The public has come to believe that “stock-option”, “derivative” and “highrisk” are synonymous. A common misnomer exists. Guest Posting This is unfortunate because stock options can reduce the risk of investment. It was designed to help reduce risk associated with ownership of stocks or stock acquisition, go here.


Stocks of all kinds are common. Stock purchases may be risky. Enron or Worldcom once were considered to be solid, reliable and safe investments. By early 2000 you were likely to have lost most if not the entire amount of money that you had invested.

Stockholders face a constant threat of capital losses. Diversification might help lower the risk but, in 2000-2002, diversifying mutual fund investments was not enough. The only way for an investor to safeguard his or her portfolio is by selling traditional stocks. In order to minimize market risks, an investor must sell part of or her entire portfolio.

While stop loss orders allow for the exact closure of positions, they are not always used. Although technical and financial analysis can be used to determine the most profitable stocks, they do not eliminate all losses. You can lose a lot of money if the stock market does not teach you how to minimize losses.

Alternative strategies for reducing market risks

There are two main categories of stock options: “puts” and “calls”. Option (or call) is a standard contract that allows the buyer to buy 100 shares in a particular “strike” date or expiration.

Options for short term can be purchased. Sellers of options will be forced to purchase the stock of their company. If you choose to sell an options contract, you could be taking on a considerable amount of financial risk. There is a risk involved in these sales, but the level can be maintained at a reasonable amount.

Options are a way for an investor to gain control of a security without actually becoming its owner. Options are used to hedge against stock losses, to speculate on the market, to create recurring income or to boost the return of stock. It is possible to do this all without taking any risks.


As an example, if a share costs $30.00 and you believe that the investment’s value will rise, you may purchase 100 at $3,000.00. A trade can have a maximum risk of $3,000. You have an unlimited upside.

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