Public perception has made the words “derivatives”, “stock options”, and “high risk” synonymous. Unfounded. Guest Posting This is even worse because it’s an unfortunate situation, as stock options have the potential to significantly lower your risk in your investment portfolio. It is true that exchange traded options were developed to help investors reduce their risk when acquiring or owning stock Forex Time.
RISK INVOLVED IN STOCK OWNERSHIP
Many people hold stock, in some way or another. If you’ve ever purchased stocks, you know that you put a lot of money at risk. Enron and Worldcom, once regarded as “high flyers”, were solid, well-respected companies and made good investments. If you bought such stocks in the years following early 2000, it is likely that you lost at least a significant portion, if your entire investment.
An investor in stock is at risk to lose significant amounts of money. Diversification is a good way to mitigate some of this risk. However, even the most diversified mutual fund investments were still susceptible to market losses in 2000-2002. The only way a traditional investor can safeguard his or her holdings is to divest themselves from their investments. Stock investors must therefore sell some of or their entire portfolios to minimize market risk.
Stop-loss orders may be used for positions that are losing value but cannot provide a guaranteed exit. Stocks are selected based on fundamental or technical analysis, which can be used as a tool to determine the most promising purchases. However, this method cannot prevent losses. You can lose a lot of money if don’t know what to do.
SECURE OPTIONS – REDUCING MARKET RISE
Stock options may be classified as “puts” or “calls”. Call options are standardized contracts that give the buyer 100 shares to be purchased at a “strike-price” specified on or before an expiration date.
It is possible to sell options short. If this happens, then the seller has an obligation to buy the shares. As you have an obligation to fulfill when you sell a contract of option, there is a potential for substantial risk. Risks associated with option sales can, however, be reduced to an acceptable level.
Optional control is a way for an investor, or a trader of securities to own stock without having it. Options can be used as a way to hedge stock against loss, speculate, earn recurring income or increase overall returns. It is possible to do these things without taking excessive risks.
MAKE A SAVINGS WITH CALL OPTIONS INSTEAD.
You could buy 100 shares of a stock that is trading for $30.00 per share if, in your opinion, it will soon appreciate. This trade has a $3,000 maximum risk, but your potential upside is infinite.