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INTRODUCTION A derivative is like a razor you can use it to shave and make yourself attractive for your girlfriend you can slit your throat with it or you can use it to commit suicideAnon This statement describes to us the problems and on the other hand rewards that the proper use of derivatives can bring The derivatives market has developed responding to the uncertainty about prices and therefore provided a means of separating out this price volatility The tendency of the market to move up or down in what appears to be a random manner has brought about the need for financial products which will protect or hedge the investor against the ill effects of market volatility Certain types of derivatives called Futures and Options might do just that if used properly In this essay we look at certain types of derivatives called Futures and Options and how hedgers investors make use of them to their advantage as well as where the threats seem to lie when dealing with them in general These derivative markets allow hedgers to avoid risk by transferring it to speculators who seek it We have all heard the phrase keep your options open and it is along these lines that the Options derivative has arisen As we know options are contractual arrangements giving the owner the right but not the obligation to buy or sell something at a given price at some time in the future It is these Options in general that we want to address as they offer the investor the ability to create a wide variety of risk and return alternatives from the same underlying security Futures being exchanged-traded forward contracts have also provided another choice to suit the needs of the holder and the advantages for and against these will also be looked at After looking at the Futures and Options we will turn our attention to discussing the cases for
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