I. The Basics
Why Options?
Transfer of Risk
Options can be used to transfer risk. You can use them to either reduce risk, or you can get paid for taking on another investor's risk, this is why options are such a powerful risk management tool. Later in the course we will examine some strategies that can be used to manage risk.
Protect Your Portfolio
Options can also be used to protect a portfolio from a sharp drop. We will look at different ways to use put options as well as call options to protect your portfolio. We will also discuss how to determine the level of protection that each strategy will provide, as well as the cost of this protection.
Speculate on the Direction of the Market
Speculators also love options because of the leverage they offer, this can be useful when speculating on the direction of the market. If you are using options you can get the leverage at the same time as limiting your maximum loss.
Proceed With Caution
Options are wonderful tools that can be very useful for many purposes, however they should be approached with caution. You should not start trading options until:
- You have completed the Interval Shift Self-Study Online Seminar and/or;
- You have a thorough understanding of how options work, and the risks & rewards involved with them.
We also strongly recommend you complete the Interval Shift Advanced Seminar. This course will do wonders for you, increasing your knowledge and understanding how options and options markets work. You will also learn much more about stock and index options and the unique risks of various types of options.
All examples in this course are for illustration purposes only. For simplicity commissions & taxes have been omitted from the examples in this course. Commissions & taxes will affect the profitability of options transactions, and should be considered before entering any position.
Before placing a trade you should determine the maximum risk & reward involved in the position you are planning to enter. After considering the risk / reward trade off and making sure that it matches your investment objectives,only then should you proceed with the trade.
Options involve risk and are not suitable for everyone. Prior to buying and selling options, a person should inspect a copy of Characteristics and Risks of Standardized Options. You can also obtain this brocure from The Chicago Board Options Exchange by calling 1-800-OPTIONS or by writing to the Exchange at 400 So. LaSalle Street, Chicago, IL 60605, USA. You can also download pertinent materials from the SECs', the CBOE's, and the CME's websites.
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