This ability to make money in all types of markets is perhaps the most distinctive attribute of using options.
Options are remarkably flexible instruments. They can also be quite complex, and often appeal to those who are mathematically minded. At times the range of strategies can be overwhelming, but most popular strategies are actually relatively simple, using the leverage provided by options to increase profits or earning extra income by writing options.
Options open up a huge range of trading and hedging possibilities for traders and investors. They allow users to trade markets with a broad array of risk/reward profiles. As with CFDs and futures, option profits can be made when the market goes up or goes down. However, you can also make money if the market stays flat.
This ability to make money in all types of markets is perhaps the most distinctive attribute of using options. In addition, options have been used extensively for protecting the value of a share position or share portfolio.
Here is a quick overview of how options are used, before we go into more detail: - Speculators use options for leverage rage and to limit risk. - Holders of the underlying shares seek enhanced returns on existing positions and protection against adverse market movement through options. - Eventual buyers and sellers of the underlying shares use options to guarantee minimum buying and selling prices.
The above text is an extract from 'Trading ASX CFDs, options and warrants - the ASX way'
Trading ASX CFDs, options and warrants — the ASX way
For those investors willing to look outside the traditional domain of share trading, there is great potential for profits using CFDs, Options and Warrants. Trading ASX CFDs, Options and Warrants - the ASX way explains how these tools are priced and traded, when they should be used and how investors with different risk/reward profiles can reap their many benefits. The book covers:
CFDs - risks and benefits, cash flows and the new ASX CFDs
Options - puts and calls, index options and payoff diagrams
Warrants - including instalments, currency, knock-out and index
Exercise prices and expiry
Margins, gearing and managing risk
Options, Warrants and CFD jargon
The ASX Way books are authored by the Australian Securities Exchange (ASX) team, who have been educating new and experienced investors over many years. ASX seeks to provide readers with responsible, balanced and practical information.