation is to buy-to-close that same contract on the open market. Most brokers offer a drop-down list in the order entry tab, just select buy-to-close instead of sell-to-open. From Investopedia - Definition of 'Buy To Close' The closing ...


8

See Solid reading/literature for investment/retirement/income taxes? – not exactly the same question, but a great reading list for you. You are putting the cart before the horse here, first, you learn, then you invest. There's a large danger in confusing intelligent investing with "fooling around". The idea that you think you'd like to use derivatives ...


8

A derivative contract can be an option, and you can take a short (sell) position , much the same way you would in a stock. When BUYING options you risk only the money you put in. However when selling naked(you don't have the securities or cash to cover all potential losses) options, you are borrowing. Brokers force you to maintain a required amount of cash ...


8

Concerning the Broker: eToro is authorized and registered in Cyprus by the Cyprus Securities Exchange Commission (CySEC). Although they are regulated by Cyprus law, many malicious online brokers have opened shop there because they seem to get along with the law while they rip off customers. Maybe this has changed in the last two years, personally i did not ...


8

If an exchange facilitates the trading of futures contracts and nobody intends to take delivery of the product, nor do they own it so they can deliver it, then how are the contracts issued? Say I want to buy a future contract that allows me to buy coffee at a given price in December 2013. Technically, this contract allows me to buy 37,500 pounds of coffee ...


8

Buying (or selling) a futures contract means that you are entering into a contractual agreement to buy (or sell) the contracted commodity or financial instrument in the contracted amount (the contract size) at the price you have bought (or sold) the contract on the contract expire date (maturity date). It is important to understand that futures contracts ...


7

This BBC article says that nuclear power notes came about when the French energy company EDF purchased British Energy in 2008: The note changes in value with wholesale energy prices and power output levels from British Energy's existing nuclear stations. EDF Energy's website describes these notes under the section titled "Nuclear Power Notes": When ...


7

The basic idea behind a derivative is very simple actually. It is a contract where the final value depends on (is derived from) the value of something else. Stock, for instance, is not a derivative because the contract itself is actually ownership of part of a company. Whereas car insurance is a derivative because the payout depends on the value of ...


7

While on the surface it may seem that the warrant you described is trading below intrinsic value, there are many reasons why that might not be the case. It's more likely that you are lacking information, than having identified a derivative instrument that the market has failed to reasonably price. For instance, might there be a conversion ratio on the ...


7

Using the data, the call option is $2.34, but what exactly does that mean? Does that mean the buyer has the obligation to buy the stock for $2.34? No, a call option is when someone purchases the right to buy the stock at the exercise price. The obligation is on the seller to provide the stock. The buyer can just let the option go unexercised if the buyer ...


6

No, but it's not possible, at least not for the two you cite. My mortgage happens to belong to a bank that held it. It was not collateralized into a CDO or other mortgage security. But, say it were. My mortgage would be one of many, representing a small fraction of the total security, maybe 1% or less. By finding out which CDO owns it to buy a derivative, ...


6

A credit default swap is basically a form of insurance that the buyer of say, a bond, buys from a financial institution, say a bank, against the bond's going "bad" (not paying in full). Say the value of the bond was $1,000. A bank might charge an annual amount $10 per thousand if it felt that the bond had a slightly less than 1% chance of going bad in the ...


6

You can employ a hedging strategy using short selling, put options, or other methods that will partially neutralize your exposure to the overall market. e.g. You could short sell a market-wide index such as the S&P500, while going long (buying) the company you are interested in. Investopedia has a nice primer on this: A Beginner's Guide To Hedging ...


6

I doubt it, since CDs are FDIC insured and mainly target retail savers/investors. More sophisticated investors have bond options, interest rate options, caps/floors, and other interest rate derivatives to choose from, as well as bespoke structured products.


5

There's no free lunch. Here are some positions that should be economically equivalent (same risk and reward) in a theoretically-pure universe with no regulations or transaction costs: (own the stock) = (buy call + sell put) (own the stock + buy put) = (buy call + cash collateral) You're proposing to buy the call. If you look at the equivalent, stock plus ...


5

Apple closed Friday 9/23 at $403.40. This is what the Puts look like, note the 2013 expiration. (The rest is hypothetical, I am not advising this.) As a fan of Apple and feeling the stock may stay flat but won't tank, I sell you the $400 put for $64.65. In effect I am saying that I am ready willing and able to buy aapl for $400 (well, $40,000 for 100 ...


5

"Write" means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as "reading" an option.


5

No. Black Scholes includes a number of variables to calculate the value of the derivative but taxation isn't one of them. Whether you are trading options or futures, the dividend itelf may be part of the equation, but not the tax on said dividend.


5

You could be looking at bad data. You may be looking at the last trade which could have been second, minutes or hours ago. The B/A spread on these could be wide while the option premium for nearby strikes is narrow. So the last sale at the bid of the lower strike ($0.15) could be lower in price than the most recent buy at the ask ($0.18) of the ...


4

The typical distinction between a derivative and an asset-backed security is that a derivative is not direct ownership in anything, but rather is a contract who's value is derived from another security (typical examples are options and futures), whereas ABS represents a (partial) ownership stake in some real asset (such as credit card loans, mortgages, etc.)....


4

Context is key here. Futures don't really have to do with a time in the future in this context. Futures are a capital market (futures market), just like Stocks are a market (stock market). Both capital markets have the ability to affect each other. Up until 30 years ago there was a separate use for the futures market, but in the days since they are MOSTLY ...


4

"Writing a put" for a stock means you are selling the right to sell you stock. Simply put (er no pun intended), "writing put options" means you are selling somebody else the right (a contract) to sell YOU a specific stock at a specific price before a specific date. I imagine the word "write" to refer to the physical act of creating a contract. The ...


4

The most obvious use of a collateral is as a risk buffer. Just as when you borrow money to buy a house and the bank uses the house as a collateral, so when people borrow money to loan financial instruments (or as is more accurate, gain leverage) the lender keeps a percentage of that (or an equivalent instrument) as a collateral. In the event that the ...


4

Specific stock advice isn't permitted on these boards. I'm discussing the process of a call spread with the Apple Jan 13 calls as an example. In effect, you have $10 to 'bet.' Each bet you'd construct offers a different return (odds). For example, If you bought the $750 call at $37.25, you'd need to look to find what strike has a bid of $27 or higher. The $...


4

I think you're getting confused between assets and liabilities, your 'own assets' as you put are to you liabilities they are however assets to someone else. For example your mortgage is a liability to you but an asset to person that owns the mortgage. Thus the question you are really asking is if you can buy derivatives on your own Liabilities?


4

Short answer The second article you linked to (on delivery price) states it best: In forward contracts, the forward price and the delivery price are identical when the contract begins, but as time passes, the forward price will fluctuate and the delivery price will remain constant. In short, the forward price only equals the delivery price the moment ...


4

There is no margin call. Inverse ETFs use derivatives that would lose value in the case you describe though this doesn't force a margin call as you may be misunderstanding how these funds are constructed.


Only top voted, non community-wiki answers of a minimum length are eligible