Module 1 of 5 in Derivatives and advanced market concepts
Futures and options basics
What derivatives are, forwards and futures, margin and mark-to-market, calls and puts, strike, premium, expiry, moneyness, payoffs and breakevens.
7 lessons in this module. Progress is saved in your browser as you go.
This module builds the vocabulary of derivatives from the ground up, with every example worked through to the final profit or loss for both sides of the contract. Futures come first because their payoff is the simplest; options follow, with payoff diagrams drawn step by step.
By the end of this module you should be able to
- Explain what a derivative is and how forwards and futures contracts work.
- Calculate margin requirements and daily mark-to-market settlement on a futures position.
- Explain calls and puts, strike, premium, expiry, moneyness, and intrinsic and time value.
- Draw payoff diagrams and calculate breakeven points for option buyers and sellers.
Lessons in order
Module test
10 questions, chosen at random from a bank of 31 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- The risks of investing in shares: Derivatives magnify the market risks explained there.
- Probability and expected value: The zero-sum argument uses expected value.