What are options?
Options are a financial instrument that provide the investor with ways to use leverage, increase an investment return, or as an insurance against loss. Options can be used to hedge against financial risk or as an aggressive leveraged instrument to increase the amount of investment return.
There are two types of options known as put options and call options. An investor can purchase (buy) an option or sell an option. In any monetary exchange a purchaser pays money for a good or service and the seller receives the money from the purchaser of the good or service.
An option gives the purchaser the choice to exercise a future action at a specific price for a specific amount of time. For this ability to exercise the option the option buyer pays money (premium) to the option seller. Option buyers must be right on the market direction of the underlying stock or index and they must be right on the timing of their option purchase as well as being able to either sell their option contract for a profit before the option contract expires or to exercise their option by purchasing the underlying asset and try to sell this asset sometime in the future for a profit. The option purchaser also has to hope that the sale price of his purchased asset exceeds the option premium he paid to the option seller when he entered his option position.
Future posts will explain the "Put" and "Call" options.
Saturday, September 19, 2009
Wednesday, December 31, 2008
WELCOME
WELCOME
As 2008 comes to a close today, another page is turned for another month and year. 2008 was not the best year for the financial health of America and the world in general to say the least.
The intent of this blog is to explain covered call options and show how covered call options can be a way to increase the yield and cash flow of owning a qualified stock and also reducing some of the Risk involved with stock ownership.
After explaining and showing examples of the covered call strategies, I will also describe selling puts. Put selling requires a margin account from your brokerage or online brokerage account. All option accounts have to be approved by the firm where you have your stock brokerage account. It is also advisable to become familiar with some of the materials and tutorials found at the Chicago Board Options Exchange. Their website is cboe.com .
Covered call options are accepted for both regular stock brokerage accounts and IRA accounts.
To me, it seems in the minds of many people, that all options are very risky and complicated. In reality, options can be used for either speculation or reducing (hedging) risk . This blog will concentrate on the option strategies that can reduce risk.
Happy New Year.
As 2008 comes to a close today, another page is turned for another month and year. 2008 was not the best year for the financial health of America and the world in general to say the least.
The intent of this blog is to explain covered call options and show how covered call options can be a way to increase the yield and cash flow of owning a qualified stock and also reducing some of the Risk involved with stock ownership.
After explaining and showing examples of the covered call strategies, I will also describe selling puts. Put selling requires a margin account from your brokerage or online brokerage account. All option accounts have to be approved by the firm where you have your stock brokerage account. It is also advisable to become familiar with some of the materials and tutorials found at the Chicago Board Options Exchange. Their website is cboe.com .
Covered call options are accepted for both regular stock brokerage accounts and IRA accounts.
To me, it seems in the minds of many people, that all options are very risky and complicated. In reality, options can be used for either speculation or reducing (hedging) risk . This blog will concentrate on the option strategies that can reduce risk.
Happy New Year.
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