A type of security called an Option is an alternative to stocks and bonds.
The power of options lies in their versatility. They enable you to adapt or adjust your position according to any situation that arises. Options can be as speculative or as conservative as you want. This means you can do everything from protecting a position from a decline to outright betting on the movement of a market or index.
Options are complex securities and can be risky, however, being ignorant of any type of investment places you in a weak position.
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
Puts give the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the Option expires.
Calls give the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the Option expires.
At the risk of repeating ourselves, it's important to note that Options trading is not for everyone. You can invest in the Options market in a number of different ways, but before taking the plunge, you must be sure of the amount of risk you're willing to take. Avic Management offer Managed Accounts which allows our clients access to Options trading.
Risk Warning: Trading in financial products always involves a risk. As a general rule, you should therefore only trade in financial products if you understand the products and the risks associated with them.