Hayman Private Equity on the Major Types of Derivatives

Fri, 09 Sep 2011 00:22:33 +0100

A highly visible figure in the financial landscape of the Boston area, Hayman Private Equity is a financial services provider that specializes in areas such as bridge funding and sector investments, business services, and mezzanine investing. Throughout the history of the company, Hayman Private Equity has acquired a wealth of experience in a variety of securities markets. In addition to traditional securities such as debt and equity securities, financial services providers often maintain an active role in the derivatives market. Defined as investments that take their value from one or more underlying assets, derivatives typically fall into one of three major contract types: futures, options, or swaps.

Futures: One of the most common derivative types, a future is a financial contract that requires a buyer to purchase an asset at a future date and price. Futures differ from options in that options grant buyers the ability to purchase or sell the asset at the point of expiration, while a future requires holders to fulfill the terms at the expiration date. The party agreeing to sell the asset at a later date is often referred to as “short,” while the party agreeing to buy the contract at a later date is considered “long.” Perhaps the most common usage of a futures contract is the short sell, which permits investors to bet against the performance of a stock by selling high and buying low.

Options: Unlike futures, which mandate the sale of an asset at a predetermined date and price, options enable the buyer to choose whether to sell or not. After the date of expiration, the initial seller must buy back the asset if prompted by the buyer. A “put option” refers to an agreement that bestows the right to sell an asset, while a “call option” confers the right to buy an asset.

Swaps: A swap refers to a contract whereby two parties agree to exchange financial instruments such as bonds, cash flows, equity, and credit defaults. Swap agreements are highly variable and require an in-depth description of the dates of exchange and the manner in which they are calculated. In many cases, parties choose to engage in swaps to hedge against perceived risk such as interest rates or credit defaults.

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Hayman Private Equity on the Major Types of Derivatives