Derivatives
Futures, options, initial margin and variation margin — the mechanics, not the advice.
11 articles
Short Selling on the Exchange: A Securities Loan, Not a Bet on a FallA short (short position) is the sale of a security you do not own: the investor borrows it from the broker, sells it straight into the order book at the market price and undertakes to return the same security later — the security itself, not money.6 min
Carrying a Position Overnight: What You Are Charged For and Who Decides to Close ItThe night costs more than it seems: the broker charges a fee for carrying an uncovered position, and the main risk of this interval is the kind that no protective order can close.6 min
Hedging with futures: what exactly a short position in the contract locks inHedging with futures means opening a position in the contract opposite to the position already held in the portfolio, so that the gain on the contract offsets the loss on the asset and vice versa.6 min
Why leverage destroys the result even when the forecast is rightLeverage loses on a correct forecast because the forecast and the position answer different questions.5 min
Expiration: what happens on a contract's last dayExpiration is the moment a derivatives contract ceases to exist and every position still open in it is closed compulsorily: not at the price you see in the order book before the bell, but at the settlement price the exchange determines under a procedure laid down in advance in the contract specification.6 min
Hedging: insurance you pay for with returnHedging is not a way to make money, nor is it protection against loss in general.6 min
Structured products: where the risk is hiddenThe risk of a structured product does not lie in the underlying asset pictured on the marketing sheet.6 min
Contango and backwardation: why a long futures position melts awayA long futures position melts away not because the underlying asset falls, but because by the settlement date the futures price has to converge with the spot price.5 min
Options: a right without an obligationThe buyer pays a premium for the right to transact. The seller receives the premium and takes on the obligation.
Margin: Why Your Position Can Be Closed Without Your InvolvementMargin is not a fee paid to the broker and not a part of the asset's price, but a sum in your account that is blocked against the risk of a position already open.5 min
Futures: An Obligation, Not an OptionA futures contract does not give you the right to buy an asset — it obliges you to settle the contract, and it binds the buyer and the seller equally strictly.6 min