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CHANGE UNIT

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Table of Contents

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• Open/Close

DERIVATIVES

• RIETS are not considered one.
• Forwards and Futures are nonsecurities derivatives
• Serve many purposes
  • Generation of income (selling/writing)
  • Potential gains
  • Asset protection
  • Even unlimited loss is a possibility(writing naked calls, etc)

CALLS and PUTS

• CALLS
  • Purchasing a call is good if buyer has insufficient funds
  • Only sellers of calls generate income
  • Writing naked calls provided unlimited liability or the most risk
  • BUYING A CALL
    • Buying a call on stock sold short, hedges or protects against unlimited loss
• PUTS
  • Only sellers of puts generate income
  • Purchasing a Put would hope the market price to go below the strike price, not above.
  • BUYING PUTS
    • Investor would sell his stock if price falls to the strike price, allowing investor to get out of the stock at a minimal loss, or even small gains. It reduces the total amount they can lose
    • Reduces downside risk when investor owns or is already long a stock
    • Participate in additional gains if the security increase in price
• HEDGING
  • When long on a position or stock, you would BUY A PUT

FUTURES & FORWARDS