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Derivative Boom Or Doom?

Tuesday, 24 Apr 2007 | 9:07 PM ET

When traders speak of derivatives, they’re talking about financial instruments whose value is based, or derived from another asset like a stock or bond.

The estimated total value of derivatives grew nearly 40% last year- to $327 trillion dollars, consequently boosting the bottom line for exchanges and brokerage firms that deal them.

Some cheer the growth in derivatives as giving more ways for investors to diversify their portfolios. However, others most notably Warren Buffett, warn they may be a financial house of cards.

Sea Change
Trading in derivatives



Dylan asks the guys boom or doom?

Eric Bolling says boom. And he recommends owning the exchanges.

Guy Adami says “I’ll echo that” and say investors should consider the NYMEX (NMX).

Tim Strazzini says for him the trade is Goldman Sachs (GS) because “they do it best on the institutional side” and Merrill Lynch (MER) "because they do it best on the retail side." Tim adds there is a lot of risk, especially in the credit derivative space.

Jeff Macke adds there’s an enormous amount of risk and he says if investors have any doubt – he recommends defaulting to Goldman Sachs.

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Questions? Comments? fastmoney@cnbc.com

Trader disclosure:
On APR 24, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Strazzini Owns (JBLU), (SNDK), (T)
Bolling Owns (XOM), Gold, Silver, Corn, Natural Gas, Is Short Soybeans

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GS
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