It is time for you to dismiss the “options are too risky” sentiment and truly see why quite a few investors actually trade them. Contrary to everyday opinion, options can be employed in less risky ways when used appropriately. In fact, that’s the reason why they were developed – to help reduce risk in investment portfolios.
Stock options can be adjusted to work in any situation. Options can be used anytime and anywhere. With options, you can invest in the short-term or hold to invest for the long-term. Therefore, it really does not matter if you need the capital for your child’s college tuition or for retirement.
Although, the concept of options are very similar to stocks — in that you can make money when the markets go up and lose money when the markets go down — trading options give you more opportunities to profit. That means you can make money if the stock goes down, up, or absolutely no where. With that said, investors can use the unique abilities of options to be a complimentary portion of their portfolio or the main portfolio appreciation investment vehicle.
The benefits of options:
A. Reduces Risk – By using options, you can effectively reduce your portfolio risk. Using options are one of the only ways that a retail investor can protect themselves from markets that move against them. Strategies like the Broken Wing Butterfly and Unbalanced Condor limit trading risk while giving investors a high probability of profit.
B. Leverage – You can control 100 shares of XYZ company for a minimal amount of capital as opposed to purchasing the shares outright. In the end, you benefit from adjustments in the stock prices without actually purchasing the stock.
C. Cash Flow Generation – You could create a consistent cash flow through existing owned underlying. That means, you can sell covered calls against your portfolio if you feel that the underlying will depreciate or remain stagnant.
D. Insurance – As mentioned previously, options can protect you from markets that move against you. By purchasing a “put option” for every 100 shares of the underlying stock that you own, you can effectively protect your holdings from downward moves.
E. Easy to Get Started – With an internet-enabled computer, anyone can trade options. Commission prices are much cheaper than they were 10 years ago. Most brokers even give you all the tools you need to succeed in options for FREE.
F. No More One Way Trading – That means you can trade anyway that you want. You can play the downside if you choose to. You can also play stagnant markets or place delta-neutral trades.
That is why options are not the risky speculative investments many people perceive them to be. They can be risky if you simply do not have an idea on what you are doing. However, that’s like most things in the world. Once you get past the financial lexicon through education and learning, you can use options in a much safer manner. At that point, you will have the assurance that your portfolio can be safer in any market environment moving forward.
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