NerdWallet's Smart Money Podcast
Options Trading, Short Sales and Derivatives: A Nerdy Guide
Aug 17, 2023
Sam Taube explains the speculative and protective reasons for derivatives trading and the average retail trader's chances of finding success. The podcast covers options trading, short sales, and margin trading. They discuss the price discovery process of markets, options strategies, risk management, and portfolio diversification.
33:27
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Quick takeaways
- Derivatives like options and futures allow individuals to speculate on future events and protect against potential losses through hedging.
- Short selling involves betting against the value of an asset, such as a stock, with the expectation of its price decreasing, but it can lead to substantial losses if the value increases.
Deep dives
Understanding Derivatives and Their Value
Derivatives are contracts that allow individuals to bet on future events, with options and futures being the most common types. Options give the buyer the right to buy or sell a stock at a set price, while futures involve buying or selling a commodity at a predetermined price on a specific date. Derivatives derive their value from underlying assets, and their risk-reward ratio is often higher than regular stock trading. They can offer substantial profits, but also the potential for significant losses.
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