YUPPIES, TRY OPTION TRADING
Young investors, if you are planning to dip your hands into investing, you may opt to trade options. Here are the following reasons why options are worth exploring for.
Enormous Upside Probability
Let’s presume a biotechnology firm is in the last stages of producing a medicine for treating the H1N1 flu virus. Its stock trades at $5 as investors are uncertain regarding the drug’s success rate. Six months after launching the H1N1 cure, its share price surged three-fold. If an investor loaded up on inexpensive call options on this stock before it reached a record high would reap a hefty profit on this option. Outsized earnings normally emerge in the stock markets.
Trading Opportunities with Minimal Capital
Young investors cannot afford to invest all their money into various ventures because they are either studying or working at one (or more) entry level jobs. Given their financial situation, option trading is a good way to start trading in the markets, limiting their potential gains or losses. For instance, Jane is bullish on the Eurodollar Options, which trades at $30. The techie investor expects it to climb to $40 over the next six months. In case the stock price increases, Jane could go long on this option.
Bolster Portfolio Yield, Collect Premiums
Young investors have all the time in the world to assume a specific level of risk. Hence, it is recommended to employ cash-secured puts, covered calls, and other conservative option writing techniques in order to boost the yield on portfolios and collate premiums.
Option writers have the best opportunity to reap success as most options expire unexercised. For instance, when using covered-call writing, one risk is the best stocks may be considered "called away." One may be burdened with stock deemed worthless. But utilizing the above-mentioned strategies, if done appropriately, may render the juiciest premiums.
Counter the Downside
Options like index helps a person hedge the risk of option trading. Of course, there is no such thing as free lunch. But the cost of hedging is similar to hedging a portfolio in the event the markets plummet.
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