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The Financial Times Guide to Investing, 3rd Edition by Glen Arnold

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8

Options

Derivatives – options, futures, warrants, etc. – are the subject of this chapter and the next two. Derivative instruments have become increasingly important for professional investors over the last 30 years. However, they are not just the province of professionals. Private investors can also exploit these powerful tools to either reduce risk or to go in search of high returns. Naturally, exceptionally high returns come with exceptionally high risk. So traders using derivatives for this purpose need to understand the risk they are exposed to. Many people (and giant companies) have lost fortunes by allowing themselves to be mesmerised by the potential for riches while failing to take the time to fully understand the instruments they ...

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