# Options, swaps, futures, MBSs, CDOs, and other derivatives

Contents

## 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.

3:33

American call options

American Call Options

3:29

Basic shorting

Basic Shorting

2:56

American put options

American Put Options

3:04

Call option as leverage

Call Option as Leverage

3:10

Put vs. short and leverage

Put vs. Short and Leverage

3:22

Call payoff diagram

Call Payoff Diagram

3:24

Put payoff diagram

Put Payoff Diagram

3:48

Put as insurance

Put as Insurance

3:29

Put-call parity

Put-Call Parity

3:53

Long straddle

Long Straddle

4:07

Put writer payoff diagrams

Put Writer Payoff Diagrams

3:08

Call writer payoff diagram

Call Writer Payoff Diagram

2:51

Arbitrage basics

Arbitrage Basics

3:56

Put-call parity arbitrage I

Put-Call Parity Arbitrage I

3:54

Put-call parity arbitrage II

Put-Call Parity Arbitrage II

2:04

Put-call parity clarification

Put-Call Parity Clarification

3:30

Actual option quotes

Actual Option Quotes

3:27

Option expiration and price

Option Expiration and Price

## Forward and futures contracts

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.

3:11

Forward contract introduction

Forward Contract Introduction

3:29

Futures introduction

Futures Introduction

2:41

Motivation for the futures exchange

How an exchange can benefit from trading futures and how it can use margin to mitigate its risk

3:39

Futures margin mechanics

Understanding the mechanics of margin for futures. Initial and maintenance margin

3:48

Verifying hedge with futures margin mechanics

Verifying Hedge with Futures Margin Mechanics

3:19

Futures and forward curves

Normal and Inverted Futures Curves

4:07

Contango from trader perspective

What a trader means when they say that a market is in contango

2:28

Severe contango generally bearish

Thinking about why a severe contango could be bearish

3:26

Backwardation bullish or bearish

Thinking about why backwardation in commodities markets is bullish

3:51

Futures curves II

Futures Curves II

4:11

Contango

3:57

Backwardation

Backwardation and the theory of Normal Backwardation

3:44

Contango and backwardation review

Review of the difference uses of the words contango, backwardation, contango theory and theory of normal backwardation

4:19

Upper bound on forward settlement price

Upper Bound on Forward Settlement Price

4:13

Lower bound on forward settlement price

Lower Bound on Forward Settlement Price

4:07

Arbitraging futures contract

4:01

Arbitraging futures contracts II

Arbitraging Futures Contracts II

3:09

Futures fair value in the pre-market

What is the Futures Fair Value and how to traders use it as an indicator for stock price direction at market opening

3:38

Interpreting futures fair value in the premarket

How to interpret the market price of a futures contract relative to the fair value in the premarket

## Mortgage-backed securities

What started out as a creative way to spread risk ended up fueling a monster housing bubble. This tutorial explains what mortgage-backed securities are and how they work.

2:03

Mortgage-backed security overview

Basics of how a mortgage back security works

7:56

Mortgage-backed securities I

Part I of the introduction to mortgage-backed securities

9:34

Mortgage-backed securities II

Part II of the introduction to mortgage-backed securities

9:17

Mortgage-backed securities III

More on mortgage-backed securities

## Collateralized debt obligations

4:19

Collateralized debt obligation overview

How CDOs can give different investors different levels of risk and returns with the same underlying assets

9:42

Collateralized debt obligation (CDO)

Introduction to collateralized debt obligations (to be listen to after series on mortgage-backed securities.

## Credit default swaps

3:20

Credit default swaps (CDS) intro

Introduction to credit default swaps and why they can be dangerous

10:57

Credit default swaps

Introduction to credit default swaps

12:04

Credit default swaps 2

Systemic risks of credit default swaps. Financial weapons of mass destruction.

4:31

Use cases for credit default swaps

How credit default swaps can be used as hedges, insurance or side-bets

4:48

Financial weapons of mass destruction

Why Warren Buffett called Credit Default Swaps financial weapons of mass destruction

## Interest rate swaps

3:51

Interest rate swap 1

The basic dynamic of an interest rate swap

4:47

Interest rate swap 2

## Black-Scholes formula

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.

10:24

Introduction to the Black-Scholes formula

5:00

Implied volatility