Investing In Derivatives, Options, Warrants and Futures

Warrants and Options can be used to protect you portfolio or add leverage for a limited amount of time. These are contracts that give you the option (i.e. the right, not the obligation) to buy or sell ("call" or "put") something (a share, stock, commodity etc.) at a certain price (The Strike Price) on a certain date.

Warrants and Options may be bought and sold on any date, but the price is variable and depends on the value and volatility of the underlying asset, time left to maturity. The price can be calculated using complex equations...

Preference shares are a different class of share to "Ordinary" Shares and pay out to their holders before other classes of share (but after bond holders and bank debt) generally making them safer. They are a useful variant to ordinary shared to reduce the risk of a portfolio.

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Spread Trading can be a very risky (but tax-free) way to play the market or it can be used to hedge against market risk. Spread-trading derives a profit if a certain outcome occurs. It is however a legitimate investment technique and has tax-advantages over owning the asset on which you are betting. Also you can go long or short (i.e. make money from the market moving in either direction)

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Ever wondered how to price an option or a warrant? Here is an article explaining how this is done This is the standard method of working out the value of options or warrants from the value and volatility of the underlying asset, time to maturity etc. based on physics equations used to model movement of atoms (Brownian Motion) i.e. assumes the markets are random.