The most comprehensive educational resources for finance

CFA Level 2: Derivatives Part 1 – Introduction

Welcome to derivatives.  This is the first of two modules on derivatives, covering forward and futures contracts.  Candidates will need to know: The similarities (such as pricing) between forwards and futures; The differences (such as value) between forwards and futures; How to price and value forwards and futures; and Basic the characteristics of forwards and

How to Become a Derivatives Trader?

I received a question from one of the users asking me about how he can build a career as a derivatives trader on Wall Street. In this post I will explain the role of a derivatives trader and what you can do to become one. So, what does a derivatives trade do? As the name

Put Call Parity in Options

The payoff profile of the options can be used to create more complex positions. A long position in the underlying asset can be decomposed into a long call plus a short put with the same strike price and maturities. Pay on purchase of a call option is as follows: Pay on sale of put option

Case Study: Societe Generale Derivative Losses

Background of the Case: STOXX limited provides investors with access to markets across Europe, Americas and the Asia-Pacific. The company develops, markets, maintains indices that are markets measures and internationally renowned brands. These indices are investable, tradable and transparent and are marketed to companies across the world to be used as underlying of financial products.

Case Study: Amaranth Derivatives Losses

Background of the case This article describes the market manipulation case by Amaranth Advisors who had exposure to natural gas futures, swaps and options derivatives contracts as Calendar Spreads. Amaranth’s trading strategy was long winter and short non-winter natural gas futures contracts. In financial market terminology this is called a Calendar Spread. This strategy was

Madoff Case Study: The Largest Ponzi Scheme and Stock Fraud

Bernard Madoff ran one of the world’s largest Ponzi schemes and attracted thousands of investors offering them a promise of steadily high returns on their investments. He was arrested for securities fraud on December 11, 2008 by the federal authorities. This video provides a detailed view of his operations and how he was able to

Risk Management Case Study: Sumitomo Derivatives Losses

Background of the case This article explains the causes of the losses and the impact on the financial world due to the Sumitomo Copper Derivatives trades caused by excessive manipulation by one of its key and trusted employees Yasuo Hamanaka. He was believed to be an expert in Risk Management. He had a star trader

Spreadsheet: Option Trading Strategies

Download this free spreadsheet to form various option strategies and view their payoff diagrams. The spreadsheet allows you to create option strategies by combining long and short positions in stocks, call options and put options. You can select unto 3 call options and 3 put options. For example, to create a short covered call, buy

Trading Futures Contracts: How Does it Work?

In this article, we will discuss in detail about how futures contracts are traded. The futures contracts are traded on futures exchange, and the trading happens in to ways: 1) Pit trading, and 2) Electronic screen or terminal. Pit Trading Also known as floor-based trading, in this method, the traders stand in a pit (trading