Using the stock market as a method of making money or simply as a long-term investment tool can be quite the risky endeavour but ultimately it could be a rewarding one too. This is particularly true when you make use of derivatives, especially using options trading strategies as an investment vehicle. The stock market can be a complicated place, especially if you don t possess the knowledge of how to use it to your webfolio benefit.
The first step to conquering the derivative market is to understand the strategies associated with each spate investment vehicle and also know how they relate to each other. It would also be to your benefit to tick off the basic understanding of each vehicle. This will require you to understand the lingo, the jargon. It may sound silly, but understanding the concepts is a step closer to understanding the strategies you will have to employ later in your trading activities.
When the option market is in a bullish position it means that prices are on an upward incline and that things are looking positive. This is also caused by positive announcements from various companies that signal growth to investors, as such more people are investing in the global market. When it stays in a neutral position it means that it is neither quite bearish nor quite bullish, there are upward and downward movements occurring. The truth is markets are never completely bullish or bearish, but display a mixture of both to some degree. What tells you which is the more prominent are the various trends in different areas of the market.
The first strategy you need to know is linked to forwards, this strategy is will help you mitigate the risk of a currency position. Currency trading has become a massive phenomenon amongst traders at is one of the most volatile areas in the market. Using forward contracts, which are essentially agreements between two parties to buy or sell a particular asset, in this case currency at a specified date and a pre-specified price. This means if you speculate your asset to drop in price but still want to hold it for a little longer to see how it performs you can purchase a forward contract to ensure you don t lose more than its current value.
The first strategy is called the covered call, here you as the investor will purchase your underlying asset (there are a number of investment assets that you can buy), and at the same time sell a call option on the same asset. The thing to remember is that the quantity of assets you own should equate the quantity of the assets underlying the option. This is a great strategy to use when you hold a short position and are looking to make more profit or to hedge against a possible decline the value of your underlying asset.
These are the strategies you may want to execute during a bullish market condition: Covered Straddle, The Collar, Covered Calls, Naked Puts, Bull Calendar Spread, Call Back Spread, Bull Call Spread. These strategies will help you to exploit the upward moving trend of the market to protect yourself against risk while taking full advantage of the possible profits to be made.
There you have it, three different strategies you can use to increase market returns and hedge your investment against risk. If there were any terms that you couldn t quite understand then it may be best to keep on researching before delving into the derivatives market.
The key to finding success in the option market usually is knowing how to apply the different strategies available to you, by understanding what the market will do and how these conditions can best serve you and your investment.
The first step to conquering the derivative market is to understand the strategies associated with each spate investment vehicle and also know how they relate to each other. It would also be to your benefit to tick off the basic understanding of each vehicle. This will require you to understand the lingo, the jargon. It may sound silly, but understanding the concepts is a step closer to understanding the strategies you will have to employ later in your trading activities.
When the option market is in a bullish position it means that prices are on an upward incline and that things are looking positive. This is also caused by positive announcements from various companies that signal growth to investors, as such more people are investing in the global market. When it stays in a neutral position it means that it is neither quite bearish nor quite bullish, there are upward and downward movements occurring. The truth is markets are never completely bullish or bearish, but display a mixture of both to some degree. What tells you which is the more prominent are the various trends in different areas of the market.
The first strategy you need to know is linked to forwards, this strategy is will help you mitigate the risk of a currency position. Currency trading has become a massive phenomenon amongst traders at is one of the most volatile areas in the market. Using forward contracts, which are essentially agreements between two parties to buy or sell a particular asset, in this case currency at a specified date and a pre-specified price. This means if you speculate your asset to drop in price but still want to hold it for a little longer to see how it performs you can purchase a forward contract to ensure you don t lose more than its current value.
The first strategy is called the covered call, here you as the investor will purchase your underlying asset (there are a number of investment assets that you can buy), and at the same time sell a call option on the same asset. The thing to remember is that the quantity of assets you own should equate the quantity of the assets underlying the option. This is a great strategy to use when you hold a short position and are looking to make more profit or to hedge against a possible decline the value of your underlying asset.
These are the strategies you may want to execute during a bullish market condition: Covered Straddle, The Collar, Covered Calls, Naked Puts, Bull Calendar Spread, Call Back Spread, Bull Call Spread. These strategies will help you to exploit the upward moving trend of the market to protect yourself against risk while taking full advantage of the possible profits to be made.
There you have it, three different strategies you can use to increase market returns and hedge your investment against risk. If there were any terms that you couldn t quite understand then it may be best to keep on researching before delving into the derivatives market.
The key to finding success in the option market usually is knowing how to apply the different strategies available to you, by understanding what the market will do and how these conditions can best serve you and your investment.
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