Options, Futures, and Other Derivatives

Options, futures, and other derivatives are financial tools that derive their value from an underlying asset like stocks, commodities, or currencies. An option gives the holder the right, but not the obligation, to buy or sell the asset at a set price before a certain date. Futures are agreements to buy or sell the asset at a predetermined price on a specific future date, eliminating some uncertainty. Other derivatives, such as swaps, are customized contracts used to manage risks or speculate on price movements. These tools help investors hedge against price fluctuations or seek to profit from market changes.