So why does people like options?
- Leverage: High risk-tolerance investors like options, because options provide ample opportunity to use relatively modest sums of money to leverage sizable positions.
- Portfolio protection: One of the most common option strategy used by portfolio manager is Protective Put, which can help to protect against downward pressure on stock owned in a portfolio. (See Options Strategy for details.)
- Additional Income: Perhaps you don't know, you can generate additional income from stocks already owned in your portfolio by Covered Call options strategy. If you are planning to hold the stock for long-term for its upside potential, it's a great way to generate addtional cash flow without added cost. (See Options Strategy for details.)
Risk Management for Options:
As you might hear already: options involve risk and are not suitable for everyone. So risk management is your priority before engaging in the options trading.
- Trade options with the money you can afford to lose.
- Trade no more than 5% options within your total portfolio.
- Limit your loss by setting up your stop-loss limit before you make the trade,