Discover Option Strategies

Description
Options give the opportunity to use an investment strategy that would not be possible by investing directly in stocks.

A call option gives the holder the right to buy a share of stock at a specified price, the exercise price. A European option can be exercised only at the expiration date, whereas an American option can be exercised any time up to and including the expiration date. The value of the option at the expiration date is the value of the stock minus the exercise price, or it may be zero. It cannot be a negative value. The most important factor affecting the value of the option is the price volatility of the stock; the greater the volatility, the more valuable the option, all other things staying the same. In addition, the longer the time to the expiration date and the higher the interest rate, the greater the value of the option, all other things staying the same.

With stock and an option on the stock, it is possible to establish a riskless hedged position by buying the stock and buy writing options or selling them short. The potion's delta, or hedge ratio, determine the portion of stock held long in relation to the options in the short position. (A riskless hedge could be established also by buying options and selling the stock short.)

In efficient financial market, the rate of return on a perfectly hedged position would be the risk-free rate. If this is the case, it is possible to determine the appropriate value of the option at the beginning of the period.

Now a million dollar question!!! is the options market really helpful to maximize investors wealth ?? and the answer is yes of course.

If an investor makes correct strategies for options market, then there are 4 key advantages as follows :

> They may provide increased cost-efficiency
> They may be less risky than equities
> They have the potential to deliver higher percentage returns
> They offer a number of strategic alternatives

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The uniqueness of this presentation is to provide in-depth knowledge about Options Trading Strategies.

Happy Learning!!!