Traded options: getting started

Article Abstract:

Private investors can use options safely if they are accorded respect. Traded options can be sold and purchased freely. Their life span is limited and could be nine months for equity options from Liffe. Their price is both dependent on the time factors and their intrinsic value. The time value is high when the price of the underlying share tends to be volatile. Share prices have less time in which to change as the expiry date nears, so the time value is eroded.

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Fitting options into the broader picture

Article Abstract:

Investors should bear in mind their wider needs when investing in options. They should assess their comfort levels in both psychological and financial terms. Portfolio insurance is one safe usage of options. Options can also allow investors to gain exposure to stock in the expectation of a price movement, without having to spend as much as if they actually purchased the stock. They should ensure that they purchase the appropriate option in terms expiry date.

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Pick a strategy to suit your risk profile

Article Abstract:

Investors can select an appropriate strategy for investing in options. Options are flexible, giving investors a wide range of approaches. Naked writing is a risky practice and may involve selling call options on stock that is not owned. Private investors should avoid naked writing unless they are content to buy the stock. Some options on futures are highly volatile and again should be avoided, but this is not the case with all such options.

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