Who should choose Options?
Many investors’ portfolios include investments such as unit trusts, shares and bonds. However the variety of securities at your disposal does not end there. Options, for example, present a world of opportunity to the more sophisticated investor.
The attraction of Options lies in their versatility, in that they allow the investor to adapt or adjust their position according to any situation that arises. Investing in Options allows the investor to be as speculative or as conservative as they wish. This means the investor can do everything from protecting their position by way of a decline to an outright gamble on the movement of a market or index.
Are Options a Complex Security?
However, this flexibility comes with a cost. Most people find Options a complex security, one that can be extremely risky.
When trading options you’ll often find a disclaimer, such as:
Trading in Options involve risks. They are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.
It is clear that option trading involves risk, especially if you don’t know what you are doing. Because of this, many Advisers suggest you keep clear of options, perhaps even forget their very existence.
However, being ignorant of any type of investment may leave the modern investor in a weak position.
If the speculative nature of options doesn’t fit your style, the situation is… opt to not speculate in them.
Nevertheless, the modern investor ought to understand them. Not learning how options function is as dangerous as jumping right in Without this knowledge you would not only forfeit having another item in your investing toolbox but also lose insight into the workings of some of the world’s largest corporations.
Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, today most multi-national companies use options in some form or another.
That which follows will introduce you to the fundamentals of options. Bear in mind that most options traders have many years of experience, so don’t expect to become an expert immediately.
DS Options Basics
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