Options, swaps, futures, MBSs, CDOs, and other derivatives
Put and call options
Options allow investors and speculators to hedge downside (or upside). It allows them to trade on a belief that prices will change a lot--just not clear about direction. It allows them to benefit in any market (with leverage) if they speculate correctly.
This tutorial walks through option basics and even goes into some fairly sophisticated option mechanics.
In many commodities markets, it is very helpful for buyers or sellers to lock-in future prices. This is what both forwards and futures allow for. This tutorial explains how they work and what the difference is between the two.
Options have been bought and sold for ages, but finding a rational way to price them seemed beyond our mathematical know-how... until 1973 when Fischer Black and Myron Scholes showed up and gave us the Black-Scholes model. This work was later extended by Robert Merton and now underpins much of modern finance.