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Derivatives are financial instruments that derive their value from other assets. Options are derivatives purchased alongside stocks to coordinate risk management strategy. Put options are associated with fail-safe trading positions. Call options permit investors to buy shares at a particular price. Meanwhile, put options lock in selling prices for stocks. Back your investments with puts to ensure adequate returns for your position. Individual options contracts carry pricing rights over 100 shares of stock. Therefore, you will buy one contract for each 100 shares of a particular stock. Put options are differentiated by their strike prices and expiration dates. The strike price is the sales price that you receive, shall you choose to accept terms, or exercise the option. Exercise puts when the stock's market value drops significantly below the strike price. You pay premiums to buy puts. Multiply option quotes times 100 for the price of each contract. Puts with lengthier expiration dates and high strike prices are more expensive. Options differ from futures contracts. Futures enforce price acceptance, or settlement at expiration. Options grant the choice to exercise. Stocks can fall before making large advances. In such cases you would lose out on future gains were you to exercise puts amid the decline.Identification
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Comments
Sorry but as a long time options trader and corporate hedger, telling someone with none or little options experience to use options is like giving a baby a loaded gun. Buying puts is no different than writing puts if left to the novice. A volatility spike will cause him to buy the options when they are cranked instead of selling them because th enovice will get scared on his losing stock position and THEN buy the Puts. He will ultimately lose on both sides of the position.
The closest thing to a fail safe method is to give your money to someone who has proven, via a certified track record, that he can win thru a "full" business cycle. Everything else imo is BS or shoulda, woulda, coulda.
by The BoomHound on March 19th, 2010