How to make a Derivative?

http://www.amazon.com/Schaums-Outline-Calculus-Edition-Series/dp/007179…

1. Cut a hole in the box
2. Put your junk in that box
3. Make her open that box

And that's the way you do it

I'd say to check out this great piece by the Milken Institute for some guidance. I'd also check this out too. Essentially, all you need is to figure out what you're underlying security is and what kind of a contract are you betting on in relation to the underlying security. The easiest example is an equity option. An equity option is a derivative that gets its value in relation to the odds of a security reaching a certain price by a certain date in order to get executed. Most derivatives work that way (it's an extremely oversimplified explanation but it's the basic approach).

Even easier, forwards/futures. A derivative can be anything basically, this is way too vague.

WSB, I wouldn't have expected you to ask such a naive question.