Today two CME staff conducted briefing on Options Contracts to our staff from many departments in the company. Apparently more than 1/3 of the staff left as a result of too technical materials of presented. The technical issue here is that they are not the intended participants after all.
Option is a very powerful and versatile instrument relative to many, if not all, derivatives instruments. Actually Option writer or seller is the second oldest profession in the world, according to a "joke" cracked by a IMD speaker. We have been buying option in our daily lives without realising it such as insurance policy, lottery and so on.
Most people think that option is a very risky instrument or rather derivatives contracts are very risky. To me and to those who understand, derivatives are tools that can be used to achieve certain goals but can also lead to damage if we do not know how to use them. The same principle is true to many other tools such as gun, knife, saw, and many other tools.
The benefits and also the riskiness of using derivatives are leverage, transparency and complexity. If we understand the three aspects of using derivatives and have proper risk management measures, derivatives especially option contracts can help us to increase our profits and reduce risk exposure. Therefore, fund managers or dealers from all industries which include financial and commodity, should learn how to implement hedging strategy to protect their exposure to price and other form of risk by using derivatives.
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