If the market falls, the put options increase in value as the portfolio declines. ![]() Protect portfolios – investors worried about the market outlook can offset potential portfolio losses by taking put option over the index.Options are available over more than 70 of the top shares listed on Australian exchanges. Protect share holdings – investors concerned about the near term outlook for a stock holding can protect against a share price fall by taking a put option in that stock.This is known as a covered call, or buy-write, and is one of the most commonly employed strategies by investors. Earn income from your share portfolio - Investors can generate income from their portfolio by writing call options against their stock holdings.Here are some of the reasons that investors and traders may want to trade options: However the sheer power and versatily of options does multiple the ways options can be traded for both investors and trades. Just as in every other investment choice, circumstances of the individual are important in determining the "right" options strategy. Its vitally important that users understand the risks of any particular strategy before transacting. At the other end of the risk spectrum, writers of options can face large or even theoretically infinite risk. One little understood aspect of options is that when they are used in conjunction with other investments they can lower overall market risk. Option strategies may involve a single option series, or a number of option series, both puts and calls. The risks involved in using options depends on the strategy employed. ![]() The writer receives a payment, known as a premium, for granting the taker this right. The writer of a share option must buy the underlying shares, at the specified price, if the taker decides to exercise their option (to sell). What are put options?Ī put option gives the taker the right, without obligation, to sell a specified trading instrument at a specified price, on or before a specified date. The writer of a share option must deliver the underlying shares, at the specified price, if the taker decides to exercise their option (to buy). Although there is a huge variety of options, they all involve a seller of an option (the writer) granting certain rights to the buyer of an option (the taker) in return for a payment (the premium).Ī call option gives the taker the right, without obligation, to buy a specified trading instrument at a specified price, on or before a specified date. The mathematics underlying options is complex, but anyone who can add, subtract and calculate a percentage return can harness the power of options to increase overall market returns.Īn option is an agreement between two parties. ![]() Others act as market-makers, optimising profits by facilitating investors’ option trading. Some are attracted to the one-sided and limited risk of buying options. ![]() Traders use options in a huge variety of ways. Some investors are surprised to learn that when options are used alongside other investments they can reduce overall market risk. They can increase leverage, provide income, and modify market risks. Options are powerful financial tools utilised by investors and traders.
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