Why Options Are No Longer An Option

Options trading: for years it’s been seen as the black sheep of investing. Too complex, too risky and too confusing for average investors to use. And, it’s not surprising this misperception has existed for so long. Even young children can recite the mantra, “Buy low, sell high.” With that in mind, buying when stock prices are high and selling when they are low seems counter to the most basic investing principle. Yet this is often precisely what is required to insure a portfolio against wealth destruction.

Despite what many believe, options were introduced to the market as a way to hedge risk. In today’s investing environment, by choosing to trade options, in conjunction with stocks, investors are able to tailor their investment preferences appropriate to their risk tolerance and reward objectives. In laymen’s terms, investors are able to retain control over their finances and gain the flexibility needed to profitably buy and sell during all types of market trend because options can act as protection in down markets and as a hedge in up markets, augmenting chances of success. Unlike traditional stock investing where investors only benefit financially when stocks increase in value, options trading provides investors with the opportunity to increase portfolio value even if stock prices drop – a valuable benefit in down markets, such as the 2007-9 bear market.

Over the past decade, as investors struggled to squeeze out gains in the major indices like the S&P 500 and Dow Jones, growth in options trading steadily increased. The bottom line is simple: trading options in conjunction with stocks offers protection and hedging which can better insure portfolio value than directional stock investing during bear markets and stock market corrections. The growth and popularity of options validates the increased value of options. In 2000, there were five options exchanges and today there are nine. During that same time period, options trading volume has increased exponentially. In 2000, there were 726 million contracts. A decade later, that number exploded to 3.6 billion.

Regardless, the vast majority of individual investors remain skeptical of options, but why? Mainly, because there’s a lack of education. When described as colloquially as possible, the language and strategies of options trading are daunting, leaving no wonder why individuals have shied away from it in the past. But considering the widespread financial losses of the prior two bear markets, investors cannot afford to remain singularly-focused on the market indices. With the various software programs, webinars and training programs at the touch of the key, retail investors can easily teach themselves how to use options, protect their stock portfolios and generate income from existing stock holdings. As a result they discover how to manage risk and regain control of their finances, becoming empowered and able to protect their wealth during every market cycle. And to those investors, options no longer seem intimidating and perilous.

Trading options is like riding a bike. Without the proper training and practice, it’s dangerous. But, with the right skills, it can seem as natural and effortless as a Sunday afternoon bike ride.

Gareth Feighery is CEO and Co-Founder of MarketTamer, a stocks and options education company. Feighery has an MBA from the Wharton School at the University of Pennsylvania


Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.