What are Options?

Options

Introduction

Nowadays, many investors' portfolios include investments such as mutual funds, stocks, and bonds. But the variety of securities you have at your disposal does not end there. A type of security called an option presents a world of opportunity to sophisticated investors.

The power of options lies in their versatility. They enable you to adapt or adjust your position according to any situation that arises. Options can be as speculative or as conservative as you want. This means you can do everything from protecting a position from a decline to outright betting on the movement of a market index or currency.

This versatility, however, does not come without its costs. Options are complex securities and can be extremely risky. This is why, when trading options, you'll see a disclaimer like the following:

Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.

Despite what anybody tells you, option trading involves risk, especially if you don't know what you are doing. Because of this, you should do your research and even practice with fictitious "paper" trades prior to doing any real option trades.

Not learning about options is as dangerous as jumping right in: without knowing about options you would not only forfeit having another item in your investing toolbox but also lose insight into the workings of some of the world's largest corporations. Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, most multi-nationals today use options in some form or another.

This tutorial will introduce you to the fundamentals of options and attempt to lay the groundwork for further learning. Disnat continuously hosts several expert-run seminars on options, ranging from basic knowledge to advanced strategies. These can be an excellent source of additional information and education. See our list of upcoming seminars for details or subscribe to our mailing list to receive email alerts of upcoming seminars.