Hi, Phil.

PL> Could someone please tell me the difference if any between these three
PL> market areas (or are they one). a. Options
PL>                          b. Futures
PL>                          c. Derivitives

I'll see what I can do. :-)

The first 2 instruments you mention are just types of derivatives. A
derivative is generally regarded as a financial instrument which is
derived from an underlying physical instrument. Shares, for example,
are fundamental, or "physical". They represent the ownership of a
portion of the assets of a company and its future cash flows.

(Some analysts would see it as a little more complex than that, such as
Black and Scholes in their seminal paper, "The Pricing of Options and
Corporate Liabilities", but that's getting into pretty esoteric stuff.)

An option is the right (if you're the buyer) but not the obligation
(unless you're the seller) to buy (a call option) or sell (a put option)
the underlying "physical" security at an agreed price, at (European
style) or up until (American style) a certain date.

A futures contract is an agreement to pay or receive a certain price for
the underlying security at some (future, obviously) point in time.

Of course, the underlying security may not be "physical" in the strict
sense - you can have options or futures contracts for example on the
share price index, which is certainly not (well, not easily :-))
deliverable - these contracts are known as "cash settled".

PL> I am studing the sharemarket scene at the moment and have not been able to
PL> find a diffinitive definition for these three terms.
PL> Allhelp would be greatfully accepted.

I may have been a little cryptic in trying to keep this message brief,
you can spend years studying this stuff (and I have :-() - please ask if
you want me to expand on any of this.

Regards, FIM.

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