Derivatives: Weapons, Not Toys

Explain how futures and forward contracts work for both hedging and speculation.

Deconstruct an option contract: calls, puts, strike price, expiry, premium, intrinsic value, and time value.

Explain the primary Option Greeks (Delta, Gamma, Theta) and how stock price movement and time decay directly alter an option's value.

Explain how theta decay systematically destroys option buyers, and why selling options is not 'free income'.

Define implied volatility (IV) and explain how the options market prices fear and uncertainty into contracts.

Explain Vega and how changes in IV can make or break an options position, independent of the stock's direction.

Differentiate between disciplined derivative strategies (e.g., hedging, defined-risk speculation) and pure gambling.

Construct a simple protective put strategy to hedge a stock position against a downside move.