Where to find info about using options to reduce exposure?

Discussion in 'Options' started by crgarcia, Nov 2, 2009.

  1. One usually finds info about using options to increase leverage.

    Where to find info about using options to reduce exposure?
  2. Not exactly sure what you mean by reducing exposure.
    If you mean hedging your equity position, then things like Long Puts come in to play (example: Long stock, long Put or short stock, long call) or perhaps something like a collar.
    The leveraging power of a long term option can also reduce your exposure versus holding the underlying stock since you can participate in the movement of the underlying while only having to put up a fraction of the cost of the stock.
  3. Using options to increase leverage is NOT the best use of options. You see that type of information from people who like to scam others into taking costly lessons etc.

    Options are designed to reduce risk. Take a look at my blog for many posts on various aspects of options trading.

    There are free lessons at OIC (http://www.optionseducation.org) and the CBOE (http://www.cboe.com/LearnCenter/default.aspx)

    If you are someone who prefers to learn from a book, this was written by me - with you in mind: conservative approach for rookies: "Rookie's Guide to Options"

    Best of luck

  4. If you buy a stock, for say $100, you have $100 at risk.

    If you buy it's call option for say, $5, you only have $5 at risk.

    This is what I mean by reducing exposure.
  5. wayneL


    You limit risk to $5

    But you exchange one sort of risk for another, measured by the Greeks.
  6. Tom1am


    How about buying a put

    Buy Stock xyz at 50$

    Buy xyz Dec 45 put for $1.50

    Risk is reduced from 50$ to 6.50$ until expiry

    upside ??

    stock does not expire

    $5 call may change due to other factors than direction, volatility, theta, and then slippage.

    CBOE.com is a good source

    Investopedia has some good articles

    Good luck

  7. Buying that put is no different from buying the Dec 45 call and forgetting about buying stock.

    much simpler.

  8. They're not comparable. With stock you can vote and it never expires. If the stock hardly moves, you take a small loss every time the option expires worthless. Having the right to own a share at a certain price is not the same as owning the stock.
  9. Any book (or web site) that explains the risk and reward of each option strategy will do the trick.
    #10     Nov 4, 2009