Strategy – Options
Share options are a powerful instrument within the financial markets. Options can be used for leveraging, giving the trader quick and huge gains, but can also be used as a hedging tool, managing risks. It is possible to use options in a number of market strategies. For such, basic options are always used – ‘Call’ and ‘Put’ – and dozens of combinations can be made with them, buying or selling options and allowing the trader to take positions according to his strategy.
Among the dozens of possible strategies (about 120 different approaches), one can bet in a market hike, a downfall, an unchanged market, protect positions against floats, making money from a volatile market or simply making profits, no matter what happens. One can also leveraging and buy options in “dry”, which means he expects the market to go up. If he proves to be right, profits can be maximized.
On the other hand, dealing with options require a profound market knowledge, as they are powerful but sometimes disasterous derivatives, in which one can not only lose all invested capital, but even more money. Not rarely investors accumulate uncountable losses with options. Not only investors, but companies, like Aracruz Celulose in the past. Because of those risks, the investor must be acquainted with the market and be sure about his moves.
The most common strategies for share options are: