Hedgers either own a commodity or will need to purchase a commodity for business purposes at some point in the future. Hedgers therefore have positions or needs in the cash markets and they use derivatives to pass these price risks along to speculators. Speculators are willing to bear large risks in exchange for the potential to earn significant returns. It is common for speculators to use margin accounts and leverage in order to magnify their gains. Speculators use naked positions which means that they do not own or have a need for the physical commodity.

2) What is portfolio insurance?

Portfolio insurance is known as a protective put strategy. The strategy involves buying a stock and buying a put. What this strategy does is to put a minimum floor under the portfolio with unlimited upside potential. The tradeoff is that the investor has to pay a premium for the put. This can be considered as the premium on the insurance.

3) What is a covered writer?

A covered writer is the seller of an option who owns the underlying stock.

4) What type of investor would be interested in LEAPs?

LEAPs would appeal to an investor interested in options but who desires a longer term investment horizon. LEAPs can go out up to three years.

1) How do I make a market in baseball cards?

Have a garage sale! Many collectibles are not going to have an active secondary market in which the collectibles can be bought and sold. In order to liquidate a collection, which has no formal market, the investor might have to become a market maker. This can be achieved by having a garage sale which meets the technical definition of a call market!

1) What are benefits of international diversification?

Investing globally means that an investor has more investment options available to choose from.