Put option allows protection against declining prices stock portfolio, they can be considered an insurance policy against price drops and call option allows hedging portfolio even if their case efficiency of operations is limited. The ability to trade options, entering and leaving the position without had no intention of exercising makes these products very attractive for speculators. If you expect the stock price to rise, you can decide to purchase call options, and if you expect a decrease buy put options.
Leverage (immobilization of smaller amounts, such as warranties or premiums, compared with the transaction value) allows an individual to get a big payoff from a smaller initial investment than the traditional investments. However it should be noted that the leverage involves a higher risk than direct investment in quoted shares. Options trading offers the possibility to benefit from price movements of a stock without paying its full price. Among the major advantages of trading options contracts we mention: risk management, speculation, leverage, diversification, versatility and cost, reduced trading.
Purchasing options can build a diverse portfolio; the risks can be varied and thus will be more efficient portfolio management. Whatever the evolution of prices, options can help achieve trading objectives and risk management. Thus, an investor can build market positions matching options its risk and return preferences.
The customer can take advantage of changing market volatility, the time to maturity or changing other factors specific options. As in the case of futures contracts, the fees charged are reduced.
Buyers of options to enjoy some additional benefits:
- No obligation: options give the buyer the right, but not the obligation, to buy or sell the underlying futures contract.
- Limited risk to buyers: Once purchased option, buyer risk is strictly limited to the initial amount paid option to purchase (receipt). Maximum loss that can record it right first.
- No margin payment: must be remembered that if options transactions only vendors are required to submit margins in the transaction. Buyers of options must submit to initiating the transaction and deposit the full amount of the first margin from the exercise of the option.