This module covers derivatives and various investments that use derivatives. The mechanics and uses of options and futures, hedging, managed futures, hedge funds (including hedge fund strategies), and the various types of private equity are covered. Also addressed are structured products including principal protected products like market-linked CDs and contingent convertible bonds (CoCos).

7–1 Explain terminology, characteristics, risks, concepts, and strategies for the use and valuation of various types of option investments.
7–2 Evaluate the effective use of options as speculative investments and as hedging instruments.
7–3 Explain terminology, characteristics, risks, concepts, and strategies for the use of commodity futures.
7–4 Describe characteristics of hedge funds, including the latest regulatory requirements.
7–5 Explain hedge fund costs and fees, and distinguish between the main categories of hedge fund strategies.
7–6 Explain the four major private equity strategies.
7–7 Explain the general characteristics and mechanics of structured products.
7–8 Explain the payoff scenarios of a principal-protected structured product.
7–9 Understand the benefits, risks, and regulatory concerns of principal-protected structured products.
7–10 Describe the mechanics, benefits, risks, and suitability of market-linked CDs and contingent convertible bonds.

Author: Jim Pasztor, MS, CFP®

Jim Pasztor, vice president of Academic Affairs at the College for Financial Planning is also involved with several of the College’s investment courses and the white paper series. He is a CFPM® practitioner, and has an MS degree in personal financial planning and an MSF degree in financial analysis, both from the College for Financial Planning. Jim was the recipient of the Edward D. Baker III Journal Award from IMCA in 2014 for his article Endogenous Risk and Dangers to Market Stability. You can reach Jim at jim.pasztor@cffp.edu.

Complexity Level: Advanced