Veale - The investors guidebook to derivatives: demystifying derivatives and their applications

THE INVESTORS
GUIDEBOOK TO

DERIVATIVES

THE INVESTORS
GUIDEBOOK TO

DERIVATIVES

Demystifying Derivatives
and Their Applications

STUART R. VEALE

Prentice Hall Press

PRENTICE HALL PRESS

Published by the Penguin Group

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Copyright 2013 by Stuart R. Veale

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Library of Congress Cataloging-in-Publication Data

Veale, Stuart R.

The investors guidebook to derivatives : demystifying derivatives and their applications / Stuart R. Veale.First edition.

pages cm

Includes index.

ISBN: 978-1-101-63366-3

1. Derivative securities. 2. Investments. I. Title.

HG6024.A3V43 2013

332.6457dc23 2013017458

First edition: September 2013

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, you should seek the services of a competent professional.

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This book is dedicated to:

Danielle Lahmani and Thor Heyeck, as well as the 2,000+ members of the research and development department at Bloomberg Inc. it has been my pleasure to train over the last 8 years. Your enthusiasm for learning and insightful questions have made our time together a delight.

The author would like to thank Jeanette Shaw and her staff at Prentice Hall Press for all their efforts in turning out this book. Any remaining errors are the authors responsibility.

I finished the second edition of my book on investing called Stocks Bonds, Options, Futures (SBOF) in 2001. While the second edition was still selling well, it was also overdue for an update. Over the last 12 years, much has changhd4ed in the way stocks and bonds were priced, traded, analyzed, packaged, and marketed. Specialists on the NYSE were replaced with designated market makers. The volume of trades executed on the dark pools soared. Derivatives on rainfall and wind had become hot products. Twenty-four-hour trading became a reality. The variety of exotic options exploded. Exchanghd4e-traded funds became the fastest-growing financial product in history.

I started out to write the third edition of SBOF, but it quickly became clear the industry had become too broad and too complex to comfortably fit in one text. Therefore, after discussing it with my publisher and readers, I decided to break the book into four manageable volumes:

My hope is that by expanding the book into four volumes, Ill be able to make them more comprehensive, include more examples, and make the books more useful to my readers.

While I made every effort to proof the text, there will undoubtedly be errors for which I assume full responsibility. It is my intent to update these volumes frequently and, therefore, I welcome my readers suggestions on which topics should be added, expanded, and omitted in future editions. Please email your questions, critiques, and comments to stu@invest-perform.com. I hope to answer every email I receive.

This book was prepared from sources believed to be reliable but which are not guaranteed. The research analyst(s) who is primarily responsible for this research and whose name is listed on the front cover certifies that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research. Opinions and estimates constitute our judgment as of the date of this material and are subject to changhd4e without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Each reader must make independent decisions regarding any securities or financial instruments mentioned herein.