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You buy or trade stocks bonds and mutual funds Some investors use options on stocks or cash indexes to protect and insure the value of their portfolios A major advantage of options is their flexibility You can protect stock holdings from a decline in market price You can increase income against current stock holding You can prepare to buy a stock at a lower price You can position yourself for a big market move even when you don t know which way prices will move You can benefit from a stock price rise without incurring the cost of buying the stock outright Stock options work much like stocks options can be used to take a position on the market in an effort to capitalize on an upward or downward market move Unlike stocks however options can provide an investor the benefits of leverage over a position in an individual stock or basket of stocks reflecting the broad market At the same time options buyers also can take advantage of predetermined limited risk On the other hand options writers assume significant risk if they do not hedge their positions The most basic stock options are buying calls and buying puts An option is the right but not the obligation to buy or sell a stock or other security for a specified price on or before a specific date A call is the right to buy the stock while a put is the right to sell the stock The person who purchases an option whether it is a put or a call is the option buyer the person who originally sells the put or call is the option seller Options are contracts in which the terms of the contract are standardized and give the buyer the right but not the obligation to buy or sell a particular asset at a fixed price the strike
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