Educating oneself about investments is a lifelong process for most people. Perhaps you’ve bought stocks and bonds for retirement, but you also know that to diversify is smart because–generally speaking–spreading your money around in different assets and investment vehicles is a good way to increase the overall safety of your portfolio.
You’ve probably at least heard of stock options, but chances are that stories of making huge profits very quickly scared you a bit. After all, with leverage and the chance for quick gains, one also naturally assumes heightened risk as well. What may surprise you is that if you get call and put options explained to you properly, you will understand that using options for leverage, and incurring lots of risk as you do so, is only half of the story.
Did you know that it’s possible to use options as a way to derive income from your existing stock portfolio? You also can protect paper gains in stocks that you own, with options. Selling options, also known as “writing” them, involves taking the other side of the trade from the person who is trying to make a quick buck by buying puts or calls.
You don’t hear as much about selling options as you do about buying puts and calls, probably because most people are more interested in the investment ‘home run’ than they are consistent base hits. Selling options is a great way to ‘hit for average’ to extent the baseball metaphor, as you focus on making small gains with very little attendant risk, rather than putting your entire investment on the line every time you buy a put or call.
There are many places online where you can get stock options basics explained to you thoroughly, so I won’t delve into the mechanics of selling options in this short article. Suffice it to say using options in this way is something that a lot of the “smart money” does to consistently increase portfolio profitability each year. Remember, we’re not talking about making huge profits when we are selling options. But smart investors understand that increasing returns by 3% to 5% each year for instance, makes an enormous difference in one’s net worth by the time retirement rolls around.
You owe to yourself to look into stock options, at least to become informed about opportunities beyond simply buying stocks, bonds and mutual funds. In these uncertain times you should examine all available types of investments. It would be a shame to let opportunities that exist in writing calls and puts pass you by, simply because you are unaware of them.
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A stock option is a financial instrument allowing the purchaser to acquire a given asset at a given price. Options can be purchased for various types of assets, stock being one of the most common. Thanks a lot.