The Benefit of Options - Strategies to Profit From Any Market
If you know anything about the stock market, you know that the only thing that doesn't change is that there is always change! Bull markets can turn into Bear markets in the space of a few days, or even a few hours.
Trends can vary depending on your perspective, short, medium, or long term.
What appears to be good value can change in an instant, on hearsay, or on the whisper of unrelated news.
Fortunes can be made and lost in weeks or even days.
It has been that way since the first stock offering, and I do not see any change coming, as speculators and gamblers (really, the same thing) will always be looking for an opportunity to profit from potential swings in stock prices.
Some participants in the markets understand options; after all, they have been around since the early seventies, and have been the subject of much study and calculation.
Options are used to insure stock positions, or to profit from times when the Bear is raging.
Some use credit spreads to generate income to augment dividend income, or when there is little prospect of dividends from their portfolio.
In fact, as you will no doubt discover, Options have benefits that promote profit, no matter if the Bulls or the Bears are in charge of the markets.
At the basic level, there are 4 benefits 1.
More strategic Advantages The use of Options permits investors to mimic stock positions, short or long, and the margin requirements by brokers is significantly less (usually) with options.
And no broker will require margin if you are buying a Call or a Put.
You can also trade in volatility and time, not just in price.
2.
Options mean less risk With less money invested in the stock, there is less at risk.
As with shares, you can place "stops" to limit your potential loss.
Options are used to reduce the risk of losses on your portfolio, as insurance against potential falls in value.
3.
Options mean higher percentage returns If an in-the-money Call costs much less than the stock, and you get similar returns, you don't need a calculator to work out that you get a much better return on your money with options.
4.
Options are more Cost Effective The leverage that can be obtained using Options means that for a fraction of the cost of the underlying shares, an investor gains exposure to the market, and can benefit from changes in the value of the stocks.
For example, if an investor thinks IBM is going to rise in value from the price of $100 to by 100 shares would cost $10,000.
An option contract at the strike price of $100 would be around 10% of that cost, say $1,000, depending on the expiry.
To summarise, Options can be used in many ways to allow investors to profit, to insure, and to minimize the effects of volatile markets.
Trends can vary depending on your perspective, short, medium, or long term.
What appears to be good value can change in an instant, on hearsay, or on the whisper of unrelated news.
Fortunes can be made and lost in weeks or even days.
It has been that way since the first stock offering, and I do not see any change coming, as speculators and gamblers (really, the same thing) will always be looking for an opportunity to profit from potential swings in stock prices.
Some participants in the markets understand options; after all, they have been around since the early seventies, and have been the subject of much study and calculation.
Options are used to insure stock positions, or to profit from times when the Bear is raging.
Some use credit spreads to generate income to augment dividend income, or when there is little prospect of dividends from their portfolio.
In fact, as you will no doubt discover, Options have benefits that promote profit, no matter if the Bulls or the Bears are in charge of the markets.
At the basic level, there are 4 benefits 1.
More strategic Advantages The use of Options permits investors to mimic stock positions, short or long, and the margin requirements by brokers is significantly less (usually) with options.
And no broker will require margin if you are buying a Call or a Put.
You can also trade in volatility and time, not just in price.
2.
Options mean less risk With less money invested in the stock, there is less at risk.
As with shares, you can place "stops" to limit your potential loss.
Options are used to reduce the risk of losses on your portfolio, as insurance against potential falls in value.
3.
Options mean higher percentage returns If an in-the-money Call costs much less than the stock, and you get similar returns, you don't need a calculator to work out that you get a much better return on your money with options.
4.
Options are more Cost Effective The leverage that can be obtained using Options means that for a fraction of the cost of the underlying shares, an investor gains exposure to the market, and can benefit from changes in the value of the stocks.
For example, if an investor thinks IBM is going to rise in value from the price of $100 to by 100 shares would cost $10,000.
An option contract at the strike price of $100 would be around 10% of that cost, say $1,000, depending on the expiry.
To summarise, Options can be used in many ways to allow investors to profit, to insure, and to minimize the effects of volatile markets.