Everything You Wanted To Know About Derivatives But Were Afraid To Ask

Know Your Options — and Terms

thinkstock

By Gordon Haber

Published November 19, 2013, issue of November 22, 2013.
  • Print
  • Share Share

From call options to put options, forwards to futures, we break derivatives down and answer all the questions you were afraid to ask.

  • Derivatives: financial securities whose value is based on, or derived from, that of an underlying asset. That asset could be money, bonds or agricultural produce — or anything. Derivatives can be used to “hedge,” or mitigate risk, i.e. you can use them to limit your potential losses. But because the markets for derivatives are much larger than those for the underlying assets (some estimate that the market is more than $250 trillion), as a speculative tool, derivatives can lead to wildly disproportionate gains and losses.

  • Call options: derivatives that give the buyer the right (but not the obligation) to buy an asset at a certain price on or up to a certain date.

  • Put options: a derivatives that give the buyer the right (but not the obligation) to sell an asset at a certain price on or up to a certain date.

*Forwards: contracts wherein payment takes place at a predetermined time and price.

*Futures: similar to forwards, but the contract is standardized and traded on an exchange. The Washington Post uses this good example. “A basic agricultural futures contract is a derivative. A farmer today might agree to sell corn to a broker next winter at a certain price. If the price goes up, the farmer misses out on greater profits. But if the price goes down, the farmer is protected from losses.”

*Swaps: exchanges of one security for another, frequently interest rates or securities. The most common kind of swap is an exchange of a fixed rate loan for a floating rate loan, mitigating risk for one party and potentially increasing gains (or losses) for the other.


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • Did Hamas just take credit for kidnapping the three Israeli teens?
  • "We know what it means to be in the headlines. We know what it feels like when the world sits idly by and watches the news from the luxury of their living room couches. We know the pain of silence. We know the agony of inaction."
  • When YA romance becomes "Hasidsploitation":
  • "I am wrapping up the summer with a beach vacation with my non-Jewish in-laws. They’re good people and real leftists who try to live the values they preach. This was a quality I admired, until the latest war in Gaza. Now they are adamant that American Jews need to take more responsibility for the deaths in Gaza. They are educated people who understand the political complexity, but I don’t think they get the emotional complexity of being an American Jew who is capable of criticizing Israel but still feels a deep connection to it. How can I get this across to them?"
  • “'I made a new friend,' my son told his grandfather later that day. 'I don’t know her name, but she was very nice. We met on the bus.' Welcome to Israel."
  • A Jewish female sword swallower. It's as cool as it sounds (and looks)!
  • Why did David Menachem Gordon join the IDF? In his own words: "The Israel Defense Forces is an army that fights for her nation’s survival and the absence of its warriors equals destruction from numerous regional foes. America is not quite under the threat of total annihilation… Simply put, I felt I was needed more in Israel than in the United States."
  • Leonard Fein's most enduring legacy may be his rejection of dualism: the idea that Jews must choose between assertiveness and compassion, between tribalism and universalism. Steven M. Cohen remembers a great Jewish progressive:
  • BREAKING: Missing lone soldier David Menachem Gordon has been found dead in central Israel. The Ohio native was 21 years old.
  • “They think they can slap on an Amish hat and a long black robe, and they’ve created a Hasid." What do you think of Hollywood's portrayal of Hasidic Jews?
  • “I’ve been doing this since I was a teenager. I didn’t think I would have to do it when I was 90.” Hedy Epstein fled Nazi Germany in 1933 on a Kinderstransport.
  • "A few decades ago, it would have been easy to add Jews to that list of disempowered victims. I could throw in Leo Frank, the victim of mob justice; or otherwise privileged Jewish men denied entrance to elite universities. These days, however, we have to search a lot harder." Are you worried about what's going in on #Ferguson?
  • Will you accept the challenge?
  • In the six years since Dothan launched its relocation program, 8 families have made the jump — but will they stay? We went there to find out:
  • "Jewish Israelis and West Bank Palestinians are witnessing — and living — two very different wars." Naomi Zeveloff's first on-the-ground dispatch from Israel:
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.