Editing Derivatives (section)

== <span style="color: #FFFFFF;">Applying</span> ==
'''Modeling 'Option Payoff' (Call vs. Put):'''
<syntaxhighlight lang="python">
def calculate_option_profit(strike_price, final_price, premium, option_type):
    """
    Shows how much you make (or lose) on an option.
    """
    if option_type == "Call":
        # Profit = Max(0, Price - Strike) - Cost
        raw_payoff = max(0, final_price - strike_price)
    else: # Put
        # Profit = Max(0, Strike - Price) - Cost
        raw_payoff = max(0, strike_price - final_price)
        
    return raw_payoff - premium

# Scenario: Buy a Call on Apple at $150. Pay $5 premium.
# Stock goes to $170.
print(f"Profit if Stock=$170: ${calculate_option_profit(150, 170, 5, 'Call')}")
# Stock goes to $140.
print(f"Profit if Stock=$140: ${calculate_option_profit(150, 140, 5, 'Call')}")
# Note: You only lose the premium ($5), not the whole stock price.
</syntaxhighlight>

; Derivative Landmarks
: '''The Tulip Mania (1630s)''' → The first recorded use of "Future" contracts for tulip bulbs, which led to a famous economic bubble.
: '''Long-Term Capital Management (1998)''' → A hedge fund that nearly collapsed the global economy because its derivative models failed to predict a Russian debt crisis.
: '''Credit Default Swaps (CDS)''' → Derivatives that acted as "Insurance on Bonds." During the 2008 crisis, these became "toxic" when the companies that sold the insurance (like AIG) couldn't pay.
: '''VIX (The Fear Index)''' → A derivative that tracks the "Volatility" of the market; when investors are scared, the VIX goes up.
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