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CHAPTER 13
AN INTRODUCTION TO
DERIVATIVE MARKETS AND SECURITIES
I. Overview of Derivative Markets
A. The Language and Structure of Forward and Futures Markets
1. Forward Contracts
2. Futures Contracts
a. Standardized agreement terms
B. Interpreting Futures Price Quotations: An Example
C. The Language and Structure of Option Markets
1. Option Contract Terms
2. Option Valuation Basics
D. Interpreting Option Price Quotations: An Example
II. Investing with Derivative Securities
A. The Basic Nature of Derivative Investing
B. Basic Payoff and Profit Diagrams for Forward Contracts
1. Symmetric payoffs
III. The Relationship between Forward and Option Contracts
A. Put-Call-Spot Parity
B. Put-Call Parity: An Example
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IV. An Introduction to the Use of Derivatives in Portfolio Management
A. Restructuring Asset Portfolios with Forward Contracts
1. Tactical asset allocation
V. Option Trading Strategies
Options are a leveraged alternative to making a direct investment in the asset on
which the contract is based
Put options could be used in conjunction with an existing portfolio to limit the