Everyone has options. If you order a pizza at a restaurant, you have a choice (option) of toppings. If you buy a new car, there are always optional extras. Anyone who receives an option has the right, but not the obligation to exercise it.
A financial stock option contract gives an investor the right to buy or sell a stock at a specified price within a specified time period.
The Truth About Options
Fact 1: Options are excellent tools for risk mitigation and/or hedging against large losses.
Fact 2: Options can be used to enhance yield and/or to generate income. A yield enhancement strategy does not need to be high-risk.
Fact 3: Options can be used for tax planning purposes.
Fact 4: Option contracts should only be traded by licensed option traders.
Myths 1: Options are used for speculative purposes only.
Myth 2: Only the very wealthy should engage in option strategies.
Myth 3: Exchange traded option contracts are too complex for the average investor.
The So-Called Knock On Options
Unfortunately, many financial advisors and wealth managers are not licensed to trade options nor to provide clients with information in this area. Many dismiss options as speculative financial instruments out of blissful ignorance.
