Hi my name is Jon and I'm an independent investor from Kansas City and I'm here to share with you a beginner's guide to derivatives on About.com.

What Are Derivatives?

Derivatives are investment contracts that derive their value from an underlying asset.

Common Derivatives: Options

The most common used derivative for stock investors are options.The contracts give the investor the right to buy or sell a certain number of shares at a certain time for a certain price. But what you are investing in is the price of that option which controls the right to buy or sell that underlying asset.

For example, a call option is a simple kind of option that gives the buying the right but not the obligation to buy 100 shares of a certain stock at a predetermined price. The contract is a derivative because the value of the option depends on what the underlying stock does.

In the case of Apple stock options for instance, wether the stock option makes money, losses money or breaks even depends entirely on what Apple shares do. So the options derive their value from what Apple shares do. That's why an option contract is called a derivative because you can invest in the options contract rather than buying the number of shares outright.

Thanks for watching and for more information on stocks and investing, be sure to check us out on the web, at About.com.

What Are Derivatives?

Derivatives are investment contracts that derive their value from an underlying asset.

Common Derivatives: Options

The most common used derivative for stock investors are options.The contracts give the investor the right to buy or sell a certain number of shares at a certain time for a certain price. But what you are investing in is the price of that option which controls the right to buy or sell that underlying asset.

For example, a call option is a simple kind of option that gives the buying the right but not the obligation to buy 100 shares of a certain stock at a predetermined price. The contract is a derivative because the value of the option depends on what the underlying stock does.

In the case of Apple stock options for instance, wether the stock option makes money, losses money or breaks even depends entirely on what Apple shares do. So the options derive their value from what Apple shares do. That's why an option contract is called a derivative because you can invest in the options contract rather than buying the number of shares outright.

Thanks for watching and for more information on stocks and investing, be sure to check us out on the web, at About.com.

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