Introduction to Derivatives

This lecture introduces the basics of derivatives, covering topics such as hedging with options, leveraging positions, bear and bull spreads, straddles, butterfly spreads, piecewise linear payoffs, engineering payoffs, and approximation techniques. It also explores examples of futures contracts, assumptions in trading, contract values, cash & carry trades, and the law of one price. The instructor explains the concept of intermediate cash flows, proportional cash flows, reinvesting strategies, and pricing models for underlying assets. Additionally, the lecture delves into the differences between forward and futures contracts, highlighting the importance of organized exchanges, standardization, liquidity, and marking to market practices.