As an investor, you’ve probably heard about options trading from here, there and everywhere, maybe you even have or thought about giving it a go yourself. Options can be complicated, but armed with the knowledge, you can help protect, grow and diversify your portfolio in all market conditions with the same strategies as the experts. The ASX has put together some great information to help your understand what we’re on about, read on.
(P.S. don’t forget to keep an eye out for the exclusive VectorVest Options Training in the next few months- a must attend event for anyone reading this!)
What are options?
Options sound complicated but they don’t have to be. Essentially, options are contracts between two parties, giving the buyer the right – but not an obligation – to buy or sell an underlying security at a predetermined price at a particular time in the future.
They allow you to ‘lock in’ a future buy or sell price for a share, allowing investors price certainty – the price you agree at the outset won’t change.
Options can help you to:
Mitigate Risk (in a falling market) | Enhance Profit (in a rising market) | Generate Income (in a flat market)
Options give you options
There are a number of ways to use options in your portfolio to protect, grow or diversify.
As with most investments, options carry both benefits and risks. Options trading can be an effective way of generating wealth, whether as part of a wider investment strategy or as a standalone technique. However, options do carry risks. In particular, when writing options you can open yourself up to the risk of potentially unlimited losses. Read more about the benefits and risks of investing in options.
With around 26 strategies, ranging from Puts and Calls to more advanced Condor, Butterfly and Split Strike, options can provide a level of certainty regardless of how the market performs.
• Bullish strategies: These work best in rising markets
• Neutral strategies: These work best in flat markets
• Bearish strategies: These work best in declining markets
Options can be used in all market environments. Learn more about these strategies.
You can write options over single shares, or over an index:
• Equity options: Equity options are issued over shares in individual companies allowing you to trade based on your view of that company’s likely share performance. ASX offers options over 71 individual shares traded on ASX.
• Index options: Index options give you exposure to a whole market index, such as the S&P/ASX 200. They offer similar benefits to options traded over shares in individual companies with the added benefit that they offer exposure to the broad range of securities that make up an index.
Read more about equity and index options, as well as a more specialized type of option called a low exercise price options.
Want more information?
Head to the ASX Website at http://www.asx.com.au/products/equity-options.htm or keep your eyes peeled for the VectorVest Australia Options Traning!