Options can offer an investor / trader the flexibility one needs
for countless investment situations.
An investor can create hedging position or / an entirely
speculative one, through various strategies that reflect his tolerance for
risk.
Investors / traders of equity stock options will enjoy more
leverage than their counterparts who invest in the underlying stock market
itself in form of greater exposure by paying a small amount as premium.
Investors can also use options in specific stocks to hedge their
holding positions in the underlying (that is long in the stock itself), by
buying a Protective Put.
Thus they will insure their portfolio of equity stocks by paying
premium. Employees stock options(ESOPs) have become a popular compensation tool
with more & more companies offering the same to their employees.
ESOPs are
subject to lock in periods, which could reduce capital gains in falling markets
- Derivatives (F and O) can help arrest that loss.
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