OPTIONS can offer numerous opportunities to private investors. The amount of risk associated with any options trade can be tailored to suit the investor's circumstances.
The greater the investor's understanding of traded options, the greater the chance of trading profitably. Good educational material is available from better book shops. Lists of other reading materials and information on private investor seminars are available from the Equity Products Department, Liffe, Cannon Bridge, London EC4R 3XX, and Wise Speke, the stockbrokers, can also provide investors with information on traded option strategies, along with a sample of its research.
Before entering into any trade, an investor must have a clear idea of what he is hoping to achieve, whether the options are being used for speculation, hedging against loss or for portfolio enhancement.
The trading plan, once devised, should be followed strictly. Included in the trading plan should be the market or share expectations, at what level to take a profit and at what level to place a stop-loss. With a maximum life of nine months, traded options are a wasting asset - so if a position starts to move against you, it is often better to close out the position and accept a small loss.
Newcomers to the options market should first conduct a number of ghost or dummy trades before putting money into the derivatives market. This will allow investors to gain a "feel" for the market and the validity of their …