Bodie, Marcus, and Kane (2011) noted that derivatives are securities that derive value from another asset, such as a stock, index, or foreign exchange . Options, futures and swaps are derivative products whose gains depend on the upward or downward movement of another asset. Derivative securities can be used by both hedgers and speculators to make profits or protect the value of an underlying asset. Through various options strategies, hedgers and speculators can guarantee the amount of gains or protect their portfolios against drastic losses. This article will discuss the different types of derivative options, futures, and swaps. It will also explain how hedgers and speculators can use each type of derivative security to their advantage as well as the benefits that come with it. Additionally, he will discuss the Black-Scholes option pricing model used by many to evaluate options. Remember that derivative products derive their value from an underlying asset. In other words, the derivatives themselves have no intrinsic value because their value is based on the value of something else. Nevertheless, derivatives can be valuable tools for investors, either to increase their profit margins or to limit their losses. Regardless of the type of derivatives used, hedgers and speculators must check their position on market developments and decide which derivative strategies will be most beneficial to their bottom line. Call options give the holder the right to purchase the underlying asset up to and including the expiration date of the option for a predetermined price (Bodie et al., 2011). They are purchased at a premium, or the price that the call option seller accepts for writing the call option (Bodie et al., 2011). Writer (saddle...... middle of paper ......ns, futures and swaps, if used appropriately, can either increase the wealth of a portfolio or insure against significant losses. Options can be priced using the Black-Scholes Pricing Model Overall, managing a portfolio requires understanding the client's needs, determining market expectations. use derivatives to grow or protect portfolio assets Works Cited Bodie, Z., Kane, A. and Marcus, AJ (2011). Chernenko, S. and Faulkender, M. (2011). Journal Of Financial & Quantitative Analysis, 46(6), 1727-1754. Economic Affairs, 33(3), 303-311 doi:10.1111/ecaf...12029