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BASIC KNOWLEDGE FOR TRADING WITH OPTIONS & FUTURES IN PORTFOLIO MANAGEMENT FOR BEGINNERS
With our professional compendium, consisting of high quality learning content, you have the opportunity to acquire the necessary theoretical basics in self-study without any time constraints.
CONTENT
1. problem definition (excerpt)
Trading in derivatives, especially options and futures, is a fast-moving business that offers great potential for profit but also considerable risk of loss. The primary goal of an investment is to achieve a profitable performance and a reduction of the respective risk. In connection with the volatility resulting from the movements of the respective underlying, options and futures, as alternative investments, react quickly and sensitively. This, in turn, allows for dynamic asset growth if the prevailing market forces are met with confidence. For top performance, the right selection of diverse trading strategies is of crucial importance here. Due to the rapid technical development in recent years, more and more private investors are entering the domain of the professionals.
"For example, what do private stock investors do in a bear market in which stock prices slide lower and lower?“
The answer is: nothing.
„What do private stock investors do when they find a stock too expensive at the moment?“
The answer is: nothing.
„What do stock investors do who have set a price target for their stocks and want to make money with their forecast today?“
The answer is: nothing.
Experienced derivatives traders would have immediately listed several ways in which they could make money in all three situations."
A majority of private equity investors is skeptical about derivatives out of a lack of knowledge. For instance, a futures or options contract is seen only as a bet on the price development of the respective underlying asset.
The futures markets specify three types of market participants who transact in the futures and options markets:
Speculators, who exploit the leverage effect of futures and options. They seek to achieve high profits on the futures markets with low stakes while actively assuming risk.
Hedgers, who use the futures and options markets to transfer the risks they have in their spot positions to other market participants, thereby reducing their exposure.
Arbitrageurs, who uncover price imbalances, e.g. between the spot and futures markets, and offset them through corresponding transactions.
2. characteristics of derivatives (options & futures)
3. features and functions
4. conditional forward contracts
5. unconditional forward contracts
6. possible uses of derivatives (options & futures)
7. conclusion (excerpt)
The possible uses of derivatives (options & futures) in portfolio management result in a variety of different strategies. The characteristics of the mentioned derivatives have been explained. An investor who does not have a solid knowledge of this market segment should not trade with derivative financial instruments, because the wrong use of these complex instruments can have serious financial consequences.