Getting Started With Options Strategies
Options Strategies: Getting Started
Before you buy or sell options you need a strategy. Before you choose an options strategy, you need to understand how you want options to work in your portfolio. A particular strategy is successful only if it performs in a way that helps you meet your investment goals.
If you hope to increase the income that you receive from your stocks, for example, then you'll choose a different strategy from an investor who wants to lock in a purchase price for a stock he'd like to own.
One of the benefits of options is the flexibility that they offer. This flexibility allows them to complement portfolios in many different ways. As a result, it's worth taking the time to identify a goal that suits you and your financial plan. Once you've chosen a goal, then you'll have narrowed the range of strategies to use. As with any type of investment, only some of the strategies will be appropriate for your objective.
Basic Or Advanced
Some options strategies, such as writing covered calls, are relatively simple to understand and execute. There are more complicated strategies, however, such as spreads and collars, that require two opening transactions. These strategies are often used to further limit the risk associated with options, but they may also limit potential return. When you limit risk, there is usually a trade-off.
Simple options strategies are usually the way to begin investing with options. By mastering simple strategies, you'll prepare yourself for advanced options trading. In general, the more complicated options strategies are appropriate only for experienced investors.
Continued In Part Two...
View The Options Industry Council's post archive >