OPTIONS

Options provide a great way for traders and investors to realize the gain on equity movements without purchasing the underlying securities, yet only a small fraction of people utilize them in their own portfolios. Many traders and investors instead discount them as too complex and risky, when in many cases they can provide a superior risk/reward ratio over simply purchasing the underlying equity.


 Options for the Investor

Options can provide investors with a great way to multiply profit while reducing risk in certain situations. Many tend to ignore options, however, simply because their value decays with time - a fact which seems to contradict the very principles of investing!There are, however, several instances where utilizing options instead of equity can substantially increase risk/reward over the long-term.


Options for the Trader

Options can also provide traders with an excellent way to multiply their profit while reducing their risk - and in some cases even reversing it. As an added bonus, options also take some of the emotion out of trades since there is less capital at stake and a more defined strategy.
Technical traders typically focus on either profiting from trading ranges or breakouts/breakdowns from these trading ranges. So, here are some strategies where options can be effectively used as equity substitutes in these situations:


Options can be the perfect substitute for equity in some cases, enabling traders and investors to multiply their returns and diversify their risks. They are certainly not perfect in every situation, however, and should be researched carefully before being used in practice.